Revisiting the Costs of Developing New Subsidized Housing: The Relative Import of Construction Wage Standards and Nonprofit Development

Abstract

Author(s): Littlehale, Scott | Abstract: Previous research into the costs of publicly subsidized new housing developments has found that nonprofit developers and program requirements to pay construction workers prevailing wages significantly raise project costs. An extended ordinary least squares (OLS) model is specified that aims to better capture the influence of project-specific variable costs and geographically correlated fixed costs. The model is tested with data from a 2014 State of California-sponsored affordable housing cost study. The OLS models’ estimates indicate that prevailing wages are associated with between 5 to 7% higher project costs. The cost effect associated with a developer’s tax exempt status is half as large as estimated in prior studies and is not consistently a statistically significant driver of costs. The model revisions help to identify other more important sources of cost variation, including large business cycle effects, fair market rents, average county construction wages, local government impact fees, and above-average architecture and engineering costs.