If you’re trying to figure out how to make housing more affordable, it should be fairly obvious that it’s probably a good idea to actually understand the costs associated with building new housing. That is, more or less, the title of this recent series by Brookings about innovation in design and construction. The four-part series is based on the findings of a report that was written by Hannah Hoyt and published by Harvard’s Joint Center of Housing Studies and NeighborWorks America.
Now, costs vary by geography. Each city has its own nuances when it comes to development. And this should not be construed as a silver bullet. But what they are trying to do is identify design and construction savings to help the overall equation. Part of their argument is that building typology matters. Build smaller — hopefully out of wood — and you can bring your hard costs down. The problem with this thinking is that the trend lines are moving in the opposite direction.
Here is a chart from the same Brookings article:
In 2000, about 23%, or almost a quarter, of all multifamily units completed in the US were in a building with fewer than 10 units. As of 2018, that number had dropped to somewhere around 5%. At the same time, the number of completed units in buildings with 50 or more units has gone from 14% in 2000 to about 61% in 2018. Things got a little wonky after the global financial crisis, but generally the trend lines are pretty clear.
Some of this likely has to do with our “return to cities.” But I think the bigger part of this story is that development cost structures are pushing the market in this direction. For more on this topic, check out: Demystifying the development pro forma.
Thanks for bringing this piece up, Brandon. It’s great info for decision makers, who often say they’re looking for smaller housing projects. From what I’ve seen in Victoria, we’re trending away from smaller projects partly because of DCC’s in some areas, but more because they cost more human capital per housing unit to manage compared to a larger project, so the payoff is much smaller compared to the risk.
That’s why most developers start small and then scale up to larger projects as they grow.
Tied to this is that land zoned single family — where smaller infill projects work best — is heavily guarded for single family-only uses. The rezoning/development process in these communities tends to be longer and fraught with costly (both for human and financial capital) requirements and changes to get a project approved. The related zoning bylaws, building codes, and various planning policies also restrict the smaller stuff and make projects more challenging to cost-effectively construct.
Thank you for sharing this informative article. These days it is important to understand the costs associated with building projects and actually the building size matters a lot. The advantage of low-rise development is greater contact with the ground which helps to balance internal temperatures. That is why architects and developers are focused on creating cost effective buildings.