Cost Per Unit: The Washington State Housing Finance Commission Responds

Posted by on Tuesday, March 21, 2017 · Leave a Comment 

I just got response to my e-mailed question to Kim Herman the head of the Washington State Housing Finance Commission. It helps, but it doesn’t get at the underlying issue of figuring out how expensive projects like 12th Avenue Arts really are in the larger scheme of things. I try to be as transparent as possible because I think the truth of the numbers will help us. But Herman’s response sort of raises more questions that it answers; and the real question is why was this project so expensive and why aren’t we getting more for our subsidy dollar. My response is at the bottom.  

Roger, thanks for the inquiry below. The project you mention is the 12th Avenue for the Arts project and as I presume you know, this is a combination project that includes not only housing but several arts facilities in the building and also some rental space for the police station and police car parking on that same site and perhaps other uses. Therefore, the cost of the housing needs to be separated from the facilities that are not housing and were paid for with funds other than the housing funds. I am sure you can get a complete accounting of all costs from the owner but I can give you the housing costs.

Our development cost limits are based on the number of bedrooms in the different units in the housing being built. Obviously, a one bedroom unit will cost less to build than a three bedroom unit and is therefore reflected in our cost limit calculations. We also deduct from our cost limits the cost of the land and the cost of any capitalized reserves because the land costs vary so greatly across the state and because the capitalized reserves are often required by lenders/investors for future maintenance and other needs and are not a direct construction cost.

Our records show that this project had a total development cost (less land and reserves) of $18,107,224, which was below our allowed total development cost limit of $20,454,000 for a housing project with the same unit mix in King County. If you were to do the simple per unit cost calculation which you reference by including the land and capital reserves in the total development cost divided by the number of units, the per unit cost of this project is $259,205 per unit.

The error that too many people make when calculating the per unit cost for projects such as this, which have a significant amount of space for uses that are not residential housing, is dividing the total overall development cost, including all uses, without subtracting the cost of the non-residential uses that are paid for with other than housing funds. This is a common mistake when a project has multiple uses and multiple revenue sources to pay for them.

Again, thanks for the question and I hope I have answered your question with regard to the Commission’s cost limits for this project, Kim

Hi Kim,
Thank you.
That does answer the question from the Commission’s perspective. I appreciate that.
I also get that the color of money is different, that is various sources and uses can combine to create a project. However, that substantively ignores the idea that all elements are interdependent. I’d like to dig into the financing further when I have time, but it strains credulity to argue that the parking lot and the retail are not part of the same project. Again, how does this compare to what the market rate developer does. We’re looking at that too.
Also, until we get an objective assessment, we’re not getting an adequate and quantitative measure of relative effectiveness. As you pointed out, regulatory burdens carries by non-profit subsidized housing often exceedthose of market rate housing. Why? And by how much?
I think it’s irresponsible for public agencies and governments to continue allocating more and more funds to the production of these projects without asking these questions AND combining efforts to relieve the regulatory pressure that suppresses supply of both market rate and subsidized housing. We need the Commission’s support for that.
This is even more critical when the City of Seattle is using extra legal measures that impose more costs on market rate housing for the expressed purpose of generating funding for this system.
I hope we can get more numbers and cross comparisons.

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