Affordable Housing Development Costs and Solutions Senate Agriculture

Affordable Housing Development Costs and Solutions Senate Agriculture, Rural Development and Housing Policy Committee March 8, 2018 Minnesota Housing | mnhousing. gov

Our Mission Housing is the foundation for success, so we collaborate with individuals, communities and partners to create, preserve and finance affordable housing. 1/22/2022 Minnesota Housing | mnhousing. gov 2

Our Role • Demand for funding is far greater than amount of resources available • Allocating a scarce public resource requires a fair, transparent allocation process • Oversight, fiduciary responsibility to the public • Goal: a balance of projects addressing multiple public policy needs 1/22/2022 Minnesota Housing | mnhousing. gov 3

Understanding Cost Drivers • Hard construction costs for market rate and affordable are similar • Costs of labor and materials are volatile, which can cause costs to vary • Timeline of affordable housing development • Soft costs are the primary difference between market rate and affordable housing development 1/22/2022 Minnesota Housing | mnhousing. gov 4

Predictive Cost Model • Developed model that provides a benchmark for reasonable costs based on a building’s characteristics • Guides staff and board in making funding decisions • New construction of Housing Tax Credit properties in the metro tend to be the highest cost • Preservation in Greater Minnesota tends to be the lowest cost 1/22/2022 Minnesota Housing | mnhousing. gov 5

Cost Containment Average Total Development Cost Per Unit – All Types of Development Source: Minnesota Housing data, adjusted for inflation 1/22/2022 Minnesota Housing | mnhousing. gov 6

Cost Containment Total Development Costs per unit 2003 – 2016 – New construction Housing Tax Credit, Metro Area Total Development Costs per unit 2003 – 2016 – new construction Housing Tax Credit, Greater Minnesota Source: Minnesota Housing data, adjusted for inflation 1/22/2022 Minnesota Housing | mnhousing. gov 7

Policy Considerations • Public policy priorities: • Permanent Supportive Housing • Family Housing • Location • Balancing new construction vs. preservation • Durable, long-lasting materials 1/22/2022 Minnesota Housing | mnhousing. gov 8

Policy Trade-Offs • Large scale vs. small scale projects • High quality, durable materials vs. lower cost materials • Managing long-term public risk 1/22/2022 Minnesota Housing | mnhousing. gov 9

Best Practices • Assess costs using Predictive Cost Model • Added Cost Containment points to funding selection criteria • Address systemic cost drivers: • Process Improvements • Minnesota Cost Challenge 1/22/2022 Minnesota Housing | mnhousing. gov 10

Opportunities • Continue to focus on cost containment at all levels of government • Explore different construction models • Address other costs in collaboration with local government, investors and developers • Investor Requirements 1/22/2022 Minnesota Housing | mnhousing. gov 11

Contact Information Commissioner Mary Tingerthal mary. tingerthal@state. mn. us 651. 296. 5738 Ryan Baumtrog Ryan. baumtrog@state. mn. us 651. 296. 9820 Katie Topinka katie. topinka@state. mn. us 651. 296. 3706 www. mnhousing. gov