released a report on the costs of affordable housing projects funded by the federal government's Low-Income Housing Tax Credit (LIHTC) program. In a footnote, the report noted that one California development had costs as high as $739,000 per unit.In September, the Government Accountability Office (GAO)
The report didn't name the development, but GAO provided Reason with a data file listing individual projects, as well as information on their final costs and total number of units. After adjusting for costs-per-unit, the 33-unit, $24.4 million Tilden Terrace, a collection of shops and apartments in the wealthy Los Angeles suburb of Culver City, ended up as the top of the pile.
Tilden Terrace might not look the way you expect from an affordable housing development. The building boasts a yoga studio that advertises itself as the first yoga studio for children in the Los Angeles area, as well as an orthodontist's office, and a Japanese restaurant where you can order a $34 sushi plate with Halibut, Blue Fin, and Kurodai. It's a contemporary building with a colorful façade that won an architectural award in 2014. And taxpayers are paying dearly for it.
The $739,000 per-unit price tag is not only higher than in Texas, where affordable housing units cost $126,000 on average, it's nearly double the median cost of $326,000 in California. And it's $100,000 higher than the median price of buying an unsubsidized, market-rate home in nearby Los Angeles, one of the most expensive cities in the nation.
Tilden's record-setting per-unit price tag was the result of a confluence of factors that shed light on what's driving up housing costs nationwide. Those include: Culver City's status as a fast-growing, tightly-zoned city, where local politicians have shown a preference for attracting commercial development over new housing construction; state requirements that developers pay construction workers high union wages; and a philosophy among affordable housing developers that high-cost neighborhoods are where publicly subsidized housing is needed the most.
The irony is that the factors raising the costs for Tilden Terrace are the same factors that drive demand for projects like it in the first place.
High development costs breed rising rents and home prices, pushing low- and even moderate-income people out of market-rate housing and leaving publicly subsidized affordable developments as the only option. The more projects like Tilden Terrace cost, the more necessary they become.
Affordable housing projects often attract skepticism from neighbors and local governments, partly because they tend to involve bland, blocky buildings, and partly because their occupants are disproportionately poor. Somewhat unusually, however, Tilden Terrace attracted little resistance.
In fact, the city welcomed the project with open arms, seeing it as a way of increasing local tax revenues—and was made a partner in the development's corporate profits. Yet the same part of the deal that attracted city officials was, in the end, a significant driver of the project's extraordinary price tag.
What won over city officials was not so much the prospect of new affordable housing units, or changing the income mix of the area, where the median income is almost $80,000 a year, but the inclusion of 10,000 square feet of commercial retail space in the building. That idea was proposed by the developer, the Los Angeles Housing Partnership (LAHP), a nonprofit that has been building and rehabilitating multi-family housing developments since 1989.
"It was really just walking into the city and negotiating this deal," says David Grunwald, LAHP's CEO. "They get the business tax, they get their share of the tax when the county assessor divides up the sales tax and the property tax."
In addition, LAHP agreed to split the profits from Tilden Terrace's commercial space—projected to be about $120,000 per year—with the city, giving the local government a clear stake in the project.
In return, the city agreed to support the project with a total of $15.2 million in loans—$3.4 million for the retail portion, and $11.8 million for the residential portion of the building. Essentially, the city was playing the bank.
LAHP secured another $4.9 million private loan for the construction of Tilden Terrace, and also agreed to sink another $3.8 million in equity and deferred development fees (these are fees LAHP would normally charge for its services) into the project—with most of this being repaid with $7 million in federal tax credits from the LIHTC program.
Altogether, Tilden Terrace cost $24.4 million to complete, all of which—save a $1.7 million private loan used to help pay back the private construction loan—was ultimately taxpayer funded.
The addition of $3.4 million in purely commercial space is what ensured that the development got built. It's also arguably what pushed Tilden Terrace to the top of GAO's list of most expensive per-unit affordable housing projects.
By comparison, an affordable housing project built in the same year just four miles away on Santa Monica's Pico Boulevard managed to add the same number of housing units—which, like Tilden Terrace, were mostly a mix of two- and three-bedroom apartments—for a pricey $20 million (or $100,000 less per unit). One key difference was only a paltry 582 square feet of retail was included.
Photo Credit: Alexis Garcia