Land, Labor & Lumber: The High Cost Of Affordable Housing

May 24, 2018

The housing supply in Northern Nevada is far below demand, which has led to a rapid rise in costs.

Many are calling for more development, but builders in the community say they’re unable to keep up.

As Reno Public Radio’s Noah Glick reports, getting more housing on the market isn’t so simple.

If you drive around Reno, you’re likely to run into a construction site of some sort. One crew works on a luxury apartment complex, while another builds single-family homes or an office building.

Don Tatro is the executive director of the Builders Association of Northern Nevada.

“While people are saying, ‘Wow, there’s so much building going on. It’s crazy, they’re everywhere!’ They’re really not,” he says. “Last year there were 2,133 single-family permits pulled in Washoe County. That’s about 900 below our average, so we’re not even keeping up with averages.”

For developers, it’s hard to keep up with rising costs. There are four major expenses when it comes to building: land, labor, materials and fees. Much of those costs are based on external forces, such as natural disasters or tariffs on lumber and steel. Tatro says government has some control over costs.

“To build a single-family house in Washoe County your fees and permits will run you about $30,000-$40,000,” he says.

The city of Reno says fees are much less for a multi-family affordable housing project, closer to $11,000 per unit.

Developers say the high costs of housing is due to more than market demand, as construction costs are rising across the board.
Credit Noah Glick

Another major cost is time. Tatro says projects can take up to 4 years to get full approval, after permits, fees, zoning and community input are taken into account. And that time adds up.

“The borrowing costs doesn’t stop.  If you purchased land and you’re paying $100,000 a month for that purchase, it doesn’t stop because you’re delayed somewhere,” he says.

Those costs become prohibitive when trying to build obtainable, workforce housing. Eddie Hult is director of Nevada development for La Causa Development, a non-profit affordable housing builder.

“I don’t build the houses any cheaper than the market-rate guy does,” Hult says. “I have the same exact material qualities, specs and everything, so that means I have to go out, and my fees and my other things I have to try to get discounts on to be able to bring that discount to the customer.”

For Hult, lending is harder to come by now than it was before the Great Recession, with many developers forced to get financing from private investors that come with steeper returns and higher costs to consumers. And that makes it less enticing for for-profit developers to build below-market housing.

The city of Reno is exploring a few ideas. Councilman Paul McKenzie says one option is inclusionary zoning. That would require all housing projects to offer a certain percentage of housing below market rate, for people making a fraction of the annual median income, or AMI.

“If you’ve got a developer that says he can’t make it work in his project, then you let him build 100 percent AMI housing across the board,” he says. “But he needs to pay into a fund to support affordable housing.”

The city is also considering is a community land trust, where housing could be built on city-owned land and leased to home buyers at a lower price.

McKenzie says, ultimately, the best solution is money. But with property tax capped at a three percent increase per year, the city of Reno relies more heavily on development fees to pay for the impacts of growth, such as sewers, roads and schools.

“Most of the revenue that we had over the years to assist in creating affordable housing projects was federal money, and in the environment today, there’s not federal money available to help with that idea.”

Tony Ramirez is the field office director for the U.S. Housing and Urban Development office in Reno. He says money from the federal government supports between 5,000 and 6,000 units of affordable housing annually, but that’s for existing units. He says HUD and state dollars can create 60 to 90 new affordable housing units in Northern Nevada a year—and collaboration and partnerships will need to fill in the rest.

“Nevada is one of the states in general if you look across the country that really doesn’t have a lot of incentive programs at the state or local levels to promote affordable housing developments," he says. "So that’s one of the things I think needs to be looked at.”

Cities across the country are facing similar challenges, and many are looking for creative solutions to help address the issue. As population numbers continue to surge in Northern Nevada, local leaders are forced to find their own answers to a growing problem.