The Story Behind The Sticker Shock: 5 Pricey Affordable Housing Projects

By Lisa Halverstadt, the Voice of San Diego

April 8, 2024

There have been countless headlines over the years about expensive affordable housing projects and prices in San Diego and across the state have only continued to spike.

Seventeen new construction projects reviewed by the San Diego Housing Commission in the past few years cost an average of $574,000 a unit. Several projects in the city housing agency’s pipeline totaled substantially more per unit.

Given the steep demand for subsidized affordable housing and limited funding, we decided to dive into five especially pricey projects to clarify what’s driving up costs.

What we found: Agencies that help fund affordable housing projects often demand or incentivize amenities, policies and investments that benefit residents and the broader community. That increases costs for these projects reliant on government subsidies.

The added charges come in addition to standard development expenses such as land purchases, site upgrades and building materials that have also been rising.

In the end, line items such as added parking or higher pay rates for construction workers can help fuel eye-popping per-unit costs that aren’t just about new apartments.

Unique project plans such as on-site commercial space and the complex financing process for affordable housing projects also can increase project tabs.

Affordable housing developers say higher-cost projects generally make their jobs more challenging. More costs translate into the need for more funding sources, which can then add requirements that add more costs.

“We’re making tradeoffs every time we add a requirement,” said Stephen Russell of the San Diego Housing Federation, which advocates for affordable housing developers.

Russell and others argue those mandates can be worth it. But they also add to the tab for lower-cost subsidized units that many low-income San Diegans are clamoring for.

The plan: 100-unit, five-story housing project with one-, two-and three-bedroom units and commercial space at a Metropolitan Transit System bus stop

Outside funding: Seven sources including city and county loans, a state infrastructure grant and state and federal tax credits

Estimated cost: Nearly $911,000 a unit

What’s driving up the cost: Mandates from MTS and other plans not solely tied to the project’s housing dramatically increased costs.

MTS, which is leasing its land for the project, required developer Affirmed Housing to replace 85 parking spots which tacked $4.1 million onto the project cost. The MTS deal also called for Affirmed to pay prevailing wages and to enter into a project labor agreement with workers – requirements that Affirmed estimates added about $17 million. (Mandates to pay prevailing wages and union-friendly project labor agreements generally result in higher hourly rates for workers.)

The project also includes a nearly 13,000 square foot commercial space that Affirmed expects to make its new headquarters. This space – which Affirmed plans to rent from MTS – will cost about $5.3 million that can’t be backed by affordable housing subsidies. Jimmy Silverwood of Affirmed said required water and sewer upgrades and adjustments to the landslide-prone property collectively added another $4 million in costs.

The plan: 117-unit project spread over four sites along Interstate 15 with 85 units set aside for low-income families and 30 for homeless veterans plus commercial space

Outside funding: Nine sources including federal tax credits, state loans, a state infrastructure grant and a city loan

Estimated cost: About $842,000 a unit

What’s driving up the cost: For decades, four scattered plots near the I-15 that split City Heights sat vacant. Wakeland Housing and Development Corp. decided to pursue housing and community space on the long-barren lots at the urging of former City Councilmember Georgette Gómez. Executing the project that Wakeland argues a market-rate developer wouldn’t take on has been complicated.

Wakeland reports it spent about $4.9 million acquiring the mostly publicly owned properties in 2019 and took out a loan to do so that added $1.5 million in interest charges. More than 13,000 square feet of commercial spaces expected to eventually house the City Heights Community Development Corp. and United Women of East Africa added another $2.1 million to the project tab that can’t be covered by affordable housing subsidies.

Peter Armstrong, Wakeland’s vice president of real estate development, said the need to construct four buildings also added substantial costs. They’re paying for four elevators, amenities including four laundry rooms, four sets of plans and various analyses, and workers to construct each new building. And at one point, Armstrong and CEO Rebecca Louie said, scoring priorities for state programs shifted and led Wakeland to rework its plans to include homeless veterans. That meant $460,000 in new architectural and design costs.

The plan: 100-unit affordable housing project that includes 15 permanent supportive housing units for formerly homeless residents

Outside funding: Eight sources including state tax credits and city, county and Housing Commission loans

Estimated cost: About $663,000 a unit

What’s driving up the cost: Developer National CORE reports it spent nearly $7 million acquiring San Ysidro property that’s close to the trolley, a feature that made it a better fit for affordable housing tenants and more expensive. To make way for its apartments and other future development, John Seymour of National CORE said the developer has also invested $5.2 million in water, sewer and other infrastructure upgrades in the area. He said a decision to accept 25 federal project-based housing vouchers means National CORE must pay prevailing wages to those who work on the project, a dynamic it projects will add more than $5 million to its labor costs.

Like Russell of the Housing Federation, Seymour said government funding sources like these often include requirements and incentives that benefit the community – while also adding costs.

“We get these big wins and sometimes they’re offset by costs, but then again sometimes those costs do make sense,” Seymour said.

The plan: 45-unit affordable housing project mostly made up of studios and one-bedroom apartments, including for 32 formerly homeless people with serious mental illnesses, plus the rehabilitation of 20 existing naturally affordable apartments

Outside funding: Four sources including federal tax credits and loans from the city, county and Housing Commission

Estimated cost: About $624,000 a unit

What’s driving up the cost: Developer Wakeland is teaming with a nonprofit to build new affordable apartments and upgrade two small apartment buildings with naturally below-market rents next door. Wakeland and nonprofit Housing Innovation Partners collectively spent $6 million buying the properties and penciled in another $700,000 in relocation costs for families living in the existing complexes who will be welcomed back.

The decision to incorporate existing apartments isn’t the approach a typical market-rate developer would take. Wakeland decided it wanted to help preserve existing low-cost housing.

Wakeland also chose a particularly pricey building design with a steel and concrete ground floor it decided was needed to make way for amenities such as common areas and parking on the small infill site, tacking on another $700,000. Armstrong said Wakeland’s decision to accept project-based vouchers for the property to serve formerly homeless San Diegans meant it needed to pay prevailing wages to workers, adding an estimated $3.4 million in labor costs. That move also translated into the need to include security features and other amenities for about $500,000.

The plan: 94-unit affordable housing project with one-, two- and three-bedroom units that’s part of a larger more than 300-unit development at the county’s former crime lab site

Outside funding: Six sources including a county land loan, state and federal tax credits and a Housing Commission loan

Estimated cost: About $619,000 a unit

What’s driving up the cost: Developer Chelsea Investment Corp. reports that the site requires underground parking and related work that costs about $2.5 million. Heidi Mather of Chelsea said stormwater upgrades and the need to do overnight construction and take traffic control measures to accommodate the busy area added another roughly $2 million. The developer’s decision to equip some units to serve people with intellectual and developmentally disabilities by adding features such as grab bars and waterproofing in bathrooms tacked on another $150,000.

Interestingly, Chelsea’s decision to include the value of the land the county is offering up for its project in reports to the Housing Commission and other agencies inflated the project’s on-paper by $92,000 a unit.

This example drives home how the process to seek subsidies for affordable-housing projects can increase costs – even if they simply push up the reported cost. In many cases, government subsidies and the process to access them does lead to real cost increases.

Mather said the county provided a nearly $8.7 million upfront loan to the project that matched an appraiser’s estimate of the value of the developer’s property lease, essentially canceling out the land cost on Chelsea’s balance sheets. Mather said Chelsea chose to incorporate land costs in project estimates to help it fare better in tax credit competitions that provide incentives for projects that leverage multiple funding sources.

Mather said Chelsea’s deal with the county calls for it to make annual lease payments to pay back the county loan.

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