Affordable Housing is Unaffordable to Build

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By Emily Casebeer

Development costs in western Washington and across the United States continue to increase. According to the National Association of Home Builders (NAHB) and the Associated General Contractors of America, the cost of construction is rising (Anderson, 2018). Hard construction makes up a large portion of these costs. 30% of hard construction costs are from labor and the other 70% are from materials. Hard construction costs are approximately 60-80% of the total development cost, so increases in labor and material costs play an important role in the affordability of a development project. Contractors are in competition for workers due to the labor shortage, leading to a constant increase in wages (Anderson, 2018). Traditionally affordable housing development is limited in its cost savings due to state prevailing wages, high material costs, and labor intensive methods.

State prevailing wages: Public housing authority projects are viewed as a public works and therefore must be constructed with state prevailing wages if public housing authority funds are used. These state prevailing wages are negotiated by unions at the state level and can be more than the private market would require. There are different wage rates for commercial construction (any building over 4 stories) and residential (residential buildings 4 stories and below). State prevailing wages can mean the difference when public housing authorities are deciding the size of their project: over four stories or four stories and below (cheaper option in terms of wages but smaller housing impact).

High material costs: The U.S. Bureau of Labor Statistics recorded a 4.8% rise in material cost between 2016 and 2017. Due to new tariffs on foreign products and trade uncertainty, the cost of steel and lumber has been increasing (Gibson, 2017). Other costly materials include siding, flooring, roofing, and mechanical, engineering, and plumbing material.

Labor intensive methods: Methods that require hoisting, handling, attaching, and scaffolding take larger crews and a slower build that can be delayed by weather and other uncontrollable factors. These methods involve more workers that need to be paid. Luckily there are now alternatives that involve the simple process of connecting, furnishing, and finishing.

Here are some alternatives to the traditional development process that can make affordable housing affordable to develop:
Innovative Materials and Preassembling Techniques

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Innovative materials and preassembling techniques can accelerate the construction timeline, reducing the cost of labor, as well as long-term costs. Cross laminated timber (CLT) is a building material alternative meant to be used in place of steel, concrete and masonry. CLT is a prefabricated mass timber panel made with layers of lumber stacked in alternating directions and bonded with adhesive. CLT panels are manufactured for their specific end-use and have been made up to 10 feet high and 60 feet long and almost 20 inches thick. Once on-site the CLT panels just need to be fastened together, reducing construction time and labor costs. The competitive pricing and reduced onsite labor lead to a significant reduction in hard construction costs.

Innovative Design Techniques

Innovative design techniques allow for a better analysis of a development project and can reduce both material and labor costs. CDK Enterprises is an innovative preconstruction consulting firm made up of two businesses: Build-Rite and ProjectPro. CDK Enterprises works with home builders and multifamily developers throughout the US. Build-Rite assists development projects by resolving inconsistencies and document conflicts; creating a design that is efficient, cost effective, code compliant and structurally sound; creating a precise material and cut lists and pre-leasing renderings. The official Build-Rite services are listed as Project Design, 3D Modeling, Renderings, and Material Management. ProjectPro assists development projects by using the pre-bidding analysis (done by Build-Rite) and conducting a labor analysis, overseeing bidding, analyzing and reviewing bids and then awarding contracts. The official ProjectPro services are Procurement, Construction Documentation, and Construction Management. ProjectPro guarantees a 10-15% cost savings on hard construction costs (material and labor costs). If the savings are lower than 10% the fee for services is reduced to equal a return that is 10 times the fee. Here are some of CDK Enterprises past projects:

Development Project CDK Enterprises Services & Total Hard Construction Costs ProjectPro Savings
Firebrand Hotel

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Services:

·         ProjectPro

·         Procurement: bid management & negotiation services

·         Extensive value engineering services

 

$9.5M

$2.2M

(19% savings)

Talus Apartments

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Services:

Build-Rite

Design Services: 3D modeling, value engineering, material take-offs

·         ProjectPro

·         Procurement: bid management & negotiation services

·         Construction Management: material management, owner’s representative service

 

$15M

$2.33M

(15% savings)

Corso Apartments

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Services:

Build-Rite

Design Services: 3D modeling, value engineering, material take-offs

·         ProjectPro

·         Procurement: bid management & negotiation services

·         Construction Management: material management, owner’s representative service

 

$14.8M

$1.37M

(9% savings)

Less Labor-Intensive Practices

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Less labor-intensive practices, such as modular construction, greatly reduce labor costs.

Blokable manufactures a modular housing product (pictured above) that can be setup as stand-alone structures or as connected units to complete a multi-unit building system. Blokable’s mission is to make housing accessible and affordable for everyone. To achieve their mission Blokable works with municipalities, agencies and affordable housing developers to build resilient communities. “Bloks” or units are manufactured with hardware, software, and services built in, so once it arrives on site it just needs to be hooked up and it’s ready to go. This type of modular construction reduces labor costs immensely, the only labor needed onsite is for hooking up, furnishing, and any infrastructure needed onsite (sidewalks, roads, parking lots, railings, etc.).

Although the costs for developing affordable housing continue to increase, so do the alternatives that help to combat these rising costs.

Citations

Anderson, B. (2018, February 20). Construction Costs Spike for Multifamily Projects. Retrieved February 21, 2018, from http://www.nreionline.com/multifamily/construction-costs-spike-multifamily-projects

Blokable. Retrieved from https://www.blokable.com

Cross-Laminated Timbers. Oregon CLT. Retrieved from oregonclt.com/

Gibson, G. (2017, July 14). Behind the scenes, companies fight Trump on U.S. steel tariffs. Retrieved February 21, 2018, from https://www.reuters.com/article/us-usa-trade-steel-lobbying/behind-the-scenes-companies-fight-trump-on-u-s-steel-tariffs-idUSKBN19Z25K

ProjectPro · Build-Rite. CDK Enterprises. Retrieved from http://www.build-rite.biz/

 

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