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Variation in Development Costs for LIHTC Projects


October 11, 2018

This report examines the factors affecting the cost of developing affordable multifamily rental housing with the federal Low-Income Housing Tax Credit Program (LIHTC). Using data provided by 14 LIHTC syndicators for more than 2,500 projects, that include more than 160,000 housing units, we analyze the factors associated with higher and lower per-unit development costs. We find that the per-unit cost of development decreases as development size increases and the average annual construction wage decreases.  We also found that the following factors were associated with higher development costs: location in the principal city of a metro area (as opposed to a suburban or rural location), new construction (as opposed to acquisition/rehab), use of multiple financing sources and location in New England, the Mid-Atlantic or Pacific regions.

As noted in the report, there are important tradeoffs involved in developing affordable housing across the United States. For example:

  • Projects cost more to build in high-cost areas, but affordable housing is needed in these locations as much as--or even more than--in lower-cost areas.
  • Smaller projects cost more to build on a per-unit basis than larger projects, but larger projects are not desirable in all locations.
  • Smaller units cost less to build but are not appropriate for all household types.
North America