Why is the rent so damn high?

Catherine Bracy
Jul 16, 2018 · 7 min read
Attendees at our Cost of Housing event, July 12 (Thanks to Pandora for hosting!)
  • The answer to the question “why does housing cost so much to build?” is: It’s complicated. Elizabeth used the term “death by a thousand cuts.” All of the various costs (see the chart) add up to create the high cost of development. This layering of costs can make it tricky to determine where to focus efforts on reducing costs.
  • While hard costs (mostly labor and materials) make up the lion’s share of the total cost, about 67%, it’s not entirely clear what elements within that category are driving increasing cost. The Terner Center is continuing their data gathering to illuminate the answer.
  • There are real tradeoffs in thinking about where and how we reduce the cost of development. Many fees and regulatory requirements, which add costs and make it harder to build, are in place for good reasons. Finding the right balance between regulation and cost is a complicated task.
Research from UC-Berkeley’s Terner Center breaks down the cost elements in a housing development (full slide deck linked above)
  • Rich Gross of Enterprise Community Partners. Enterprise does all kinds of work in the affordable housing space, including providing financing for affordable housing projects. Rich helped us understand the financial realities of getting projects built, which I outline in a bit more detail below.
  • Linda Mandolini of Eden Housing. Linda outlined the unique challenges facing affordable housing developers. They will never qualify for the kind of financing private developers receive because the people they rent to will never be able to afford the rents that would pay those investors’ returns*. And the public sources of capital available to affordable housing developers come with many more strings attached, which causes the cost of building to go up. In addition, sources of capital for affordable housing developers have been scarce for decades and are not close to keeping up with demand.
  • Because land owners don’t have increasing property tax bills, they don’t have incentives to sell their land which drives up the cost of land
  • Much of the funding that is lost to Prop 13 (an estimated $10b per year just from commercial and industrial properties) could be allocated to affordable housing development and would obviate the need for constant bond measures.

TechEquity Collaborative

The TechEquity Collaborative advocates for a tech-driven economy in the Bay Area that works for everyone. We are a membership-driven organization made up of individuals and companies that share our values.

Catherine Bracy

Written by

Executive Director of the TechEquity Collaborative. Some things I love: civic tech, dogs, and Tottenham Hotspur

TechEquity Collaborative

The TechEquity Collaborative advocates for a tech-driven economy in the Bay Area that works for everyone. We are a membership-driven organization made up of individuals and companies that share our values.