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Sunday, September 30, 2018

Housing Construction Costs 2017

One often reads discussions about what are the main contributors to housing costs.  Parking requirements?  City regulations?  etc., etc.  This posts presents a breakdown of the components of housing costs in San Francisco as of early 2017 for a 640 sq. ft. condo-apt. unit which hits the market at $900,000 (or equivalent rent).

640 sq. ft. apartment/condo
The data comes from a presentation at a symposium sponsored by SPUR in early 2017.   "2017.05.30 Why Does Housing Cost So Much - Hogan" - c.f., here:

Parking spaces are about 2% of the total cost.

Including profit, a 640 sq. ft., 2 bed room unit goes on the market in San Francisco in 2017 at $900,000 (or equivalent rent).  Costs per unit are below.  Percentages may not add to 100% due to rounding (click graphic to enlarge):

 The above costs are shown in the following pie chart (click to enlarge):

In text form (suitable for copy-paste) we have it below:

Land             = $150,000 = 17% of total cost of $900,000
Construction = $320,000 = 36% of cost
Parking         =   $17,500 =   1.94% of cost
Permits, etc.  =  $67,500 =   7.5% of cost
Selling          =   $44,400 =   5% of cost
18% BMR    =   $87,805 = 10% of cost
Financing     =   $27,200 =   3% of cost
Profit            = $185,595 = 21% of final cost.
Total cost     = $900,000 = 100%

Which is 2% of the total cost of a building over the life of the building.
"Viewed over a 30 year period, initial building costs account for approximately just 2% of the total, while operations and maintenance costs equal 6%, and personnel costs equal 92%." from US Govt. National Institute of Standards, (link in caption above).

We are looking at San Francisco which has excellent public transit so the regulation is only 50% parking - one parking space for every two apartments.  San Francisco actually has parking maximum requirements (0.5 to 0.75 parking spaces per unit) in some areas, unlike most cities that have parking minimum requirements. C.f.,

Underground parking is very expensive compared to ground level parking
but still only 2% of total costs
One parking space per unit would be common in the suburbs, possibly even 1.5 or 2 depending on the location and size of apartment.  It depends on the city and these things are in constant flux.  In some suburbs you really need a car to get around while in other close-in to large cities, public transit is good enough to keep it at one car (or less) per apartment. In the suburbs, however, land is generally cheaper so you don't need expensive underground parking, and therefore parking is still not a major expense.

Suburban parking = Two white lines on blacktop.  Not expensive.
In Los Angeles, the old downtown (with the highest number of buildings from the 1920s in the US) was revitalized by relaxing parking requirements since many were built before everyone had a car.  One sign of flexibility was to allow parking to be off site - maybe in a structure a half block away.  This allows shared parking buildings and avoids expensive underground parking.
Old Downtown Los Angeles
The US's "largest collection of intact office buildings constructed between 1900 and 1930, many of them exemplars of West Coast Beaux Arts and Art Deco architecture, and is listed on the National Register of Historic Places."
The attitude of many cities is changing with regard to parking, to see what is most effective for a given area.  In some cases it isn't the city setting a parking space requirement but the financial backers who want to make sure the apartment building isn't empty for lack of parking.  In some cases a parking space is an extra cost - not included in the rent.  It can also vary by cost of the apt. with luxury condos getting two spaces while less expensive apartments get one space.

The following graphic shows requirements (2013) for various sized apartments around the US. The median requirement is 1.5 spaces per 2 bedroom, though older cities require one, and more spread out cities (like Dallas and Houston) require more. (click to enlarge):

The building we are considering is assumed to be a common one story concrete podium plus 4-5 story wood construction above.  Assume a 100-unit building with 640 sq. ft. units.  Add another 160 square feet per apt. to allow for stairs, hallways, heating ducts, etc. for a total of 800 sq. ft. of construction per unit.  See picture below (click to enlarge):
Concrete 1 story base with 5 stories of wood construction above
Land cost per unit = $150,000 = 16.7% of total cost of $900,000 including profit.

Construction cost  = $320,000 = 35.6% of total cost

Parking per unit      = $17,500 ($35,000 per space, one space per two units) = 1.94% of cost

"Soft costs" - permits, fees, etc. = 20% of (construction + parking) cost = $67,500 = 7.5% of cost

I need to add here that government permits and fees are to pay for the new water pipes that need to be laid, the increase in the capacity of sewage treatment plants, the additional parks to be added, and so forth.
Sewer and water mains need to be added or expanded for new housing
Cities need to ensure that there is enough park land for everyone, and cover the cost of processing the application and evaluating traffic impacts.  Making a city a nice place to live with adequate parks, sewage processing, traffic flow, etc., is what city governments are for.
What's a city without parks?
Someone has to pay for the additional costs of adding to the existing facilities, and it should be the party that is imposing the new costs.

Total cost so far = $555,000

"Selling" costs money too - over 2 times the cost of parking.
Selling expenses = $44,400 = 4.9% of cost

18% BMR funding gap (net subsidy to build "Below Market Rate" housing) = $87,805 = 9.8% of cost
Financing costs = $27,200 per unit

Construction financing = $27,200 = 3.0% of cost

Total cost per unit before profit = $714,405 = 79.4% of final cost

Profit, management fees, etc. = $185,595 = 20.6% of final cost.

For a total cost of $900,000 (see also below)

Cost per sq. ft. (gross) = $893/sq.ft.  for 640 sq. ft. living space which is actually 800 sq. ft. in a building including halls, elevators, stairs, etc. This is before profit. 800 sq. ft. x $893/sf = $714K

Net cost per sq. ft. = $1,116/sq.ft. includes 20.6% profit, management fees, etc. 800 sq. ft. x $1,116/sf = $900K.

Above from 2017 presentation "2017.05.30 Why Does Housing Cost So Much - Hogan" given at a symposium sponsored by SPUR - c.f., here:

Another presentation on housing costs was from a Ms. Seifel at the same symposium (same SPUR link as above).  Unlike Mr. Hogan she explicitly includes profit but presents slightly different allocations of component costs in the following pie chart:

The pie chart above slightly differs from her composite bar charts below.  What you see below is different variations of costs depending on sales, prices etc.  Parking and fees are the two smallest segments, the next smallest is financing in the following which was not the case in the previous pie chart.

Note that the total cost on Ms. Siebel's bar chart before profit is about $714,000 = the same as Mr. Hogan's analysis above, but the "developer margin/profit" part (at the top of each composite bar) brings the net cost up to $900,000.

I usually try to just present the data and let the reader decide what to make of it.  In this case I need to add that this was the hardest set of data to obtain that I can remember getting.  I usually can get a few graphs from Google, follow them to the source, find a lot of links to related sites and I am all done except for the write up.  

Not this time.  I ended up reading seemingly endless numbers of articles saying how much parking adds to construction costs, or how much city regulations add to costs but without any hard numbers comparing parking or regulatory costs to total costs.  Even when I did get the hard numbers shown here, pulling out the profit and finding numbers for the total cost was not easy.  Now I know why.  The cost of parking isn't very much.  Eliminating it would not make much difference to the end user but the savings in not constructing parking goes straight to the bottom line of the builder.

Figuring out the (profit) motive
Mr. Hogan gave lots of numbers except for profit.  He never mentioned profit directly.  I had to deduce it from the "net cost per square foot" (including profit) minus the "gross cost per square foot" (not including profit).  Even then, it was a puzzle.  I had to experiment and derived the $900,000 number shown on Ms. Siebel's graph by multiplying Mr. Hogan's net and gross cost/sq. ft. by 800 sq. ft. (total apt. space including hallways, etc).  Then a little subtraction and I found the profit number.

One might surmise that Mr. Hogan purposely made the profit number hard to deduce because he did not want the casual reader to know what the profit is.

The endless numbers of articles I read on how much parking, etc, add to construction costs all have the same conclusion, usually implied but sometimes directly stated.  They leave out all relevant costs except for parking, implying that if we eliminate parking (2% of costs per Mr. Hogan) and government fees for parks, water hookups, etc.(7.5% of costs) then housing costs will plummet and everyone can have a nice apartment in downtown San Francisco for "a-dollar-three-ninety-eight" or whatever the reader thinks they can afford.
If only we could eliminate the cost of parking and parks and water and...
Then we can all bike to work.

Detailed costs are very well known.  A very, very detailed description of costs for everything from staircases to cement walls is available from the San Francisco dept. of Building Inspection here:  You need to be in the construction trades to make any sense out of it.  I just mention it because some people think this is all proprietary information.  Everyone in the business works from the same spreadsheets.  There are no secret formulas.

And this is...

Saturday, September 8, 2018

Ree-diculous Ree-na - Part II


Ridiculous RHNA ("Ree-na")

Part II

In Part I we saw how ridiculous is the current application of RHNA (Regional Housing Needs Allocation) numbers to housing in terms of Scott Wiener's SB-35 law.  Part I is here:

In this, Part II, we see what RHNA numbers are actually for.

"Not Meeting RHNA Numbers"

(I.e., "A city isn't building enough")

The California State Dept. of Housing and Community Development (HCD) is the agency in charge of ensuring that there are "housing elements" of the General Plan for each jurisdiction.  This is to ensure that zoning and guidelines are in place so that housing for different incomes can be built should a builder want to.

More about HCD and RHNA here:

The narrative of "housing activists" (some adopt the name "YIMBY") is that cities, by refusing to build housing or allowing others to build housing, are creating an artificial shortage of housing thereby driving up the price of what housing there is.  There are two problems with that narrative.

Problem One... that cities can't build housing.  Only builders can build housing.
Cities don't do this.
Builders do this.
If you want more housing, go build some.  Buy the land, hire architects and workers and build it.  As long as you follow all the various fire codes, construction codes, and zoning rules then you can build what you want.  You will go before a planning commission to make sure you follow the rules and then you start construction.  The city council will look over your plans only if you want a waiver from some rule.

Holding cities and counties responsible when they have no control over who builds or doesn't build housing - is irresponsible.  In particular, holding cities responsible for not building a specified quantity of housing for a particular income level makes no sense because cities don't build housing.  There is an issue if cities stand in the way of builders building housing but that has nothing to do with RHNA.  We will hold that discussion off to Part III.

Problem Two... that the RHNA numbers make no sense in relation to the "housing crisis".  As we saw in Part I, some cities and counties are very poor choices for housing development, and contribute nothing to the current "housing crisis".  Yet, because "they didn't make their RHNA numbers" those cities and counties lose local control over planning and zoning.  Of the 58 counties in California, 47 "didn't make their RHNA numbers" for reasons that have nothing to do with resident objections.  Nonetheless, they are subject to what are becoming increasingly draconian state laws over-riding local control.

Not a Goal!

RHNA is a planning tool.  It is not a "goal" - though you will hear that word used frequently.
You can get the complete HCD list of RHNA spreadsheets or PDFs here:

If no one builds the housing in the RHNA spreadsheet, all it means is that no one built housing there.  It isn't a failure to meet a "goal".  RHNA numbers aren't "goals" - they are requirements for planning.

But "goals" gets repeated over and over again implying cities or counties aren't trying hard enough.  If only cities would just get on with it and do something!  But what?  If builders decide not to construct apartments or houses in the quantity desired, no city or county can force them to.  Here are some newspapers reporting as "goals" what are really more like "zoning allotments".

Misuse of RHNA Numbers

"San Jose Mercury News"
CA State Senator Scott Wiener (author of SB-35) said “When 97 percent of cities are failing to meet their housing goals, it’s clear we need to change how we approach housing in California.”

To be fair to the SJ Mercury News, they are not calling them "goals", they are merely quoting Senator Scott Wiener who is calling them "goals".  Even though they are not "goals".

"San Mateo Daily Journal"
"City exceeds housing goals". Except they aren't goals.
Above from:

"The Bay City Beacon"
"According to the Department of Housing and Community Development (HCD), 97.6% of California cities did not meet their full RHNA goals."  (Like, Biggs, Alpine County, etc., looked at in Part I.)  "Only 13 cities (2.4%) met their goals in full, and would be exempt from SB 35 streamlining."from:

This is the fault of the Bay City Beacon reporter who fell for the "goals" concept.  Nowhere can I find HCD calling them "goals".

"Los Altos Politico"
"A close look the City of Los Altos Housing Element report suggests, there is not enough land zoned such that we can meet the goals for lower-income housing.  The only good news is that we do produce enough market-rate housing.  And that’s because to the State’s way of thinking, a tear down and rebuild of a single family home counts as a “new” house!"

The amount of housing stays the same, but tearing one down and rebuilding it counts as an additional housing unit?  Now the housing numbers make even less sense.

Official Description of RHNA Objectives
(Which Are NOT Goals!)

Interestingly, official documents about RHNA numbers never use the word "goal".  That is a word only used by people like Senator Scott Wiener and repeated by some newspapers - possibly merely quoting Senator Wiener.

What does California's Housing and Community Development (HCD) Agency say about RHNA?  The main information web page for HCD is here:

Under "Background" they say that because funding for housing usually requires "a compliant housing element" there needs to be a well specified description of what is zoned for.
Fairfax, Virginia's zoning map.  Every city has to do this.
Cities aren't responsible for building anything.
The number of housing units that must be planned for (including zoning but other aspects are considered, too) is allocated on a regional basis by HCD.  The regional Council of Governments (like ABAG in the SF Bay area) allocates it within the region.  They have formulas they use but they are allowed a certain amount of flexibility so it isn't a hard and fast set of rules.

HCD's website states under "Housing Elements" that "Since 1969, California has required that all local governments (cities and counties) adequately plan to meet the housing needs of everyone in the community. California’s local governments meet this requirement by adopting housing plans as part of their “general plan” (also required by the state)."

Got that?  A plan is needed.  Once a plan is in place, HCD is doneThe RHNA requirement has been satisfied once a plan is in place.  If no builder decides to build, well - too bad - or not.

Here are some local California Council of Governments (CoGs) explaining what RHNA numbers mean.

Tulare Council of Governments
Tulare, CA
"Allocation targets are intended to assure that adequate sites and zoning is made available to address anticipated housing demand during the planning period and that market forces are not inhibited in addressing the housing needs of all economic segments of a community."

In other words it is a planning tool.  Market forces determine what gets built and in what quantity.

Santa Barbara County
Santa Barbara, CA
"The housing targets are intended to assure that adequate sites and zoning exist to address anticipated housing demand during the planning period."  It is not a requirement or goal that the housing gets built, only that there be space allocated and zoned for housing.

San Diego Association of Governments
2601 Juan St., San Diego, CA
"The Draft RHNA Methodology and Allocation distributes housing in accordance with the four RHNA objectives in state law: by reflecting the region’s commitment to planning for housing for all income levels in all jurisdictions, balancing jobs and housing, focusing development in our urban areas, and protecting our rural areas, open space, and habitat lands."

I highlighted the part about protecting open space and habitat lands because some people seem to think RHNA is about housing, more housing, and only housing.  The goals are a balance between housing and many other things which make places nice to live in.

Southern California Association of Governments
Los Angeles
"Because RHNA is a representation of housing need for the eight year planning period, it does not necessarily address existing housing need. ... State housing law requires that jurisdictions plan for all types of housing based on the needs identified through RHNA.  In addition, local jurisdictions are also responsible for ensuring there are no unnecessary barriers to the housing approval process."

Note the phrase "plan for", not build.

You can get the complete HCD list of RHNA spreadsheets or PDFs here:

The RHNA numbers were only intended to indicate what zoning should be incorporated into publicly available city and county general plans.  This enables builders to know what and where they could build.  It was not intended as a "goal" for a city or county.  This is because of the very simple fact that cities and counties don't build housing.

More than anything, this shows Scott Wiener's SB-35 is a grotesque misuse of a general planning tool.

But what about places that refuse to allow certain housing to be built?  Aren't they violating RHNA?  No.  The cases that get the most prominence - like Brisbane - have nothing to do with RHNA.  Those that get the most publicity are just some builder complaining a city won't let them build somewhere.  In the case of Brisbane it is on an unregulated toxic waste dump that really should be an EPA "Superfund" site.  RHNA does not enter into it in the slightest.

Builders build housing and if they decide for perfectly legitimate reasons that there is no market for new housing - if, for example, the area is not growing in population - they will not ask for a permit to build.  Even if they do build, but not to the numbers specified in the RHNA spreadsheet, for the income levels planned and zoned for, that city or county "didn't make their RHNA numbers".

This concludes Part II.
Part I is here:

Ree-diculous Ree-na - Part I


Ridiculous RHNA ("Ree-na")

Part I

Part II is here:

California has something called the "Regional Housing Needs Allocation", usually pronounced "ree-na".  It is intended to indicate how many housing units for different income levels a city or county needs to zone for.  See screen shot below (click to enlarge):

Housing and Community Development (HCD) web page for RHNA
RHNA numbers are being misinterpreted in order to justify California laws overriding local control of development.  Proposed laws like Senator Scott Wiener's SB-827 would allow high rise apartment buildings in the middle of single family neighborhoods.  Under existing law (SB-35) and proposed laws (SB-827, SB-828), builders need not consider residents' legitimate concerns about traffic, schools, parking or much else.  No public hearings, no parking requirements no environmental impact requirements.  All this because of gross misinterpretations of what RHNA numbers really mean.

In this part we look at RHNA numbers as applied to various cities and counties and see that if understood to mean "goals" they make no sense.  In Part II we will look at what RHNA numbers actually mean.

Cities that "don't make their RHNA numbers" are subject to SB-35 which is State Senator Scott Wiener's law to "streamline" approval of building companies' housing construction plans.

Terrible, No Good, Very Bad, Just Awful Places That
"Didn't Make their RHNA numbers!"
What is wrong with these places, don't they know there's a "housing crisis"?
A list of over 500 cities and counties that "didn't make their RHNA numbers" is available from the State Housing and Community Development Agency (HCD).  Cities and counties on the list are subject to Senator Scott Wiener's SB-35.  One of the cities is Biggs, in Butte County.  The list looks like this:

There's Biggs at #31 in Scott Wiener's Hall of Infamy!
The full document is available here:

Biggs, CA - Butte County:  Population 1,707 (2010) down by 90 from 1,797 in year 2000.  Biggs "didn't make their RHNA numbers" so is subject to Scott Wiener's SB-35, over-riding local controls on housing construction.  
Biggs, CA (Butte County) in it's entirety.
Biggs "didn't make their RHNA numbers"
Busy Biggs.  Build, Biggs! Build!
We need a Bigger Biggs!  A Biggsier Biggs!  
High Density Transit-Oriented-Development goes here!
Get with the program Biggs!  Senator Wiener is coming after you!

A three hour commute for Biggsians!
This is why we need High Speed Rail!
Biggs Version of Housing Crisis
3 BR house for $717/month
We'll see in the next census if they have reversed their population decline.  In any event, "housing crisis" hardly describes Biggs' situation.

City of Amador - Amador County: Population 186 (2010) - down from 190 in 2000 - "didn't make their RHNA numbers" and is on Scott Wiener's "list of infamy" that we saw earlier.

The picture below of Amador is from the "Encyclopedia of Forlorn Places" which notes that "The town mostly burned down in 1878 but some buildings survived that fire. It's a great town to walk around in."  No one built housing recently - maybe they are afraid of another fire like the one in 1878.  Sure, it's been 140 years, but you never know, right?  "Once burned, twice shy."
Amador: "Forlorn" but not forgotten!
Here is a screen shot of the Amador County housing spreadsheet with Amador City at the very top  (click to enlarge):
You can find this spreadsheet and many others at:
It shows that the town of Amador's RHNA numbers were for 2 housing units.  One for "Very-Low" and one for "Low".  No one built those two units so Amador "didn't make their RHNA numbers."  And for that, Amador City is on the list of jurisdictions subject to SB-35.  Too bad! 😢

Housing Crisis Extends All the Way to Here!

Alpine County: Population 1,154 (2018) down from 1,175 (2010).  Area = 738 sq. miles.  

Alpine County was formed in 1864 and peaked in population that year at 11,000.  A year later it was down to 1,200, 10% greater than now. Population declined by 21 in the 9 years from January, 2010 to January, 2018.  The US federal government owns 94% of the land in the county.

There are ski resorts and lots of up-scale vacation homes - probably vacant most of the year.

Nonetheless, the California State HCD lists them among jurisdictions (cities and counties) that "..have insufficient progress toward their Above Moderate income RHNA ...subject to SB 35."  Their "RHNA numbers" are seen in the spreadsheet screen shot below (click to enlarge):

Alpine County RHNA Numbers

Because no one built 11 housing units for Above-Moderate income people, Alpine County "didn't make their RHNA numbers".  (Maybe only 10 were built - but that wouldn't be enough.)  Therefore, should a builder want to, they can, to some degree, bypass local planning regulations.  Of course, it is highly unlikely anyone wants to build in a county where the population is declining and only about 6% of the land is not owned by the US Govt.  Doesn't matter.  Alpine County "didn't make their RHNA numbers" so local control in terms of considerations of traffic and schools is over-ridden by Scott Wiener's SB-35.

"Housing Crisis" goes to the Nevada border!

Sierra County: Population 3,207 (2018) down from 3,240 (2010).  Area = 953 sq. miles.
Downieville - Sierra County Seat
Sierra County was formed in 1852 and peaked in population in 1860 at 12,000.  Population declined by 33 in the 9 years from January, 2010 to January, 2018.

Like Alpine County, Sierra County "didn't make their RHNA numbers" and is subject to SB-35 to alleviate the "housing crisis".  Let's all hope someone decides to build 11 units of "Above Moderate income housing" in Sierra County so the "Housing Crisis" will be resolved!
"Help us!  Builder-Wan, you're our only hope!"

Modoc County: Population 9,612 (2018) down 74 from 9,686 (2010).  Area = 4,203 sq. miles.

Original home of the Modoc People.  Most of the land is owned by the US Federal Govt.  The National Park Service and National Forest Service employ a large fraction of the population.  The county is on the border with Oregon and Nevada.  It reached a population of 8,000 in 1930. Population has never reached 10,000 inhabitants.

Like Alpine and Sierra Counties, Modoc County "didn't make their RHNA numbers" and is subject to Scott Wiener's SB-35 to alleviate the "housing crisis".
Modoc County "Housing Crisis"
5 BR, 2,332 Sq. Ft., Mortgage = $712 per month.

Other Counties Here is a list of 15 counties in California most of which lost population over the 9 years from 2010 to 2018.  I added Amador and Kings which gained a whopping 3 and 31 residents, respectively, in those 9 years.  All of them are on Scott Wiener's list of infamy.

Alpine County             (21)  Population declined by 21
Sierra County             (33)    "                  "          by 33 etc.
Calaveras County     (421)
Del Norte County   (1,389)
Kings County         (1,320)
Lassen County      (3,984)
Modoc County            (74)
Mono County            (380)
Mariposa County      (122)
Plumas County         (234)
Siskiyou County       (288)
Trinity County           (151)
Tuolumne County     (625)
Amador County            +3    Population increased by   3
Inyo County                +31    Population increased by 31

Population Decrease of 1,389 in last 8 years.
"Didn't make their RHNA numbers" so...

Scott Wiener's SB-35 applies
In the counties listed above, no one asked for as many permits as the RHNA numbers indicated had been planned for.  Probably because there is no demand for new housing in poor counties that are losing (or not gaining much) population.  As a result, those counties "didn't make their RHNA numbers" and are subject to Scott Wiener's SB-35.

There are nearly five hundred cities which "didn't make their RHNA numbers" but it serves no purpose to enumerate every one of them.  In fact, over 97% of California cities "didn't make their RHNA numbers".

It should be obvious by now that the phrase "didn't make their RHNA numbers" does not mean what you thought.  Don't use it.