Housing Construction Costs 2017

How Much Do Apartments Cost to Build?

Introduction: 
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).

Link to this post: 

http://meetingthetwain.blogspot.com/2018/09/housing-construction-costs-2017.html

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:
https://www.spur.org/events/2017-05-30/why-does-housing-cost-so-much

Parking spaces are about 2% of the total cost.

Summary:
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 & Salaries  = $185,595 = 21% of final cost.
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Total cost     = $900,000 = 100%

Which is 2% of the total cost of a building over the life of the building.  

https://www.wbdg.org/resources/life-cycle-cost-analysis-lcca

"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).

Detail:
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., http://www.reconnectingamerica.org/news-center/half-mile-circles/2011/san-francisco-s-reduced-residential-parking-requirements/

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."
http://www.accessmagazine.org/spring-2014/parking-requirements-housing-development-regulation-reform-los-angeles/

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.
C.f., https://www.nreionline.com/multifamily/apartment-developers-try-figure-out-parking-equation-world-fewer-cars

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):

https://graphingparking.com/2013/01/25/residential-parking-requirements/

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.

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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: https://www.spur.org/events/2017-05-30/why-does-housing-cost-so-much

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.


Comment:

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.

Addendum:
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:
https://sfdbi.org/sites/default/files/Cost%20Schedule_0.pdf.  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...