New grants support strategies to lower housing development costs

Transitions Projects: Low-Income Single Adult Housing (LISAH) concept

The cost of new affordable housing in Oregon has been a topic of intense scrutiny. The need for affordable housing continues to outpace the current system’s ability to deliver additional units. There is immense pressure to stretch the scarce public funds dedicated to affordable housing as far as possible.

Meyer’s Cost Efficiency strategy was developed in direct response to public, private and nonprofit community partners’ call for Meyer to spark and test innovations to address the high cost of affordable housing development and to influence policy and systems changes supporting different approaches.

As part of the the Affordable Housing Initiative, Meyer convened a group of experts to define problems and potential solutions. The final report of the Cost Efficiencies Work Group, The Cost of Affordable Housing Development in Oregon, was completed in October 2015 and has received wide attention from public funders, elected officials and the affordable housing industry.

As a continuation of that work, Meyer began funding five innovative pilot projects last year (with predevelopment grants under a Request for Proposals that elicited 17 proposals overall), focused on trying new approaches to reduce the cost of affordable housing development. The sponsors of those five projects were recently invited to request capital grants to support further development of their projects, depending on how well the projects were furthering the goals and criteria outlined in the 2016 RFP.

While each of the five predevelopment pilots ran into challenges (both expected and not), four of the five proposals appear to be moving ahead, and we are pleased to support these projects with significant capital grants approved in January.

Northwest Housing Alternatives ($400,000) — Building a replicable, efficient small project that is not reliant on 9 percent Low Income Housing Tax Credits for funding

This project, underway in Oregon City, will draw on and develop lessons from several other NHA projects around the state at different stages of development (in Hermiston, Hillsboro and Florence). In addition to rigorously focusing on cost-efficiency in design, NHA (working closely with its contractor Walsh Construction) will compare the feasibility of using factory-built modular housing with the most cost-efficient approach to site-built housing.

REACH CDC ($400,000) — Adapting “Lean” manufacturing to affordable housing on a large project in Southeast Portland.

Lean planning and coordination, typically associated with manufacturing processes, depends on an intensely collaborative and iterative approach to design and execution. The Lean approach taps into the collective expertise of the project team, identifies waste and inefficiencies, and focuses on continuous learning to improve workflow. By working closely from the outset of the design process with the general contractor (Walsh Construction), subcontractors, architect and other project partners, REACH hopes to achieve significant cost savings over a more typical affordable housing development.

SquareOne Villages ($200,000) — Developing a new tiny-house village in Cottage Grove, with an emphasis on assisting other grass-roots efforts at low-cost housing.

SquareOne is building upon its recent successes in Lane County (with Opportunity Village Eugene and Emerald Village Eugene) in providing basic, extremely low-cost housing drawing on grass-roots support. As it begins work on its latest project in Cottage Grove, SquareOne will distill what it has learned to date into a Toolbox and training kit meant to help other small Oregon communities with fewer local housing resources replicate the approach.

Transition Projects Inc. ($500,000) — Piloting efficient and flexible modular housing designs.

At the core of TPI’s proposal is an innovative modular approach to design and construction that can be combined and configured in a variety of ways, including some single-room occupancy units with shared bath and kitchen facilities. Like the NHA project, TPI will work closely with its partner on this project (Housing Development Center) to compare and evaluate whether factory-built modules can be cost competitive with site-built versions of the units. This “kit of parts” approach will be piloted on an unusually shaped property in North Portland that would be difficult to develop with a conventional apartment building. HDC hopes to then partner with Northwest Oregon Housing Authority (NOHA) to replicate this approach to pilot low-cost workforce housing on the north coast.

The fifth predevelopment project (creation of a new rental housing community using manufactured homes in East Portland, led by Innovative Housing Inc.) is not proceeding as originally proposed but has surfaced important lessons for when and where manufactured housing might be a good choice for affordable developers.

This slate of grants represents different strategies and housing types with real potential to push the envelope in the affordable housing space in Oregon. Even though three of the four projects are located in the Portland region, the four approaches cover a mix of common housing challenges. Their hard-earned experience will benefit developers creating affordable housing across the state.

As part of our emphasis on shared learning and informing the field, we will collect and disseminate detailed lessons learned from all five projects (including the one not going forward), and we are actively engaging partners around the state (including developers, funders and regulators) about the best venue and format for continuing the cost efficiency/innovation discussion. We have a commitment from the project teams to document the lessons they learn and to actively share these lessons broadly with the affordable housing industry. We expect a high level of interest from a variety of public, private and nonprofit partners.

Lessons Learned So Far

Although these projects are still in early stages of development, the core conclusions of the 2015 report seem largely validated.

  • There are meaningful opportunities to shave down both soft costs and hard costs. The best way to identify and exploit these opportunities is to challenge development teams (in a thoughtful and nuanced way) to deliver at a lower cost.

  • All partners in affordable housing — funders, lenders, investors and local jurisdictions to name a few — have a part to play in lowering costs.

  • Some approaches — including new rental communities with manufactured homes and building with factory-built modular units — have turned out to be more complex or costly than originally expected, at least for the pilot projects.

  • Radically lower costs probably come with unacceptable tradeoffs in terms of quality, durability, neighborhood acceptance and other important factors that developers must wrestle with.

This is an inherently complex set of issues, and there is still a lot of work to be done (see sidebar). We hope these projects will inspire and inform affordable housing developers who are genuinely interested in lower cost development, as well as funders who are exploring ways to support and encourage lower costs without compromising other crucial aspects of housing development.

Other Meyer Efforts Around Cost Efficiency

The 2015 report listed a number of recommended next steps to advance work around lowering development costs. Along with our partners in the field, we’ve made some headway on many of these.

  • We continue to meet with a wide array of stakeholders — including public funders, decision-makers and influential private sector groups —regarding the lessons of the Cost Efficiency report.

  • Following up on the identified need for more flexible funding, Meyer has convened some fruitful early conversations around identifying potential sources of new private funding for affordable housing.

  • Good work is under way (led by Earth Advantage and supported by HDC) to adapt a framework for lifecycle cost analysis that can help evaluate the long-term cost savings of specific energy-efficiency related strategies in housing development.

  • We continue to engage public funders and decision-makers, as well as the industry at large around how to achieve lower costs without compromising on other goals and on messaging and communications around these issues.