In markets from Massachusetts to California to Chicago to D.C., projects using the tax credits routinely cost more than $800K per unit to build, and in some cases more than $1M.
Market-rate apartments, by contrast, typically cost less than $500K per unit. Because states cap the portion of a project that the tax credits can finance, developers must piece together several public and private funding sources that often come with their own mandates and fees. The process requires hiring attorneys and consultants to navigate, all of whom get paid out of the project budget.
All of that adds up to soft costs — those not directly going into construction — for many affordable projects, surpassing 25% of the budget.
Developers typically make their money on tax credit projects via fees that are calculated as a percentage of a project’s cost — often as high as 15% — an arrangement critics point out could motivate builders to keep costs elevated.
Source: Special Report
