Analyzing Development Costs for Low-Income Housing
Legislative Auditor's Conclusion:
Development costs for six projects are consistent with independent
estimates. Commerce can improve cost controls, and the Housing Finance Commission has
opportunities to lower costs by examining for-profit developer involvement.
In 2017, the Legislature directed JLARC to analyze the costs of developing low-income
housing (i.e., affordable to households making less than 80 percent of the area median
income). JLARC staff reviewed the two largest programs in Washington.
Low-Income Housing Tax Credit (LIHTC)
Housing Trust Fund (HTF)
Managing agency
Washington State Housing Finance Commission (Commission)
Department of Commerce (Commerce)
Type of subsidy
Federal tax credits and tax-exempt bonds
State grants and low-interest loans
Multifamily housing financing awarded (2017)
$644 million in tax credits and $732 million in bonds
$54 million
Multifamily units financed (2017)*
7,049
1,785
* Some projects may have received both LIHTC and HTF funds and
units are included in both counts.
Source: Washington State Housing Finance Commission and Department of Commerce.
Six case studies found development costs were within or below estimates expected by
independent experts
JLARC worked with professional cost estimators who
calculated retrospective estimates for six LIHTC projects completed between 2014 and
2016. JLARC staff found that the costs were within or below the estimated cost ranges.
Commerce does not collect final development costs for Housing Trust Fund projects, so
it was not possible to conduct a similar analysis for that program.
Analysis shows location, developer type, and project characteristics affect costs.
Program restrictions and population needs can limit the ability to change some of
these factors.
Statistical analysis of 241 LIHTC projects showed that location, developer type, and
project characteristics are factors most likely to affect development costs. There was
insufficient information to determine how prevailing wage and environmental building
requirements affect costs.
The ability to alter some factors may be limited. For example, having more
bedrooms per unit may not be appropriate for housing that serves single adults.
Influencing the type of developer raises broader policy issues beyond development
costs. Stakeholders noted nonprofit and housing authority developers may be best
suited to serve more vulnerable populations once developments are operational. As a
result, those developers may fulfill more scoring criteria than for-profit
developers when competing for certain funding. Commission policy encourages
for-profit developers and nonprofit organizations to develop projects as co-owners.
This has not occurred.
The Commission follows key best practices for monitoring and controlling costs,
while Commerce can improve its cost controls
The Commission follows most best practices published by the National Council of State
Housing Agencies. Commerce does not collect final development costs, limiting its
ability to analyze and monitor cost data over time.
Legislative Auditor Recommendations
The Commission should identify and evaluate options for increasing the involvement
of for-profit developers in the 9% tax credit program and report their findings to
the Legislature.
Commerce should collect final development cost data from Housing Trust Fund
recipients to improve cost controls.
Commerce and the Commission should report development cost data to the Legislature
annually.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Report Details
1. Two programs finance low-income housing
The Washington State Housing Finance Commission and the
Department of Commerce manage programs that finance low-income housing development
Two main programs offer incentives for the development of low-income housing
Two programs provide the majority of funding and have financed the most units in
Washington: the Low-Income Housing Tax Credit program and the Housing Trust Fund. Most
of this housing serves low-wage workers, farm workers, people experiencing
homelessness, persons with disabilities, seniors, and other populations.
Washington State Housing Finance Commission offers federal tax credits (LIHTC
program)
The Washington State Housing Finance Commission (Commission) administers the
Low-Income Housing Tax Credit program, commonly called LIHTC (pron.
"lie-tech"). The program finances construction of low-income housing through
federal tax incentives.
Housing financed by LIHTC must be affordable to households with incomes at 60 percent
or less than the area median (26 US Code § 42 (g)(1)(B)). Once built, housing must
remain affordable to low-income tenants for at least 30 years.
Developers use credits to secure funding from investors
The program provides an indirect subsidy to housing developers.
The Internal Revenue Service (IRS) provides federal tax credits for the
development of low-income housing. The tax credits are allocated at the state
level.
The Commission awards the state's tax credits to developers. Developers may
receive a 9% tax credit or a combination of a 4% tax credit and tax-exempt
bonds (see below).
A developer transfers the credits to an investor that funds the housing. The
investor becomes a majority owner of the housing, and uses the credit to reduce its
federal income tax liability.
The developer uses the money received from the investor to build low-income
housing.
Exhibit 1.1: LIHTC offers incentives in two ways: a 9% tax credit or tax-exempt
bonds plus a 4% credit
9% Tax Credit
Bond/4% Tax Credit
Description
Provides tax credits that typically generate equity for 70% of a project's
development costs.
Provides tax credits that typically generate equity for 30% of a project's
development costs as long as 50% of the costs are financed by tax-exempt bonds.
Commission award process
The IRS limits available tax credit. Demand typically exceeds the amount of
available tax credit.
Projects are financed through a competitive process with criteria set by
the Commission.
The IRS does not limit tax credit but does limit tax-exempt bonds. Demand has
not exceeded the amount of available bonds.
Projects are financed if they meet Commission program criteria.
Recipients
Nonprofits and housing authorities
For-profit developers are eligible but have not received the tax credit in
over five years.
Nonprofits, housing authorities, and for-profit developers.
Population served
Households with lower incomes or special needs (e.g., supportive housing for
the homeless).
Households with slightly higher incomes (e.g., workforce housing).
Units developed (2009-16)
7,026
14,177
Source: JLARC staff analysis.
Department of Commerce offers grants and loans through the Housing Trust Fund
The Department of Commerce (Commerce) administers the Housing Trust Fund, a state
program that makes grants and low-interest loans for low-income housing. The maximum
award is $3 million per project. The Housing Trust Fund serves households with 80
percent or below the area median income (RCW 43.185A.010). Once built, housing must
remain affordable for at least 40 years.
Commerce must use a competitive process and award funds to nonprofit or government
developers
Use a competitive application process that evaluates applicants against statutory
criteria.
Allocate funds to nonprofit or government developers (e.g., tribes, local
governments, housing authorities). For-profit developers are not eligible.
Give preference to applications based on criteria such as commitment to serve
populations with the greatest need, providing housing for people with the lowest
incomes, and leveraging other funding sources.
Although statutory direction to prioritize costs when evaluating applications expired
in 2013, Commerce continues to consider costs when awarding funds. The Legislature can
allocate Housing Trust Fund dollars to specific developments.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Report Details
2. Costs are within estimated ranges
Six case studies found development costs were within or below
estimates expected by independent experts
JLARC staff reviewed six completed Low-Income Housing Tax Credit (LIHTC) projects to
evaluate costs
The Legislature directed JLARC to compare the costs of developing subsidized
low-income and market-rate housing. Like other researchers and entities such as the
Government Accountability Office that have reviewed this question, JLARC was unable to
obtain comparable data from market-rate developers. In the absence of this data, JLARC
contracted with a team of independent cost estimating professionals to develop
retrospective estimates for six projects that received LIHTC funding. The
retrospective estimates enabled a comparison of expected costs with actual costs.
Each project was funded by the Low-Income Housing Tax Credit (LIHTC) program (either
the 9% tax credit or a combination bond/4% tax credit). These case studies reflect
various regions, developer types (e.g., nonprofit, for-profit), populations served,
and construction years. More detail about the sites used in the case studies is
available in Appendix
A.
Total development costs were within or below ranges calculated by professional cost
estimators
JLARC staff hired professional cost estimators to calculate a retrospective cost
estimate for each housing development. The estimators:
Reviewed architectural drawings.
Considered market conditions, wage requirements, and other federal, state, and
local requirements in place during development.
Considered construction conditions that affected cost or time (e.g., labor supply,
site contamination).
Considered the cost effect of the state's green building performance standard (the
Evergreen Sustainable Development StandardWashington's green building performance standard required of
all low-income housing projects financed through LIHTC or the Housing Trust
Fund.), required by RCW
39.35D.080.
Completed site visits and interviews with industry professionals.
The estimators provided a range of estimated total development costs for each case
study. The costs include materials, labor, architect fees, loan fees, and other costs.
JLARC staff compared the cost estimates to actual total development costs reported to
the LIHTC program. The actual costs are within or below the estimated ranges.
Exhibit 2.1: Case studies of six LIHTC projects found actual development costs are
within or below estimated ranges
Source: JLARC staff depiction of six LIHTC projects, the retrospective estimates of
costs, and actual costs.
LIHTC development costs are reviewed during and after development
The Commission requires the owner of the LIHTC-financed property to monitor costs
during development. In addition, lenders and investors often monitor costs to ensure
that funds are spent appropriately. Monitoring may include site visits and use of
third-party architects to ensure construction quality.
After a project is built, the Commission requires the developer to submit a final
cost certification prepared by an independent Certified Public Accountant.
Analysis of a small sample of Seattle sites indicates challenges in comparing
LIHTC developments with market-rate projects
With the assistance from the Department of Housing and Urban Development (HUD), JLARC
staff compared LIHTC and market-rate development costs for a sample of multifamily
projects that participated in a HUD-insured mortgage program. In a comparison of 13
market-rate and 11 LIHTC projects in Seattle, LIHTC projects cost 8 percent more per
unit than market-rate projects.
The comparison highlighted some differences between the market-rate and LIHTC housing
developments that may contribute to cost differences:
LIHTC projects include the developer's compensation in the development costs. In
contrast, market-rate developers are compensated through the rental or sale of the
development. By excluding the developer's profit in the development costs,
market-rate costs may appear lower than LIHTC costs.
The LIHTC developments had fewer units, but units typically had more bedrooms and
more square footage than the market-rate developments.
Outside of this sample, it is unknown how LIHTC development costs compare with
market-rate costs because comprehensive and verifiable market-rate data is unavailable
for a full comparison.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Report Details
3. Analysis identifies factors that affect development costs
Statistical analysis of all 241 LIHTC project sites from
2009-2016 shows location, developer type, and project characteristics affect costs. The
Housing Finance Commission has opportunities to lower cost by examining for-profit
involvement.
What is a regression analysis?
Regression analysis is a commonly accepted statistical tool that estimates
the relationship between a factor (explanatory variable) and an outcome
(dependent variable). The analysis holds other factors constant so the
researcher can evaluate one at a time.
Regression analysis helps identify which factor(s) have a high likelihood of
affecting costs. It also helps estimate the size of each factor's impact.
See Appendix B for more information about interpreting regression results.
JLARC staff used a regression analysis to assess factors that may affect
development costs. These costs include materials, labor, architect fees, and other
costs, but exclude land costs and reserves. The analysis included 241 sites built
between 2009 and 2016 with funding from the Low-Income Housing Tax Credit (LIHTC)
program (for project data, see Exhibit B1 in Appendix
B). JLARC staff used data from the Washington State Housing Finance Commission
(Commission) and the U.S. Census. This is the first complete analysis of Washington’s
LIHTC data and helps identify cost drivers and actions that may be available to
control costs.
Regression approach: Many factors may affect development costs. JLARC staff
modeled the relationship between development costs and factors such as construction
year, developer type, location, and size. The models analyzed cost per unit, cost per
square foot, and cost per bedroom. The cost per bedroom model had the greatest
explanatory power and was generally consistent with the other models, so it is
presented here. Additional information and results for the cost per unit and per
square foot models are in Appendix
B.
For-profit and vertically integrated developers are associated with lower costs
The regression analysis suggests for-profit developers and vertically integrated
developers are associated with lower costs (see Exhibit 3.2). For this analysis,
vertically integrated is defined as developers also serving as their own general
contractor or having a shared interest with the project's general contractor.
These findings are consistent with similar research. However, influencing the type of
developer raises broader policy issues beyond development costs.
For-profit companies developed 38 percent of the projects financed with the bond/4%
tax credit program from 2009-2016. However, Commission scoring criteria favor
nonprofit developer and housing authority participation in the 9% tax credit program
(see Exhibit 3.1). The 9% tax credit is intended for housing projects that serve the
lowest income populations or those with specific service needs. Nonprofits and housing
authorities with missions to serve these populations fulfill more scoring criteria
than for-profit developers. For-profit developers may be more competitive for the 9%
tax credit if they partner with a nonprofit or housing authority as co-owners. This
has not occurred. JLARC staff found that for-profit developers have not received the
9% tax credit since 2013.
Exhibit 3.1: 241 LIHTC projects placed in service from 2010-2017 by developer
type
Source: JLARC staff statistical analysis of LIHTC data.
According to the Government Accountability Office and Oregon’s housing finance
agency, for-profits have developed projects using the 9% tax credit in other
states.
Developers with a high level of development activity are more likely to be vertically
integrated. Stakeholders noted that nonprofits and housing authorities may not have
enough construction work to afford becoming vertically integrated.
Exhibit 3.2: Developer type associated with lower development costs
All else being equal, if a developer is:
Predicted development cost per bedroom is:
For example, a development that costs:
A nonprofit or a housing authority
15-28% more than if the developer were a for-profit.
Vertically integratedVertically
integrated developers also serve as their own general contractor or have a
shared interest with the project's general contractor.
11% less than if the developer were not vertically
integrated.
Source: JLARC staff statistical analysis of LIHTC and U.S. Census data.
Location and other project characteristics also impact costs, but the ability to
control these characteristics may be limited by the needs of the population served
The regression analysis suggests that location and new construction can increase
costs. Rehabilitation projects or building more units or bedrooms may reduce costs
(see Exhibit 3.3). See Appendix
B for more information about how development factors can affect costs.
Still, it may be difficult for the Commission or the Department of Commerce to change
these cost factors.
Location: Some of the people served live in King County or in neighborhoods
with higher rent, older housing stock, or higher poverty.
New construction versus rehabilitation: In some areas, new construction
projects may be the only option if sites suitable for rehabilitation are not
available.
Building size: Building more units or bedrooms may depend upon need,
population served, funding, acreage available, and zoning. For example, constructing
more bedrooms per unit may not be appropriate for a development serving single
adults in an urban setting. Likewise, constructing additional units may not be
appropriate for a development located in an area with a small population.
Exhibit 3.3: Location and project characteristics associated with changes to
development costs
All else being equal, if a development is:
Predicted development cost per bedroom is:
For example, a development that costs:
Located in Seattle/King County
More than a project in the Non-Metro region The Commission divides the state into three geographic
regions: Seattle/King County, Metro (Clark, Pierce, Snohomish, Spokane, and
Whatcom counties), and Non-Metro (all other counties). . (The
regression found no significant relationship when comparing costs for the Metro
region and the Non-Metro regions.)
Located in a neighborhood with higher rent
More than a project in an area with lower rent.
Located in a neighborhood with older housing stock
More than a project in an area with newer housing stock.
Located in a neighborhood with higher poverty rates
More than a project in an area with a lower poverty rate.
New construction
More than a rehabilitation project.
A project with more units
Less than a project with fewer units.
A project with more bedrooms per unit
Less than a project with fewer bedrooms per unit.
Source: JLARC staff statistical analysis of LIHTC and U.S. Census data.
Consultants and stakeholders identified other factors that may affect development
costs but were not possible to isolate in the analysis
Wage requirements: State, local, and federal laws require that prevailing
wages be paid for developments that receive certain state, local, or federal funds.
Developers suggested that wage requirements may increase development cost by
increasing labor rates or limiting the number of general contractors willing to bid on
the project. However, it was not possible to evaluate this statement with statistical
analysis due to a lack of reliable data. Further, a review of the wage requirements in
six case studies of LIHTC projects was inconclusive (see Appendix
A).
Legislation passed in 2018 may affect the future impact of wage requirements. SB
5493, which took effect September 2018, changed how prevailing wage rates are
calculated. Staff at the Department of Labor and Industries thought the change might
increase the overall minimum prevailing wage rates for construction projects,
including low-income housing projects. Labor and Industries notes the level of
increase depends on many factors, such as specific trades involved in a project and
local collective bargaining agreements. JLARC staff analyzed a selection of wage rates
and found that average wage rates increase with the new method.
Environmental requirements: Projects funded by the LIHTC or the Housing Trust
Fund must comply with the state's Evergreen Sustainable
Development Standard (ESDS)Washington's green building
performance standard required of all low-income housing projects financed through
LIHTC or the Housing Trust Fund.. Since all projects in this study
must comply with the standard, JLARC staff had no comparison group for a statistical
analysis of the standard's impact on costs. For six case studies of LIHTC projects,
cost estimators believe that compliance with the standards increased costs by up to 4
percent (see Appendix
A).
Legislative Auditor Recommendation
The Commission should identify and evaluate options for increasing the involvement
of for-profit developers in the 9% tax credit program and report their findings to
the Legislature.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Report Details
4. Agencies can improve reporting and controlling costs
The Commission follows key best practices for monitoring and
controlling costs, while Commerce can improve its cost controls
JLARC staff assessed agency policies for monitoring and controlling costs for
projects funded through the Low-Income Housing Tax Credit (LIHTC) program and Housing
Trust Fund.
The Washington State Housing Finance Commission has procedures to ensure reasonable
development costs
JLARC staff compared the Commission's practices to best practices published by the
National Council of State Housing Agencies (NCSHA).
The Commission follows best practices for monitoring and controlling costs for
projects in the LIHTC program. For example, it ensures costs are reasonable by
setting limits and giving developers with lower costs an advantage for competitive
awards.
After a project is built, the Commission requires the developer to submit a final
cost certification prepared by an independent Certified Public Accountant.
Commerce collects some cost data but does not track final development cost
Commerce reviews total development cost estimates when developers apply for Housing
Trust Fund (HTF) money and monitors costs during construction. Since 2002, Commerce
has contracted with a third-party construction inspector, the Washington Community Reinvestment Association (WCRA)WCRA
is a nonprofit that provides financing to low-income housing
developers., to review expenses and conduct site inspections during
construction. Commerce does not track final development costs after a project is
completed. Without final development cost data, Commerce cannot analyze development
costs of projects funded with Housing Trust Fund money or compare actual expenses to
estimates in the project applications.
At the Legislature's direction, Commerce identified 14 actions in 2009 and 2012 to
increase the cost effectiveness of the HTF program. One of the actions is to monitor
final development costs. Because Commerce does not collect this data, it is unable to
implement its own recommendation to document and monitor development cost data over
time.
Legislative Auditor Recommendations
Commerce should collect final development cost data from Housing Trust Fund
recipients to improve cost controls.
Commerce and the Commission should report total development cost data to the
Legislature annually.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Report Details
5. Subsidized programs limit developers' options
While construction is similar to market-rate housing, low-income
housing program requirements limit flexibility in financing, operating incomes, and
ability to sell
While comparing development costs of subsidized low-income and market-rate housing
was not possible, JLARC staff compared life cycle processes for both types of housing.
There are four life cycle processes that developers of low-income or market-rate
housing must consider: financing, construction, operations, and sale. As directed by
the Legislature, this report focuses on development (financing and construction).
Financial differences at later stages may limit a developer's ability to generate
income through rental or sale of the property.
Exhibit 5.1: There are important differences in regulatory requirements for
developing and managing low-income and market-rate housing
Source: JLARC staff analysis.
Low-income financing is more complicated and time-consuming
Low-income housing programs require multiple funding sources. A single development
may receive a loan from a bank, an equity contribution from a private investor, and
public funding at the local, state, and federal levels.
This financing structure complicates low-income housing development:
Application, public participation, and distribution of funds from multiple sources
may slow the timing of site acquisition, permitting, and construction.
Each funding source may require separate applications, inspections, monitoring,
and legal services.
Each funding source may require compliance with additional federal, state, and
local policies and priorities. This includes prevailing wage requirements, public
works requirements, and environmental building standards.
In contrast, market-rate projects have a simpler financing structure. Often a single
bank loan and an equity contribution can fund the development.
The construction process is similar for low-income and market-rate housing
development
The construction process is largely the same for both types of housing developments.
Both may use the same contractors, buy the same materials, and utilize the same labor
pool. They are subject to the same local regulations, such as design review and
permitting. All housing developments are subject to the same building codes and must
pass inspections. As noted above, when prevailing wages apply, there may be additional
compliance requirements.
State and federal rent caps limit future operating income for low-income
housing
Low-income housing projects are limited in their ability to raise operating income
because rent is restricted to levels set by federal and state agencies. The
restrictions are in place for 30 years or more. In addition, projects that serve
extremely low-income populations, such as supportive housing for the homeless, may
incur the cost of providing necessary tenant services. Due to these operating income
limits, investors may require and regulate the use of operating reserves by developers
to pay for future repairs or unexpected costs.
In contrast, developers of market-rate housing can adjust rents to market conditions
and use rental revenue for operating costs and profit.
Subsidized low-income developers have more sale restrictions
Sale or transfer of ownership of subsidized low-income housing developments are
subject to funding program approvals and procedures. Projects must comply with rent
restrictions for 30 years or more. Sale prices reflect the requirements for long-term
rental restrictions.
In contrast, market-rate developers can sell at any time at market price.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Report Details
Appendix A: Case studies
JLARC staff reviewed six case studies from the Low-Income Housing
Tax Credit program
JLARC staff selected six Low-Income Housing Tax Credit (LIHTC) developments for
analysis of the development process and costs. The case studies represent a variety of
LIHTC developer types and project sites. All projects were completed within the last
four years and many are intended for specific low-income populations, such as homeless
young adults, farmworkers, seniors, and people with disabilities. The six case studies
include:
Two from each funding region (Seattle/King County, Metro, and Non-Metro).
Two from each developer type (nonprofit, for-profit, and housing authority).
Three from each type of tax credit (9% tax credit and bond/4% tax credit).
JLARC's professional cost estimator calculated a retrospective cost estimate for each
housing development (tab
2). A second cost estimator reviewed the estimates and found them to be thorough
and reasonable. More details about each project are below.
Copper Landing, Airway Heights
Source: Photo courtesy of Inland Group.
Developer type: For-profit, vertically integrated
Developer name: Inland Group
LIHTC type: Bond/4% tax credit
Average tenant income: 53% of area median income (AMI)
Population served: Households earning 60% or below AMI
Number of units: 216
Year placed in service: 2014
Total development costs (millions): $22.7
Cost estimate range (millions): $26.8-$36.2
Wage requirement: Davis-Bacon (federal)
residential As required by the Davis-Bacon Act of
1931, federally funded construction projects must pay a minimum wage
determined by the US Department of Labor to laborers and mechanics. In
general, wage rates for residential construction are lower than wage rates
for non-residential construction.
Copper Landing is located on Kalispel Tribal Trust Land. The developer entered into a
ground lease agreement with the Kalispel tribe for the right to build on the property.
The development was financed using bond/4% tax credits and bank and business loans.
The development consists of nine buildings with one-, two-, and three-bedroom
garden-style walk-up apartments The development also has a clubhouse, playground, and
pool.
15 West, Vancouver
Source: Photo courtesy of DBG Properties LLC.
Developer type: For-profit, vertically integrated
Developer name: DBG Properties LLC
LIHTC type: Bond/4% tax credit
Average tenant income: 51% of area median income (AMI)
Population served: Households earning 60% or below AMI
Number of units: 120
Year placed in service: 2016
Total development costs (millions): $19.1
Cost estimate range (millions): $19.1-$25.8
Wage requirement: None
15 West was financed using bond/4% tax credits, loans, and developer equity. The
developer also received a multifamily tax exemption.A 12-year property tax exemption offered by cities to
qualifying projects that provide low-income housing. 15 West is a
mid-rise building with studio, one-, two-, and three-bedroom units. The units are
restricted to tenants who earn 60% or below the area median income.
Marion West, Seattle
Source: Photo courtesy of Low Income Housing Institute.
Developer type: Nonprofit
Developer name: Low Income Housing Institute
LIHTC type: 9% tax credit
Average tenant income: 30% of area median income (AMI)
Population served: 20 units reserved for homeless young adults, the
rest of the units are for households earning below 30%, 40% or 60% AMI
Number of units: 49
Year placed in service: 2014
Total development costs (millions): $15.1
Cost estimate range (millions): $12.4-$16.7
Wage requirement: State commercial By state law, construction contractors must pay
workers prevailing wages on state-funded projects. Wage rates are
established by the Department of Labor and Industries. In general,
commercial wage rates are higher than residential wage rates. A commercial
wage rate may be required on housing construction if there are
non-residential spaces (such as a food bank) in an otherwise residential
building.
Marion West, originally called University Commons, is a mixed-use building located in
Seattle's University District. The development was funded using 9% tax credits,
low-interest loans from the City of Seattle, King County, and the Housing Trust Fund,
developer equity, capital campaign proceeds, and the State Building Communities Fund.
The residential portion of the development has on-site caseworkers and full-time staff
and provides 47 studio and two one-bedroom units. The University District Food Bank is
located on the first floor and includes a nonprofit coffee shop that provides job
training for youth. There is a rooftop garden that supplements the food bank.
Rio de Vida, Prosser
Source: Photo courtesy of Office and Rural Farmworker Housing.
Developer type: Nonprofit
Developer name: Catholic Charities Housing Services of Yakima
LIHTC type: 9% tax credit
Average tenant income: 30% of area median income (AMI)
Population served: Units are reserved for households earning 30% or
50% AMI. 38 units are reserved for farmworkers.
Number of units: 51
Year placed in service: 2016
Total development costs (millions): $11.0
Cost estimate range (millions): $10.6-$14.4
Wage requirement: Mix of Davis-Bacon (federal)
As required by the Davis-Bacon Act of 1931,
federally funded construction projects must pay a minimum wage determined
by the US Department of Labor to laborers and mechanics. In general, wage
rates for residential construction are lower than wage rates for
non-residential construction. residential and
commercial
Rio de Vida, originally called Prosser Family Housing, is a 51-unit townhouse
development built by the Catholic Charities Housing Services Yakima with assistance
from the Office of Rural and Farmworker Housing. The development was funded using 9%
tax credits, low-interest loans from the United States Department of Agriculture Rural
Development, and Benton County 2060 funds. There are two- and three-bedroom units. The
development also features a common room, kitchen, recreation area, and computer
lab.
Vantage Point Apartments, Renton
Source: Photo courtesy of King County Housing Authority.
Developer type: Housing Authority
Developer name: King County Housing Authority
LIHTC type: 9% tax credit
Average tenant income: 18% of area median income (AMI)
Population served: Seniors or non-elderly disabled households earning
less than 30% or 50% of the AMI
Number of units: 77
Year placed in service: 2015
Total development costs (millions): $26.7
Cost estimate range (millions): $24.7-$33.4
Wage requirement: Davis-Bacon (federal)
residentialAs required by the Davis-Bacon Act of
1931, federally funded construction projects must pay a minimum wage
determined by the US Department of Labor to laborers and mechanics. In
general, wage rates for residential construction are lower than wage rates
for non-residential construction.
Vantage Point Apartments was developed by the King County Housing Authority (KCHA) on
an existing KCHA property. The development was financed using 9% tax credits, with
additional funds from the state, county, and developer. The KCHA developed the project
after it secured operating assistance from the Department of Housing and Urban
Development. The development has 77 units: 72 one-bedroom and 5 two-bedroom units.
Lariat Gardens, Walla Walla
Source: Photo courtesy of Walla Walla Housing Authority.
Developer type: Housing Authority
Developer name: Walla Walla Housing Authority
LIHTC type: Bond/4% tax credit
Average tenant income: 23% of area median income (AMI)
Population served: Households earning 60% or below AMI
Number of units: 43
Year placed in service: 2015
Total development costs (millions): $8.2
Cost estimate range (millions): $7.5-$10.2
Wage requirement: State residentialBy state law, construction contractors must pay
workers prevailing wages on state-funded projects. Wage rates are
established by the Department of Labor and Industries. In general,
residential wage rates are lower than commercial wage rates.
Originally a motel built in 1961, Lariat Gardens was converted into housing in 2001.
The Walla Walla Housing Authority (WWHA) acquired the site in 2009 to preserve
affordable housing near the downtown core. The WHHA renovated the existing building
and constructed new buildings. The development was financed using bond/4% tax credits,
low-interest loans from the Housing Trust Fund, HUD HOME funds, and developer equity.
Lariat Gardens has 43 units: 23 one-bedroom and 20 two-bedroom.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Report Details
Appendix B: Detailed statistical analysis
Regression analysis identified variables associated with changes
in development costs
JLARC staff conducted linear regression analysis to identify how certain factors
affect the costs of developing low-income housing. The model included 241 low-income
housing projects financed using Low-Income Housing Tax Credits (LIHTC) that were
placed in service in the period 2010-2017.
What is regression analysis?
Regression analysis is a statistical technique used to estimate the quantitative
relationships between multiple factors (independent variables) and a particular
outcome (dependent variable). For example, regression analysis can measure how a
building's size affects its development costs. When there are many factors that affect
an outcome, researchers can use regression to "control for," or take into
consideration, those other factors. In this case, regression analysis can measure how
a building's size affects its development costs while separately taking into
consideration other factors such as the building's location, and its developer type.
Regression analysis estimates the variance accounted for in the outcome given the
independent variables. The outcome is called the "dependent variable." In this study,
JLARC staff conducted several regression analyses using different dependent variables,
including a project's total development cost (TDC) per unit, TDC per square foot, and
TDC per bedroom. Ultimately, we decided to use TDC per bedroom for three reasons:
The regression analysis with TDC per bedroom was generally consistent with other
models and showed the greatest explanatory power of all the dependent variables we
considered.
TDC per bedroom serves as a reasonable proxy for the number of people served by
low-income housing programs as compared to per unit or per square foot.
A regression analysis of TDC per bedroom offers a unique contribution to research
on low-income housing development costs.
Most studies do not analyze TDC per bedroom because adequate data is rarely
available. To make our research accessible to researchers that use TDC per unit, we
have also included our regression analysis of TDC per unit and TDC per square foot
below.
We also developed a series of regression models based on different regions of the
state (King County, Metro, and Non-Metro areas). These models are generally consistent
with the initial models, so for the sake of brevity the models are not displayed in
this appendix.
Source data
Data for the regression analyses came primarily from two sources: the Washington
State Housing Finance Commission (WSHFC) and the U.S. Census.
WSHFC: LIHTC Project Data - WSHFC provided JLARC staff with project cost data
for Low-Income Housing Tax Credit (LIHTC) projects placed in service between 2010 and
early 2017. This is the most recent data available. WSHFC staff indicated that the
most reliable sources of cost data for LIHTC projects are the cost certifications that
all projects must submit, pursuant to requirements from the Internal Revenue
Service. JLARC staff received final cost certifications for 241 LIHTC projects,
compiled this data, and developed additional variables based on this data (see
Neighborhood Characteristic Data).
U.S. Census: Neighborhood Characteristic Data - JLARC staff compiled selected
characteristic data for the census tracts in which LIHTC projects are located. These
data include the median contract rent, the median housing stock age, and the
percentage of the population with income below the poverty line for the years in which
the project applied for the LIHTC allocation.
The final analyses use the characteristic data from the application year, rather than
the placed-in-service year, because these variable are a reasonable proxy for property
values and infrastructure condition prior to the start of construction. If the model
had used data from the year the LIHTC projects were placed in service, potential
improvements from the LIHTC development to the neighborhood could have biased the
estimates.
Dependent variables
JLARC staff considered multiple model specifications to assess the relationship
between project characteristics and inflation-adjusted total development cost (TDC)
per bedroom, per unit, and per square foot.
The TDC calculation does not include land acquisition and reserves. JLARC staff
omitted land cost from total development costs because it varies widely due to
geography and other factors that are extraneous to housing development. Doing
otherwise could offer a misleading comparison of development costs. In some cases,
land may be donated, leased, or acquired at below market rates. For example, in one
project a nonprofit developer acquired a 0.8 acre property in Redmond for $75. At the
time of the acquisition, a neighboring property of nearly identical size had an
appraised land value of nearly $2 million.
JLARC staff also omitted reserve amounts because they, too, could offer a misleading
comparison of development costs. Reserves are not uniformly required of all LIHTC
projects. Lenders, investors, or public funders may decide whether a reserve is
required and establish the amount.
Since projects were built in different years, JLARC staff adjusted development costs
for inflation. JLARC staff used the chained price deflator for multi-family
residential construction estimated by IHS-Global Insight to index the construction
costs to 2017.
The data included some projects with per-bedroom development costs well above those
of most other projects. JLARC staff statistically adjusted for the skew caused by
these projects by calculating the logarithm of the development costs. This is a
typical technique to adjust for a skewed population in regression analysis methods.
Regression coefficients are typically interpreted as a unit change in an independent
variable being associated with a unit change in the dependent variable. However, the
log transformation of the original dependent-variable data requires a conversion of
the regression coefficients such that the interpretation of each unit change in the
independent variable is associated with a percent change in the dependent
variable.
Exhibit B1: Distribution of total development cost by developer type
Click on image to enable interactive data filtering (clicking on image will take you
to another website called Tableau Public).
Exhibit B2: Descriptive statistics of the dependent variables for the regression
models
Dependent Variable
Mean
Median
Standard Deviation
Range
Minimum
Maximum
Count
Natural log of TDC minus land and reserves per bedroom
11.8
11.7
0.5
1.9
10.9
12.8
241
Natural log of TDC minus land and reserves per unit
12.3
12.3
0.3
2.0
11.2
13.2
241
Natural log of TDC minus land and reserves per square foot
5.4
5.4
0.4
2.0
4.6
6.6
241
Source: JLARC staff statistical analysis of LIHTC data.
Independent variables
JLARC staff identified independent variables based on a review of existing research
and interviews with stakeholders. Explanations of the independent variables used in
the regression are below and the descriptive statistics are displayed in Exhibit B2.
Many of the independent variables are binary. These variables have a value of 1 if the
condition they describe is true, and the value is 0 if the condition does not apply.
The neighborhood characteristics variables were created using the U.S. Census’
American Community Survey data.
Construction years are seven binary variables for the respective years 2009-2016.
Construction year is an estimated value and defined as the year prior to a project
being placed in service. In the analysis, 2015 is omitted and serves as the
comparison category for each included year.
Two binary variables capture developer type and identify projects as having been
developed by nonprofit or government entities. For-profit developers are factored
into the analysis by serving as the comparison category.
Two binary regional variables capture projects located in King County or Metro areasThe Commission divides the
state into three geographic regions: Seattle/King County, Metro (Clark, Pierce,
Snohomish, Spokane, and Whatcom counties), and Non-Metro (all other
counties).. The comparison category is for projects located in
Non-Metro areas.
New construction is a binary variable identifying new construction projects.
Rehabilitation projects are the comparison category.
9% tax credit LIHTC is a binary variable identifying developments participating in
the 9% tax credit program and bond/4% tax credit program. The bond/4% tax credit
program is the comparison category.
Number of units captures the total number of units built for each LIHTC
development.
Average square foot per unit captures the average square footage of residential
space, common areas, and structured parking per unit in the LIHTC development.
Average number of bedrooms per unit provides an alternate measure of unit size for
each LIHTC development. This variable also allows for estimates of the number of
people potentially served by each development.
Four stories or more is a binary variable indicating whether each project is four
stories or more. This variable was estimated by counting the projects that listed
mid- or high-rise units on the cost certifications, rather than single-family,
townhouse, or walk-up units.
Structured parking is a binary variable identifying housing developments that
included any structured parking stalls.
Vertical integration is a binary variable identifying whether the developer was
vertically integrated for the project. Vertical
integration means the developer also serves as their own general contractor or has
a shared interest with the project's general contractor. JLARC staffed
relied on information included in the cost certification documents to identify
developments where the developer also served as the general contractor.
Homeless units is a binary variable identifying whether the project has any units
dedicated for people experiencing homelessness.
Median contract rent is a continuous variable identifying the median rent in the
census tract where the project is located, in the year in which the application for
the LIHTC was submitted.
Median housing stock age is a continuous variable identifying the age of the
neighborhood housing in the year the application for the LIHTC was submitted. The
variable was estimated as the difference between the application year and the median
build year.
Percent below poverty is a continuous variable identifying the percentage of
individuals with income below the poverty line in the year the application for LIHTC
was submitted.
Exhibit B3: Descriptive statistics of independent variables for the regression
models
Descriptive Statistics - Independent Variables
Mean
Median
Standard Deviation
Range
Minimum
Maximum
Count
2009 construction year
0.09
0.00
0.29
1
0
1
241
2010 construction year
0.14
0.00
0.34
1
0
1
241
2011 construction year
0.10
0.00
0.31
1
0
1
241
2012 construction year
0.15
0.00
0.35
1
0
1
241
2013 construction year
0.15
0.00
0.35
1
0
1
241
2014 construction year
0.17
0.00
0.38
1
0
1
241
2015 construction year
0.20
0.00
0.40
1
0
1
241
2016 construction year
0.01
0.00
0.09
1
0
1
241
Nonprofit
0.48
0.00
0.50
1
0
1
241
For-profit
0.23
0.00
0.42
1
0
1
241
Government
0.29
0.00
0.45
1
0
1
241
Vertical integration
0.20
0.00
0.40
1
0
1
241
King County
0.32
0.00
0.47
1
0
1
241
Metro
0.33
0.00
0.47
1
0
1
241
Non-metro
0.35
0.00
0.48
1
0
1
241
New construction
0.65
1.00
0.48
1
0
1
241
Rehabilitation of existing building
0.35
0.00
0.48
1
0
1
241
Bond/4% tax credit
0.49
0.00
0.50
1
0
1
241
9% tax credit program
0.51
1.00
0.50
1
0
1
241
Number of units
87.98
60.00
75.92
439
10
449
241
Avg. beds per unit
1.8
1.7
0.7
3
1
4
241
Residential square feet per unit
963
949
302
2,847
252
3,099
241
4 or more stories
0.3
0.00
0.5
1
0
1
241
Structured parking
0.2
0.00
0.4
1
0
1
241
Homeless units
0.2
0.00
0.4
1
0
1
241
Median contract rent (App. Yr.)
$980
$951
$327
$1,891
$195
$2,086
241
Median housing stock age (App. Yr.)
43.2
42.0
16.6
64
14
78
241
% Individuals below poverty line (App. Yr.)
21.5%
20.3%
11.9%
52.3%
1.0%
53.2%
241
Source: JLARC staff statistical analysis of LIHTC and U.S. Census data.
Results
The model with the most explanatory power used the natural logarithm of total
development cost (TDC) per bedroom, excluding reserves and land costs. The adjusted
r-squared statistic is 0.765 and represents the amount of variation in the dependent
variable that is accounted for by the full regression model. The regression analysis
showed the following independent variables had a statistically significant
relationship to development cost:
Nonprofit – predicts an average cost increase of 15 percent compared to
for-profit developers.
Government Housing Authority – predicts an average cost increase of 28
percent compared to for-profit developers.
King County – predicts an average cost increase of 23 percent compared to
Non-Metro counties.
New construction – predict an average cost increase of 31 percent compared
to rehabilitation projects.
Number of units – predicts an average cost reduction of 0.1 percent per
bedroom for each additional unit. This likely reflects economies of scale for
development with more units.
Average bedrooms per unit – predicts an average cost reduction of 31
percent per bedroom for each one-bedroom increase in the average number of bedrooms
per unit. This likely reflects economies of scale for developments with more
bedrooms per unit.
Vertical integration – predicts an average cost reduction of 11 percent
compared to developments run by non-vertically integrated developers.
Median contract rent – predicts an average 0.03 percent cost increase per
bedroom for each $1 increase in rent.
Median housing stock age – each one-year increase in the age of housing
stock predicts a 0.4 percent increase in the per bedroom cost.
Percent individuals below poverty line – predicts an average 0.5 percent increase
in the per bedroom cost for each percentage-point increase in the poverty
rate.
Other dependent variables were not statistically significant predictors of total
development cost. Full model results are shown in Exhibit B3.
Exhibit B4: Regression model results - inflation-adjusted TDC (minus land &
reserves) per bedroom, natural log
Source: JLARC staff statistical analysis of LIHTC and U.S. Census data.
Total development cost (excluding land and reserves) per unit
Other studies of LIHTC development costs use the total development cost (TDC) per
unit as their dependent variable, including reports by the Government Accountability
Office, the National Council of State Housing Agencies (prepared by Abt Associates),
Jean Cummings and Denise Di Pasquale (economists who conducted the first major
regression analysis on LIHTC development costs for City Research, an urban economics
consulting firm, and formerly affiliated with the Joint Center for Housing Studies at
Harvard University), and the state of California (prepared by Blue Sky Consulting). In
order to compare our findings with this other research, JLARC staff conducted a
regression analysis using the TDC per unit. Although there is some variation in model
specifications, JLARC staff findings are generally consistent with other research,
including the findings regarding developer type, economies of scale, and neighborhood
characteristics. The adjusted r-squared statistic indicates that this model
specification accounts for 59 percent of the variance in the natural logarithm of the
TDC per unit.
Exhibit B5: Regression results - inflation adjusted TDC (excluding land &
reserves) per unit, natural log
Source: JLARC staff statistical analysis of LIHTC and U.S. Census data.
Total development cost (less land and reserves) per square foot
JLARC staff also analyzed costs on a square foot basis. Results are similar to the
per unit model, but with less explanatory power than the per bedroom model used in the
report.
Exhibit B6: Regression results - inflation adjusted TDC (excluding land &
reserves) per square foot, natural log
Source: JLARC staff statistical analysis of LIHTC and U.S. Census data.
JLARC staff interpret the regression results to be robust as all three models show
similar patterns in the estimated relationships between the independent variables and
each respective dependent variable. While the magnitude of the relationships (measured
as the percent change) between each independent variable and different measures of the
total development cost depends on the model specifications, the overall pattern is
consistent using this data.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
Except as provided in this section, affordable housing projects funded out of the
state capital budget are exempt from the provisions of this chapter. On or before July
1, 2008, the *department of community, trade, and economic development shall identify,
implement, and apply a sustainable building program for affordable housing projects
that receive housing trust fund (under chapter 43.185 RCW) funding in a state capital
budget. The *department of community, trade, and economic development shall not
develop its own sustainable building standard, but shall work with stakeholders to
adopt an existing sustainable building standard or criteria appropriate for affordable
housing. Any application of the program to affordable housing, including any
monitoring to track the performance of either sustainable features or energy standards
or both, is the responsibility of the *department of community, trade, and economic
development. Beginning in 2009 and ending in 2016, the *department of community,
trade, and economic development shall report to the department as required under RCW
39.35D.030(3)(b).
[ 2005 c 12 § 12.]
NOTES:
*Reviser's note: The "department of community, trade, and economic
development" was renamed the "department of commerce" by 2009 c 565.
Use of moneys for loans and grant projects to provide housing—Eligible
activities.
RCW 43.185.050
(1) The department must use moneys from the housing trust fund and other legislative
appropriations to finance in whole or in part any loans or grant projects that will
provide housing for persons and families with special housing needs and with incomes
at or below fifty percent of the median family income for the county or standard
metropolitan statistical area where the project is located. At least thirty percent of
these moneys used in any given funding cycle must be for the benefit of projects
located in rural areas of the state as defined by the department. If the department
determines that it has not received an adequate number of suitable applications for
rural projects during any given funding cycle, the department may allocate unused
moneys for projects in nonrural areas of the state.
(2) Activities eligible for assistance from the housing trust fund and other
legislative appropriations include, but are not limited to:
(a) New construction, rehabilitation, or acquisition of low and very low-income
housing units;
(b) Rent subsidies;
(c) Matching funds for social services directly related to providing housing for
special-need tenants in assisted projects;
(d) Technical assistance, design and finance services and consultation, and
administrative costs for eligible nonprofit community or neighborhood-based
organizations;
(e) Administrative costs for housing assistance groups or organizations when such
grant or loan will substantially increase the recipient's access to housing funds
other than those available under this chapter;
(f) Shelters and related services for the homeless, including emergency shelters and
overnight youth shelters;
(g) Mortgage subsidies, including temporary rental and mortgage payment subsidies to
prevent homelessness;
(h) Mortgage insurance guarantee or payments for eligible projects;
(i) Down payment or closing cost assistance for eligible first-time home buyers;
(j) Acquisition of housing units for the purpose of preservation as low-income or
very low-income housing;
(k) Projects making housing more accessible to families with members who have
disabilities; and
(l) Remodeling and improvements as required to meet building code, licensing
requirements, or legal operations to residential properties owned and operated by an
entity eligible under RCW 43.185A.040, which were transferred as described in RCW
82.45.010(3)(t) by the parent of a child with developmental disabilities.
(3) Preference must be given for projects that include an early learning facility.
(4) Legislative appropriations from capital bond proceeds may be used only for the
costs of projects authorized under subsection (2)(a), (i), and (j) of this section,
and not for the administrative costs of the department.
(5) Moneys from repayment of loans from appropriations from capital bond proceeds may
be used for all activities necessary for the proper functioning of the housing
assistance program except for activities authorized under subsection (2)(b) and (c) of
this section.
(6) Administrative costs associated with application, distribution, and project
development activities of the department may not exceed three percent of the annual
funds available for the housing assistance program. Reappropriations must not be
included in the calculation of the annual funds available for determining the
administrative costs.
(7) Administrative costs associated with compliance and monitoring activities of the
department may not exceed one-quarter of one percent annually of the contracted amount
of state investment in the housing assistance program.
[ 2018 c 223 § 4; 2017 3rd sp.s. c 12 § 13; 2013 c 145 § 2; 2011 1st sp.s. c 50 §
953; 2006 c 371 § 236. Prior: 2005 c 518 § 1801; 2005 c 219 § 1; 2002 c 294 § 6; 1994
c 160 § 1; 1991 c 356 § 4; 1986 c 298 § 6.]
NOTES:
Findings—2018 c 223: See note following RCW 82.45.010.
Findings—Intent—Effective date—2017 3rd sp.s. c 12: See notes following RCW
43.31.565.
Effective dates—2011 1st sp.s. c 50: See note following RCW 15.76.115.
Effective date—2006 c 371: See note following RCW 27.34.330.
Severability—Effective date—2005 c 518: See notes following RCW 28A.500.030.
Findings—2002 c 294: See note following RCW 36.22.178.
Notice of grant and loan application period—Priorities—Criteria for evaluation.
RCW 43.185.070
(1) During each calendar year in which funds from the housing trust fund or other
legislative appropriations are available for use by the department for the housing
assistance program, the department must announce to all known interested parties, and
through major media throughout the state, a grant and loan application period of at
least ninety days' duration. This announcement must be made as often as the director
deems appropriate for proper utilization of resources. The department must then
promptly grant as many applications as will utilize available funds less appropriate
administrative costs of the department as provided in RCW 43.185.050.
(2) In awarding funds under this chapter, the department must:
(a) Provide for a geographic distribution on a statewide basis; and
(b) Until June 30, 2013, consider the total cost and per-unit cost of each project
for which an application is submitted for funding under RCW 43.185.050(2) (a) and (j),
as compared to similar housing projects constructed or renovated within the same
geographic area.
(3) The department, with advice and input from the affordable housing advisory board
established in RCW 43.185B.020, or a subcommittee of the affordable housing advisory
board, must report recommendations for awarding funds in a cost-effective manner. The
report must include an implementation plan, timeline, and any other items the
department identifies as important to consider to the legislature by December 1, 2012.
(4) The department must give first priority to applications for projects and
activities which utilize existing privately owned housing stock including privately
owned housing stock purchased by nonprofit public development authorities and public
housing authorities as created in chapter 35.82 RCW. As used in this subsection,
privately owned housing stock includes housing that is acquired by a federal agency
through a default on the mortgage by the private owner. Such projects and activities
must be evaluated under subsection (5) of this section. Second priority must be given
to activities and projects which utilize existing publicly owned housing stock. All
projects and activities must be evaluated by some or all of the criteria under
subsection (5) of this section, and similar projects and activities shall be evaluated
under the same criteria.
(5) The department must give preference for applications based on some or all of the
criteria under this subsection, and similar projects and activities must be evaluated
under the same criteria:
(a) The degree of leveraging of other funds that will occur;
(b) The degree of commitment from programs to provide necessary habilitation and
support services for projects focusing on special needs populations;
(c) Recipient contributions to total project costs, including allied contributions
from other sources such as professional, craft and trade services, and lender interest
rate subsidies;
(d) Local government project contributions in the form of infrastructure
improvements, and others;
(e) Projects that encourage ownership, management, and other project-related
responsibility opportunities;
(f) Projects that demonstrate a strong probability of serving the original target
group or income level for a period of at least twenty-five years;
(g) The applicant has the demonstrated ability, stability and resources to implement
the project;
(h) Projects which demonstrate serving the greatest need;
(i) Projects that provide housing for persons and families with the lowest incomes;
(j) Projects serving special needs populations which are under statutory mandate to
develop community housing;
(k) Project location and access to employment centers in the region or area;
(l) Projects that provide employment and training opportunities for disadvantaged
youth under a youthbuild or youthbuild-type program as defined in RCW 50.72.020;
(m) Project location and access to available public transportation services; and
(n) Projects involving collaborative partnerships between local school districts and
either public housing authorities or nonprofit housing providers, that help children
of low-income families succeed in school. To receive this preference, the local school
district must provide an opportunity for community members to offer input on the
proposed project at the first scheduled school board meeting following submission of
the grant application to the department.
(6) The department may only approve applications for projects for persons with mental
illness that are consistent with a behavioral health organization six-year capital and
operating plan.
[ 2015 c 155 § 2; (2015 c 155 § 1 expired April 1, 2016); 2014 c 225 § 62; 2013 c 145
§ 3; 2012 c 235 § 1. Prior: 2005 c 518 § 1802; 2005 c 219 § 2; 1994 sp.s. c 3 § 9;
prior: 1991 c 356 § 5; 1991 c 295 § 2; 1988 c 286 § 1; 1986 c 298 § 8.]
NOTES:
Effective date—2015 c 155 § 2: "Section 2 of this act takes effect April 1, 2016." [
2015 c 155 § 4.]
Expiration date—2015 c 155 § 1: "Section 1 of this act expires April 1, 2016." [ 2015
c 155 § 3.]
Effective date—2014 c 225: See note following RCW 71.24.016.
Severability—Effective date—2005 c 518: See notes following RCW 28A.500.030.
Application process—Distribution procedure.
RCW 43.185.130
The application process and distribution procedure for the allocation of funds are
the same as the competitive application process and distribution procedure for the
housing trust fund, described in this chapter and chapter 43.185A RCW, except for the
funds applied to the *homeless families services fund created in RCW 43.330.167,
dollars appropriated to weatherization administered through the energy matchmaker
program, dollars appropriated for housing vouchers for homeless persons, victims of
domestic violence, and low-income persons or seasonal farmworkers, and dollars
appropriated to any program to provide financial assistance for grower-provided
on-farm housing for low-income migrant or seasonal farmworkers.
[ 2006 c 349 § 3.]
NOTES:
*Reviser's note: The "homeless families services fund" was renamed the "Washington
youth and families fund" by 2015 c 69 § 24.
Finding—2006 c 349: "The legislature finds that Washington is experiencing an
affordable housing crisis and that this crisis is growing exponentially every year as
the population of the state expands and housing values increase at a rate that far
exceeds most households' proportionate increase in income.
The fiscal and societal costs of the lack of adequate affordable housing are high for
both the public and private sectors. Current levels of funding for affordable housing
programs are inadequate to meet the housing needs of many low-income Washington
households." [ 2006 c 349 § 1.]
Affordable Housing Program
RCW 43.185A.010
Definitions.
Unless the context clearly requires otherwise, the definitions in this section apply
throughout this chapter.
(1) "Affordable housing" means residential housing for rental occupancy which, as
long as the same is occupied by low-income households, requires payment of monthly
housing costs, including utilities other than telephone, of no more than thirty
percent of the family's income. The department must adopt policies for residential
homeownership housing, occupied by low-income households, which specify the percentage
of family income that may be spent on monthly housing costs, including utilities other
than telephone, to qualify as affordable housing.
(2) "Contracted amount" has the same meaning as provided in RCW 43.185.020.
(3) "Department" means the department of commerce.
(4) "Director" means the director of the department of commerce.
(5) "First-time home buyer" means an individual or his or her spouse or domestic
partner who have not owned a home during the three-year period prior to purchase of a
home.
(6) "Low-income household" means a single person, family or unrelated persons living
together whose adjusted income is less than eighty percent of the median family
income, adjusted for household size, for the county where the project is located.[ 2013 c 145 § 4; 2009 c 565 § 38; 2008 c 6 § 301; 2000 c 255 § 9; 1995 c 399 § 102; 1991 c 356 § 10.]
NOTES:
Part headings not law—Severability—2008 c 6: See RCW 26.60.900 and 26.60.901.
Effective date—2000 c 255: See RCW
59.28.902.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Recommendations & Agency Response
Legislative Auditor Recommendation
The Legislative Auditor makes 3 recommendations to improve cost
efficiency, controls, and monitoring
Recommendation #1: The Commission should identify and evaluate options for
increasing the involvement of for-profit developers in the 9% tax credit program and
report their findings to the Legislature.
There are a variety of options the Commission could evaluate for increasing the
involvement of for-profit developers in the 9% tax credit program. The Commission
currently engages for-profit developers in the bond/4% tax credit program and there
may be lessons learned from this experience that can apply to the 9% tax credit
program.
Legislation Required:
None
Fiscal Impact:
JLARC staff assume the Commission can identify and evaluate options within
existing resources
Implementation Date:
January 2020
Agency Response:
To be included with Proposed Final Report
Recommendation #2: Commerce should collect final development cost data from Housing
Trust Fund recipients to improve cost controls.
Commerce should implement procedures to collect final development cost data. Commerce
may coordinate with other public funders to receive copies of certified final
development costs. It should use this data to implement its 2012 recommendation to
document and monitor development cost data over time. It should also use this data to
inform their cost containment policy.
Legislation Required:
None
Fiscal Impact:
JLARC staff assume Commerce can implement data collection procedures within
existing resources
Implementation Date:
July 1, 2019
Agency Response:
To be included with Proposed Final Report
Recommendation #3: Commerce and the Commission should report development cost data
to the Legislature annually.
Data should include the total development cost per unit for each project, descriptive
statistics (such as average and median per unit costs), regional cost variation, and
other cost data that agencies deem necessary to improve cost controls and enhance the
Legislature's understanding of development costs. Commerce and the Commission should
coordinate to identify relevant development cost data and ensure that measures are
consistent across the agencies. The costs should be published in a format that allows
the Legislature and the agencies to track development costs over time.
Legislation Required:
None
Fiscal Impact:
JLARC staff assume Commerce and the Commission can report cost data within
existing resources
Implementation Date:
December 2019
Agency Response:
To be included with Proposed Final Report
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
Recommendations & Agency Response
Agency Response
Agency response(s) will be included in the proposed final report, planned for January
2019.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
More About This Review
Audit Authority
The Joint Legislative Audit and Review Committee (JLARC) works to make state
government operations more efficient and effective. The Committee is comprised of an
equal number of House members and Senators, Democrats and Republicans.
JLARC's non-partisan staff auditors, under the direction of the Legislative Auditor,
conduct performance audits, program evaluations, sunset reviews, and other analyses
assigned by the Legislature and the Committee.
The statutory authority for JLARC, established in Chapter 44.28 RCW,
requires the Legislative Auditor to ensure that JLARC studies are conducted in
accordance with Generally Accepted Government Auditing Standards, as applicable to the
scope of the audit. This study was conducted in accordance with those applicable
standards. Those standards require auditors to plan and perform audits to obtain
sufficient, appropriate evidence to provide a reasonable basis for findings and
conclusions based on the audit objectives. The evidence obtained for this JLARC report
provides a reasonable basis for the enclosed findings and conclusions, and any
exceptions to the application of audit standards have been explicitly disclosed in the
body of this report.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
More About This Review
Study Questions
Study to compare costs of developing subsidized low-income housing and market-rate
housing
In 2017, the Legislature directed the Joint Legislative Audit and Review Committee
(JLARC) to compare the costs of developing subsidized low-income housing to the costs
of developing market-rate housing. The comparison may include costs such as land
acquisition, design, construction, financing, and maintenance and operations.
State-managed subsidies include grants, loans, and federal tax credits
The Department of Commerce and the Washington State Housing Finance Commission manage
two key programs that subsidize low-income housing development. Together, the programs
have funded over 21,000 units since 2010.
Housing Trust Fund (Commerce): Provides grants and loans, primarily with state
funds.
Low-income housing developers include for-profit businesses, nonprofit organizations,
local housing authorities, and tribal housing entities. Projects typically involve
multifamily housing.
Study will focus on development costs for multifamily housing and address three
questions
What types of data and analysis could be used to compare development costs of
subsidized low-income housing and market-rate housing?
How do development costs compare between different developers of subsidized
low-income housing projects?
What are the major cost drivers for subsidized low-income housing development?
What cost controls does the state implement and are there additional measures that
could be exercised?
The study will not address subsidies for rental payments or subsidies that are not
administered by state agencies.
Study Timeframe
Staff will present the preliminary report in December 2018 and the final report in
January 2019.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
December 2018
More About This Review
Methodology
The methodology JLARC staff use when conducting analyses is tailored to the scope of
each study, but generally includes the following:
Interviews with stakeholders, agency representatives, and other
relevant organizations or individuals.
Site visits to entities that are under review.
Document reviews, including applicable laws and regulations,
agency policies and procedures pertaining to study objectives, and published
reports, audits or studies on relevant topics.
Data analysis, which may include data collected by agencies
and/or data compiled by JLARC staff. Data collection sometimes involves surveys or
focus groups.
Consultation with experts when warranted. JLARC staff consult
with technical experts when necessary to plan our work, to obtain specialized
analysis from experts in the field, and to verify results.
The methods used in this study were conducted in accordance with Generally Accepted
Government Auditing Standards.
More details about specific methods related to individual study objectives are
described in the body of the report under the report details tab or in technical
appendices.
Preliminary Report: Analyzing Development Costs for Low-Income Housing
JLARC worked with professional cost estimators who
calculated retrospective estimates for six LIHTC projects completed between 2014 and
2016. JLARC staff found that the costs were within or below the estimated cost ranges. 
