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Why is a 47-unit Minneapolis homeless center costing $17M to build?

After commenters queried the cost of the homeless center, we asked the developers to explain.
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When we reported earlier this week about a new center for homeless young adults in Minneapolis that's set to break ground, some of our readers queried the $17 million cost.

Downtown View is a housing development that will create 40 four-bedroom and six studio apartments for homeless 18-24 year olds, providing them with a place to stay while they get themselves on their feet, as opposed to homeless shelters where stays are strictly time limited.

But some of our commenters, fairly, noted $17 million for 47 units (the extra one is for a resident advisor) seems pretty steep, so GoMN spoke with the organizations behind the project, YouthLink and Project for Pride in Living (PPL), to provide some more details about the costs.

More context on the costs

While $17 million is the overall cost of the project, it's for more than just the apartments.

The $11.9 million of public money will go to the apartment block, but the additional $6 million YouthLink and PPL raised in private donations will be used to upgrade YouthLink's headquarters on North 12th Street, which will connect to the new building, as well as for operating costs.

So $11.9 million split between 47 units – which includes the cost of furnishing them – comes out at around $250,000 per unit and that's if you ignore everything else that is going into the building.

The project also includes spaces for YouthLink staff to provide social services to residents, a 2,600-square-foot Career Pathways Center, and office space for center staff.

The public money is mostly coming from federal low income tax credit syndication proceeds allocated by Minnesota Housing and the City of Minneapolis, which accounts for $9.1 million of the total cost.

Also, it's worth noting that residents don't get to stay there free of charge either. They will pay 30 percent of their income to rent a room, with a minimum of $75-a-month. This is subsidized through Section 8 vouchers from the Minneapolis Public Housing Authority.

Why is it costing this much?

New builds are expensive

The median cost of a home in Minneapolis right now is $235,000, so $250,000 per apartment unit is above that on construction costs alone.

But PPL project manager Abbie Loosen points out median house prices in the city includes the majority of existing houses that are older, as opposed to new construction.

Loosen says you couldn't get a new construction for "anywhere near that purchase price," and says the per-unit cost of $250,000 is "very typical ... for metro-area affordable housing developments funded through the low-income housing tax credit program."

The PPL YouthLink project also has slightly higher cost because it’s a "smaller footprint building on a tight site," and it also requires some soil remediation before construction starts.

Red tape costs are higher

Because funding is being drawn from private donations and from multiple public sources (although the low-income tax credit is the main one, there are also six more), this means greater complexity in pulling the project together and greater costs as a result.

"These complexities ... translate to higher legal fees, additional organizational and other fees, more due diligence required, and also increase the time it takes to develop a project," Loosen says.

There's a reason why private developers in general aren't champing at the bit to build affordable housing. Labor and material costs have risen to the point that the profit margin is practically nonexistent considering they have to charge less for rent and have various bureaucratic hoops to jump through.

Bloomberg reported last year the reason it's so hard to build affordable housing is because "it's not affordable," despite the real need across the country for low-rent accommodation.

Even when using subsidies like the low-income housing tax credit, developers find it only makes fiscal sense to build affordable housing for those at the highest-end of low earners, rather than those who can only afford $500-a-month in rent.

They're being built to last

Another reason why new-build affordable housing, and particularly "supportive" affordable housing like the Minneapolis center can cost more is because with rents low, developers want buildings to have as long a life as possible without having to upgrade it.

That means spending more up-front to build more durable, higher-quality accommodation that will stand up to consistent use, in this case for at least 30 years, without requiring "significant capital investments."

"These developments don’t generate a great deal of cash that could be invested back into the building in the future," Loosen adds. "This means that we’ve got to build a high-quality structure from the start.

"Examples of places where we’ve decided investing in higher-quality construction includes: tile at bathroom floors and entry lobbies, longer-lasting roofs, good-quality windows (fiberglass windows from Marvin, Andersen or Pella), etc."

What's more, Minnesota has higher standards for affordable housing developments compared to the average new construction home or apartment block, as they must meet the Enterprise Green Communities Criteria, which also adds costs.

This means using low-VOC (volatile organic compounds) paint and coatings and energy efficient lighting and mechanical systems, which cost more up-front, but will keep utility bills lower.

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