“The Cost of Affordable Housing”, a tool released in July by the Urban Institute, illustrates a fundamental problem in affordable housing – it costs more for a developer to build and maintain an affordable housing unit than the units can make back in revenue.
According to the tool, the cost of building an affordable housing unit is usually covered in two ways – a loan, or a tax credit. Loans are usually calculated by the rent a building is expected to bring in, however, and that rent may not cover the costs needed to build. Tax credits, should the building be eligible, may or may not occur depending on limited funds.
Taking out a larger loan isn’t an option, not unless the property charges more or builds more units. More units would mean more space to fill, plus other socioeconomic disadvantages, and charging more makes the properties less affordable. The tool concludes that the only way to make affordable housing truly feasible is via government subsidy.