Pay Dirt

The pricing on any housing project starts with the land, but it's especially important for a builder who wants to create affordable housing. Creativity and the ability to look at a piece of property and see its potential for housing is key, says Henry Cisneros, former HUD secretary and current chairman of Santa Monica, Calif.–based CityView, which provides financing, entitlement and marketing assistance, community outreach, and other help to work-force housing builders.

“There are lots of different ways to acquire land,” Cisneros says. “The key is to develop the eye to see in sites what they might be instead of what they are. You could drive by a piece of ground every day and never think about it for housing because it's a truck yard or mini-storage or an abandoned factory.”

It's a skill that Fernando Pages has perfected. The Lincoln, Neb.–based owner of Brighton Construction, who exclusively builds affordable housing, has basically never met a piece of ground he couldn't adapt for an affordable housing neighborhood. The most challenging sites are often the most affordable, so Pages has built a virtual encyclopedia of construction processes to match lot conditions. Maybe the topography is problematic, such as a site being in a flood plain, or there is a feature that makes it undesirable, such as an odd-shaped, infill lot. “Those lots sit empty for years upon years,” he says.

The solution may be as simple as building for the right buyer. Take land zoned residential on a major street with heavy traffic, for example. He's built neighborhoods on high-traffic locations in several cities, tailoring the communities to buyers who consider living on a main drag an amenity.

“I build for a different community than ‘location, location, location' white Anglos,” says Pages. “In a lot of parts of the world, living on the main street is a status symbol.”

Pages isn't the only builder who sees a tremendous potential market in affordable housing. Larry Webb, CEO of Newport Beach, Calif.–based John Laing Homes, says he thinks the demand is “immense,” but doesn't believe that most national builders are set up to recognize and maximize the opportunities. Among the challenges are the complexity of the sites that typically work for affordable housing projects, which often require environmental cleanup, and the difficulty in convincing local governments to reduce land costs on publicly owned sites or waive development fees. In his area, Webb says, “It's a lot easier to buy 100 lots from The Irvine Co. [and build market-rate homes].”

FORGING ALLIANCES To get the best deals on land to build affordable housing, builders generally have to work cooperatively with the public or nonprofit sector. Pages, who is the author of Building the Affordable House, is a virtuoso at the game of getting land for next to nothing—or nothing at all. Local governments and foundations own lots of surplus land; tax-delinquent properties and bankruptcies are other possible sources.

Willing nonprofit partners aren't hard to find. Affordable housing developers, such as the Enterprise Community Foundation and BRIDGE Housing in California, regularly work with for-profit builders when they acquire parcels. Local nonprofits, such as land trusts and community development agencies, almost always hire builders to meet their affordable housing missions.

Learn more about markets featured in this article: Los Angeles, CA.