A Blueprint for Cutting Costs

6 min read

Harvard and Brookings Scholars Team on New Report 

A recently published examination of how to beat the affordable housing squeeze presented by rising demand and falling production reveals how developers think they can maximize production through creative approaches to cutting costs. These are things developers can do on their own, without any changes in housing policy they want but might not ever see. They range from the conceptual—getting all members of a team on the same page in productivity—to the practical, like reducing structural parking.

“These strategies focus on increasing the efficiency and predictability of multifamily construction with the aim of helping project teams identify cost savings that can be reinvested in their buildings or passed on to tenants,” according to a report by the Harvard Joint Center for Housing Studies that recently has been summarized on the blog of the Brookings Institution.

The report by Hannah Hoyt, Harvard Gramlich Fellow, based on interviews with 35 multifamily developers and builders, is called More for Less? An Inquiry into Design and Construction Strategies for Addressing Multifamily Housing Costs. The interviewees “shared strategies (and some experimental ideas) for addressing cost increases and anticipating cost challenges. These interviewees also shared cautionary tales, pointing out unpredictable parts of their projects and places where rash cost-cutting can compromise building quality or environmental performance.”

Hoyt looked at land costs, soft costs and hard costs and came up with 18 strategies, ranging from concepts, like making a few big moves rather than many small ones, to the specific, like simplifying building facades.

While acknowledging “there are no silver bullets” and that needed housing policy changes may not happen, the report says design and construction decisions can rein in costs significantly.

Soft, Hard and Land Costs
The Brookings blogs, a four-part series co-written by Hoyt and Jenny Schuetz, a fellow in the Brookings Metropolitan Policy Program’s Future of the Middle Class Initiative, looked into the reasons for high multifamily costs and then examined cost strategies for each of the sectors of land, hard and soft costs.

The authors note that land costs usually account for ten to 20 percent of total projects costs. Multifamily developers first should look for free or discounted public land, and should also maximize lot use.

A good strategy, they write, is to invest time upfront in evaluating site capacity and potential obstacles. They suggest standard site evaluation processes that can be reused for each potential development.

“Codifying site evaluation processes is critical to transferring lessons learned on one project to the next, even as project teams change,” they feel.

Learning to play the bounce on odd lot sizes and scattered sites is another good objective. “The opportunity here lies in becoming an expert about a specific type of irregularity (for example, narrow sites or steep grades) and leveraging lessons from one project to others,” according to the authors.

Better Skinny Than Vacant
As an example, they point to Philadelphia’s XS House, where Interface Studio Architects (ISA) had to work with a very narrow lot just 11 feet wide. But they feel skinny apartments are better than vacant lots.

“Mezzanines create additional living areas without adding to the overall building area or number of floors. A single, central staircase limits the amount of space dedicated to circulation and provides access to all seven apartments,” write Hoyt and Schuetz about XS House.

Renovating, converting, or co-locating housing with existing buildings should also be investigated. “Careful study of the existing structure is required to evaluate these opportunities and determine whether the hard cost savings outweigh the complexity of working with an existing structure,” the two write in the Brookings blog.

They point to 1047 Commonwealth in Boston, where apartments were built above an old auto showroom.

“While the podium needed to be strengthened to support the microunit construction, reusing it limited complicated and unpredictable below-ground site prep. Additionally, the narrow structural grid of the car showroom was well-suited to the dimensions of the microunit program, ensuring the structural system could be highly efficient.”

Soft costs, Hoyt and Schuetz note, make up 20 to 30 percent of project costs, which can be reduced by better integration of the design and construction teams.

One strategy is to engage general contractors earlier in the process and add their input into the design of the building, especially on estimating costs.

Cutting In the Contractors
“Some development teams are using alternative legal agreements that establish performance standards or incentivize accurate early cost estimating. Others are bringing general contractor functions in-house, or using informal agreements to coordinate earlier in the process. Frequent collaboration between the same construction and design teams can also improve efficiency,” according to the blog.

Providing more information on site conditions during request for proposal periods can also be helpful, they feel.

“Making more comprehensive geotechnical information available to RFP respondents will enable developers and subcontractors to estimate fees and bid on projects more accurately. For instance, providing detailed information on soil, rock and groundwater conditions allows better estimates of the costs of building foundations.”

Sharing information with subcontractors, as well as general contractors, is also a good idea, say the authors.

“Prioritizing clear and simple drawing sets that subcontractors can easily bid on and identifying ways for design and engineering teams to share information with subcontractors can help to clarify the scope of work and ideally lead to more accurate cost estimates.”

Hard Facts On Hard Costs
As for hard costs, site work, substructure work and especially parking can be good places to look for savings, to prevent building foundations from becoming budget sinkholes, say the authors, who have three recommendations.

“First, conduct due diligence on the site in advance, and run site prep concurrently with other tasks when possible. Second, prioritize building forms that permit simple, shallow foundations. Third, local governments should update zoning regulations to reduce parking requirements, thereby reducing the amount of costly structured parking.”

“Regular” (shallow) foundations are the least expensive, so developers should prioritize sites that allow them. “While the foundation type is generally non-negotiable given these conditions, a site selection process that includes significant early-stage geotechnical work can help estimate costs of substructural work accurately,” according to the report.

As for parking, this is one area where self-reliance may not be as effective as lobbying for policy changes, especially when one space in a structure (as opposed to level, outside parking) can cost $50,000.

The authors point to reduced parking requirements to save money at Boston’s MetroMark development, a mixed-use, mixed-income, 283-unit housing development adjacent to a rail stop in the Jamaica Plain neighborhood.

“With local support for transit-oriented development, the project secured a parking ratio of 0.6 spaces per dwelling unit, a significant decrease from the typical 1.5 parking ratio for similar buildings in the area. With this lower ratio, the project team was able to keep all parking at grade, avoiding costlier multilevel or underground parking.”

More or Less? An Inquiry into Design and Construction Strategies
for Addressing Multifamily Housing Costs, by Hannah Hoyt.
Harvard Center for Joint Housing Studies. jchs.harvard.edu

Four-part series on innovations in design and construction.
Brookings Institution blogs by Hannah Hoyt and Jenny Schuetz. brookings.edu

Mark Fogarty has covered housing and mortgages for more than 30 years. A former editor at National Mortgage News, he has written extensively about tax credits.