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Affordable housing projects are among the most difficult developments to finance. Recent inflation-driven cost escalation requires developers and contractors to become supply chain experts.

Affordable housing is desperately needed, but it isn’t easy to build. There are a lot of guidelines for the design and construction of these necessary units.

The U.S. Department of Housing and Urban Development, state housing and community development agencies, regional authorities, cities and lenders all have a stake in the process. They all have a say in what’s being built. That process can take time and patience to navigate. Many steps are required from conception to completion of affordable housing multifamily projects. Whether it be an adaptive reuse of an existing building, ground-up development or the renovation of existing housing stock, the process can take several years to align the needs, funds and approvals to begin.

Even before the pandemic and global uncertainties significantly impacted supply chains and the cost of building materials, the affordable housing market was a challenging space to work in. For leaders in this niche market, the focus has always been on the human element and doing right by them. At NEI we refer to it as “building for good.” Current economic conditions have exponentially increased the difficulty of bringing these critically needed projects to fruition. While it’s become more difficult, it’s not impossible. You just need to roll up your sleeves and work a little harder.

The biggest challenge everyone is facing right now is literally the cost of everything. Prices change daily. What was $50 yesterday is $100 today, and there’s no end in sight. So, when presented with an affordable housing project to budget, we approach them with increased flexibility, adaptability and creativity to help navigate these challenging development waters. What does that look like? Here are some examples:

Flexibility

Challenge: Owners need time to secure funding, but meanwhile prices continue to escalate. The question of “how much is my project” becomes a four-dimensional puzzle.

Solution: Talk about contingency and escalation together, not just as a percentage, but understanding what trades are more and less sensitive to fluctuations. When would the project start and what impact will that have? Be clear about the scope and budget stress points. Monitor those challenges and adjust budget models in real time. Don’t put the budget down between pricing intervals. Keep the conversation moving and keep refining the scope accordingly.

Adaptability

Challenge: What’s available today might not be available tomorrow as supply and costs change with an unpredictable and volatile market.

Solution: Adopt an open-minded approach to the scope. Be ready to make building materials and system adjustments, and clearly understand the impacts downstream. Work proactively with subcontractors to help mitigate materials, labor and schedule stresses. Have ideas, strategies and answers to critical path challenges before they even happen.

Creativity

Challenge: Funding is tight, competition for it is fierce, essential building materials have increased in price while decreasing in availability and the workforce has been compromised by the psychological and physical effects of the pandemic.

Solution: Necessity is the mother of invention. Think lemonade. Get creative with payment terms and purchasing. Become supply chain and logistics experts. Prepurchase and store needed materials. Weave subcontractors together to both buttress each other as well as provide redundancy. Train and create more qualified workers.

Take the Long View

When our clients are concerned about current and future project costs, my answer starts with, “Everyone’s crystal ball is pretty cloudy these days.” However, if we work together and are flexible, adaptable and creative each step of the way – we can mitigate those concerns. Things are probably going to remain pretty uncertain, but that doesn’t mean we can’t hold a budget and get units in service for that budget.

Benjamin Coulehan is director of preconstruction for NEI General Contracting.

Costs Key to Building Affordable Housing in Turbulent Market

by Banker & Tradesman time to read: 2 min
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