Competition with for-profit developers for sites and rising construction costs are among the challenges facing affordable housing developers in Massachusetts. In 2022, Callahan Construction completed 54 Market St., part of the Squirrelwood Apartments development in Cambridge. Image courtesy of Callahan Construction
According to the city of Boston’s 2022 Real Estate Trends Report the multifamily housing market can be a challenging one for developers.
One-, two- and three-family homes and condominiums make up 89 percent of existing housing, and apartments, subsidized housing and mixed-use developments comprise the balance.
Twenty-seven percent of all rental units are income-restricted, and Boston is in the vanguard of developing new market-rate and income-restricted housing. Between 2017 to 2021, 20,121 units were added to Boston’s housing inventory, with an additional 5,468 units delivered in 2022, of which 8 percent were in fully affordable communities, as cited in the Yardi Matrix February 2023 Multifamily Report.
In terms of supply, Yardi Matrix reported 15,387 units underway and 78,000 in the planning and permitting stages. Of those in the pipeline, about 10 percent are affordable units and the remainder are categorized as “lifestyle” projects, i.e., those aimed at people who can afford to own but choose to rent.
Affordability Financing Challenges for Developers
Income-restricted rental housing, commonly referred to as affordable housing, has the rent capped at a price affordable to a qualified household. Most units are restricted either in perpetuity or for 50 years.
For most affordable housing programs, eligibility is based on area median income (AMI), which is a household’s income compared to Greater Boston’s median family income. According to the Boston Planning & Development Agency, “A number of developers (mostly non-profits) are using public subsidies to create units that are affordable to households with lower incomes.”
A 2022 nationwide survey conducted by Affordable Housing Finance magazine revealed the chief concerns among the 115 developers who responded to be rising development costs, followed by the availability and cost of debt financing, and rising operating costs. Boston developers share these universal concerns, as well as others such as inflation and high interest rates, zoning, permitting, scarcity of land, ability to obtain low-income tax credits, competition with market rate housing developers, supply chain snags and construction cost increases on ongoing projects.
Mitigating Costs through Early Partnerships
As builders of millions of square feet of affordable housing over nearly 70 years in business, we have gained profound insights into the development and construction of this unique residential product, which we put into practice when partnering with our clients.
One of the most beneficial approaches has been to focus on mitigating sitework risk by developing a comprehensive scope of work and associated budget during the pre-construction phase. This is when we leverage in-house civil engineering, estimating, MEP and architectural staff and solid relationships with the subcontractor market to put thorough and thoughtful estimates together even at the conceptual design level. We use past and comparable projects to anticipate scopes of work before they are fully designed, and we help to inform the ongoing design with best practices in terms of constructability, cost efficiency and material availability.
Steve Callahan
The budget at this early stage addresses everything from demolition and sitework to landscape and hardscape, and the pre-construction scope of work typically includes a complete cut and fill analysis, full utility takeoffs and coordination with specialty contractors relevant to ground improvements, if applicable. It is imperative to consider the geotechnical and environmental aspects of the project from the start because they can pose significant logistical and financial challenges later. Identifying value engineering opportunities early on and incorporating them in project documents prior to filing permits promotes clarity of purpose, decreases cost and lessens the likelihood of costly future change orders.
The need for affordable housing in major U.S. cities like Boston isn’t going away any time soon. Due to the intricacies of funding, design, permitting and construction, developers in this market benefit directly by partnering with a construction management company that understands and supports their goals, has strong relationships with local government entities and consultants and a proven track record of delivering market-responsive projects safely, on schedule and on or under budget.
Steve Callahan is the vice president of business development for Callahan Construction.
