Welcome, prop.text readers!

In issue 30, we take a look at affordable housing fails, one of the biggest real estate deals in US history, and track shifts in the market.

publicly.traded → Why is affordable housing so expensive?
industry.chatter → Florida condos, renting, and the office market
beyond.the.curve → Market snapshot
todays.sponsor → StartEngine

Why Is Affordable Housing So Expensive to Build?

There is lots of talk about affordable housing, especially in places where housing is expensive. Think New York, Los Angeles, San Francisco, Chicago, and some other big cities.

Lots of talk, but not much action. Or the solutions tend to be pricey.

Washington D.C. set out a couple years ago to put up an apartment building for people earning less than the city’s median income, and those recently released from prison. Somehow, the nonprofit developer’s good intentions did not keep the costs of the apartments from going off the rails.

These units cost $1.2 million each to build, the Washington Post reported in early June, far more than many of the neighbors who live in market-rate buildings in the same Adams Morgan neighborhood can afford to pay. Much of the cost, and that of two nearby buildings by the same developer, D.C. nonprofit Jubilee Housing, (where 50 apartments cost $1.3 million each) is being picked up by taxpayers through local and federal tax credits and other public sources.

“We don’t want cheap housing just because people are poor,” D.C. Council Chairman Phil Mendelson told The Post. “But we should be looking at being efficient and effective with our dollars, and spending $1.3 million per unit is not efficient or effective.”

Mendelson was an early supporter of Ontario Place, as the Adams Morgan development is called, and said earlier this year that these projects are “desperately needed in this city.”

What’s not clear is if this “desperately needed” housing required a rooftop aquaponics farm to produce fresh fruits and vegetables for its tenants, to go along with its below-market rents.

D.C. is not alone in struggling to build affordable housing, that is, you know, actually affordable. 

In Chicago, Evergreen Real Estate Group's latest affordable housing project cost $766,350 for each of the 89 apartments, about $250,000 more than luxury apartments in the River North or Lincoln Park where it’s located. A 43-unit building in East Garfield Park is projected to cost about $900,000 per apartment, Crain’s Chicago Business reported.

In San Francisco, several buildings have passed the $1-million threshold per unit, according to the Citywide Affordable Housing Loan Committee.

Many argue that the federal government’s $14 billion a year low-income housing tax credit (LIHTC) inflates the costs of “affordable” housing projects. The Cato Institute says it follows a pattern of ill-conceived government initiatives:

•  A federal program isn’t solving a problem 

•  Lobby groups claim the reason is underfunding 

• Congress expands the program without proper scrutiny

Affordable housing builders say the funding system is to blame, with complicated federal rules forcing builders to raise capital from a variety of sources, and each one comes with fees and other requirements. There are also rigorous standards for accessibility, sustainability and design.

“If a Martian dropped down from the sky and looked at how America develops affordable housing, they would think we're nuts,” Hipolito “Paul” Roldan, CEO of the nonprofit Hispanic Housing Development Corp, told Crain’s. “They would be right.”

Not all cities have failed at the affordable housing game. Austin, which had one of the hottest markets during the pandemic, has had some success.

A study by Yardi Matrix, the real estate analysis firm, found Austin built 4,600 affordable units in 2024, homes are intended for people making 60% of the city’s median-family income, about $76,000 a year for a family of four. Estimates for building these units range from $100,000-200,000, depending on land costs and the size of the units.

Doug Ressler, of Yardi Matrix, said the city’s efforts to build denser housing has increased the number of market-rate apartments, and developments that offer affordable housing.

Ressler found Austin built 4,605 affordable units in 2024, more than double the number in 2023, and he estimates nearly 10,000 units will come on the market in the next three years. Seattle, is expected to build 6,300 units, the second most in the country.

The hits keep coming for the Florida condo market, as foreign buyers have gone AWOL. Proptext wrote about the new laws Florida’s legislature passed requiring condo owners to pay for renovations after the deadly 2021 collapse of Champlain Towers South condo in Surfside, and the market is inundated with sellers. During the Great Recession, foreign buyers bailed out Florida, but not this time. The ​​Miami Association of Realtors reported that home sales to foreign buyers dropped to 10 percent of transactions from August 2023 to July 2024, the lowest since 2015. In 2018, some 50 percent of sales were to foreign buyers, who mostly come from Latin America. 

Renting has made more economic sense for many people in the last couple years with mortgage rates hovering around 7% and home sale prices still on their post-pandemic high. Some 35% of those surveyed by Fannie Mae in April said they would rent instead of buy if they had to move. These folks might find rents are up, Barron’s reported, as fewer multifamily properties will be coming to market; construction peaked at a 5-decade high last August and is down 28% since then. The average buyer in April would pay about $440 more a month for housing than the typical renter, assuming a 20% down payment, according to two separate Zillow indexes. Before the pandemic, homeowners saved an average of about $130 a month.

The office market has hit a tipping point, with more space being lost than built, according to new data from CBRE Group. Conversions of offices to other uses, including apartments, and building demolitions exceed new construction for the first time this century, or likely longer, CBRE said. The commercial real estate services firm found that across the largest 58 US markets, 23.3 million square feet is set to be demolished or converted to other uses by the end of this year. Developers are projected to complete 12.7 million square feet of office space in those same markets.

Just Because

It may not be the biggest real estate deal ever — that honor is generally reserved for the 828,000 acres the US bought from France in the Louisiana Purchase — but it’s a darn big one. More than 17,000 acres around the Klamath River in Northern California have been returned to the Yoruk tribe in the largest landback deal in California history. The Yurok people lived, fished, and hunted along the Klamath for millennia, but when gold was found in January of 1848 at Sutter's Mill, the rush was on and the tribe lost 90 percent of its territory. They have been working with the Western Rivers Conservancy for the last 23 years, and spent some $56 million, to get it back. The 17,000 acres is the final parcel of a 47,097-acre land transfer that doubles the Yurok’s land holdings. The tribe has already designated the land as a salmon sanctuary and community forest and plans to eventually put it into a trust and care for it in perpetuity. Joseph James, the chairman of the Yurok Tribal Council, said: “The Klamath River is our highway. It is also our food source. And it takes care of us. And so it’s our job, our inherent right, to take care of the Klamath Basin and its river.”

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