Tuesday, February 11, 2014

Serving Multiple Masters Drives Costs

An article today in the Portland Tribune entitled "The High Cost of Affordable" (HT Marginal Revolution) focuses on why it costs so much to build housing for the poor. 

Some of the highlights from the story are that Rob Justus has built apartments for low income residents for $70,000 each, 1/3 of projects built with public money.  He could build many more, but, he doesn't think he will be able to secure enough cooperation on rules waivers from the Portland Department of Building Services. 

An experienced builder of low income housing, Eli Spevak, says he can't get it done for less than $100,000 per apartment and at that rate the poor cannot afford to rent them.
"[Eli] Spevak says he has tried to develop low-income housing the conventional way, using taxpayer dollars and tax credits, but the strings attached make it too expensive. Developers who take public housing money have to abide by rules that, for instance, require them to pay all workers the equivalent of union wage. Bud Clark Commons has solar panels and other add-ons that gained the building LEED platinum certification. In Portland, developers who take public money have to build green and meet requirements for minority hiring.
In addition, Spevak says, “soft costs” associated with public funding remove the possibility of building at low cost. He says to meet federal regulations on a housing project he has to spend about $15,000 in extra attorneys’ fees to set up a required limited entity corporation and another $35,000 to set up a special partnership to meet federal regulations. Those are just examples, according to Spevak. “Think of it as a thousand paper cuts,” he says.  “What is wrong with the system is there is a fixation on addressing multiple social issues on the backs of poor people,” he says."
Justus says,
"... the job is to get low-income people into housing they can afford, and all those extra requirements are making it impossible."
Meanwhile, Jean DeMaster, executive director of nonprofit Human Solutions, says in the article, that,
“We should have the same standard of housing for everyone in the community, and not allow lowered standards for low-income people or homeless people.”

Her view all but condemns the 12,000 homeless of Portland to remaining in their condition.  By creating a floor on the price of housing through driving a high price of construction, both through promulgating middle class standards and using the government approval processes and permitting processes to drive social change, we, as a people, prevent ourselves from solving our problems.

Accurate Reality:  Our quest to solve myriad social issues with government control and regulation prevents us from dealing with problems we really want to deal with - such as 12,000 homeless in Portland.  If we let people build units with small rooms and less features, without Union pay scales, without green certificates and with shortened land use approval processes.  We could house the poor.  By insisting on trying to do it this way, we don't.

This issue is not occurring only in housing for the poor, but is endemic in all of our government efforts at all levels.  Further simple examples are follow.

The cost of constructing a mile of highway in the United States was $2.2 Million according to 2010 numbers from American Road and Transportation Builders Association.  They say we built 1391 Road Miles with 98 Bridges for $3 billion.  This is $2.2 million per mile or $1,360,000/Km. Around the world costs are mostly lower.  The World Bank, from 2000 says they varied from  $142,000/Km - $1,832,000/km  US is at the high end.  We have standards.  We have court cases to fight about where they should go.  We have environmental studies.

The cost of building urban train transit per mile vary amazingly.  An article here from the Atlantic says: NYC plans 8.5 miles estimate at  $17 billion, or $1,240,000/Km.  Madrid just built 41km for $58,000 per Km.  Singapore just built 22 Miles with 28 stations for $4.8 billion - $139,000/Km.  Paris and Berlin estimated recent additions at $250,000 per Km.  We cost ourselves 5x what others do this work for.

In the county in which I live, recent budget exploits by the large county school system show that they have 15,000 teachers employed, but only 7,500 of them are in classrooms.  What are the rest doing?  Some are administrators, but many, many more are delivering programs we've mandated to disadvantaged and special education students.  Often, 5-7 teachers will meet with parents to administer an IEP program for a child.  In order to provide our least advantaged with an education, we drive the rest of the children into classrooms with 30 high school students.

On the medical front, we just mandated that everyone buys a plan that let's them choose their own physician - middle class healthcare style.  We didn't set up a system of clinics for the poor to deliver healthcare.

Accurate Reality:  We cannot do what we'd like to with government because we've regulated and standarded ourselves into a cost structure where it is too expensive to do what we want to do.  There is not enough money available to deliver a middle class life to all.  Not without bringing that life down to a lower standard.  If we allow ourselves to deliver those in need a "sufficient" experience in terms of safety net instead of a "like" experience.  We can do all the things we want to do with the funds we raise from ourselves to govern ourselves. 

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