Bring Workers Home:2010 Regional Forum on Workforce Housing

The Growing Cost of Place: Why Workforce Housing Matters in Austin

Terry Mitchell

August 12, 2010

Workforce Housing

• Provided by the market only in the fringes of our metro area.

• Traffic congestion makes these commutes very costly.• Continual regulatory changes drive up costs.• Neighborhood opposition makes affordable development

difficult. . . Density needed.• Financing limitations hurting availability of “for sale

housing”.• Current capital environment making projects expensive.

Sample Capital Cost During "Normal" Times

   

Project Investment 10,000,000  

Debt Interest Rate 7% (IF AVAILABLE)  

Required Equity Return 20% (COMPOUNDED)  

   

   

Debt  $      8,000,000   

Equity  $      2,000,000   

   

  End of First Year End of Year Two End of Year Three End of Year Four Totals

   

Debt Interest  $          560,000   $             560,000   $            560,000   $           560,000  $ 2,240,000

     (8,000,000 x Debt Interest Rate)  

At 20% (compounded)  $          400,000   $             480,000   $            576,000   $           691,200  $ 2,147,200

   

Total Capital Costs  $          960,000   $         1,040,000   $         1,136,000   $       1,251,200  $ 4,387,200

Sample Capital Cost During "Boom" Times

   

Project Investment 10,000,000  

Debt Interest Rate 7% (IF AVAILABLE)  

Required Equity Return 13% (COMPOUNDED)  

   

   

Debt  $      9,000,000   

Equity  $      1,000,000   

   

  End of First Year End of Year Two End of Year Three End of Year Four Totals

   

Debt Interest  $          630,000   $             630,000   $            630,000   $           630,000  $ 2,520,000

     (8,000,000 x Debt Interest Rate)

At 13% (compounded)  $          130,000   $             146,900   $            165,997   $           187,577  $ 630,474

   

Total Capital Costs  $          760,000   $             776,900   $            795,997   $           817,577  $ 3,150,474

Sample Capital Cost During "Capital Crunch" Times

   

Project Investment 10,000,000  

Debt Interest Rate 7% (IF AVAILABLE)  

Required Equity Return 30% (COMPOUNDED)  

   

   

Debt  $      5,500,000   

Equity  $      4,500,000   

   

  End of First Year End of Year Two End of Year Three End of Year Four Totals

   

Debt Interest  $          385,000   $             385,000   $            385,000   $           385,000  $ 1,540,000

     (8,000,000 x Debt Interest Rate)

At 30% (compounded)  $      1,350,000   $         1,755,000   $         2,281,500   $       2,965,950  $ 8,352,450

 

Total Capital Costs  $      1,735,000   $         2,140,000   $         2,666,500   $       3,350,950  $ 9,892,450

Sample Capital Costs in Differing Times   

  End of First Year End of Year Two End of Year Three End of Year Four Totals

   

Total Capital Costs "Normal" Times  $       960,000   $       1,040,000   $       1,136,000   $            1,251,200  $ 4,387,200

   

Total Capital Costs "Boom" Times  $       760,000   $           776,900   $           795,997   $                817,577  $ 3,150,474

          

Total Capital Costs "Capital Crunch" Times  $   1,735,000   $       2,140,000   $       2,666,500   $            3,350,950  $ 9,892,450

   

So, what does this mean for us? Here are some POSSIBLE conclusions:    

   

          •  Money is available, but not many deals fit the capital requirements.  

          •  To make deals fit, investors try to obtain lower land costs and construction/development costs.  

                 •  In Austin, however, there is NOT a lot of excess lots available   

                     (some, but not a tremendous amount), so heavy discounting has not hit this market.               

                 •  In the Austin area, there is a lot of available raw land (that could be discounted), however,   

                     raw land typically comprises 15% to 30% of the cost of a residential lot.    This means that   

                     heavy discounting of raw land will not produce substantial lot cost savings -- certainly not enough

                     to pay for the additional capital costs being sought today.  

                •   Offsetting any land price reductions are the continual development cost increases that occur due to regulatory changes 

                     This is NOT a complaint -- just reality.   Examples would include capital recovery fees; new code requirements; boundary road fiscal;  increased code requirements; increased detention and water quality requirements; top soil changes; affordable housing requirements;  fiscal requirements.

          •   Austin is still growing:  positive job growth in the last three months; Austin grew 32,000 people through in-migration last year; Austin is ranked first or second in lists for the best places for job growth and in-migrations.  Demand will grow.

            •   If the capital does not return to "normal" structures, Austin could face a tight housing market in the next few years.

     

Site Transit Access

Property with Topo and Trees

Homes For People