How to Reduce Affordable Housing Development Costs in 2022
Strategies for savings are essential in this inflationary climate, according to Stephen Green of The NHP Foundation.
In 2022, economists are talking about healthy, yet only moderate, income growth due to labor and supply shortages and rampant inflation. The Federal Reserve will most likely combat these issues by raising interest rates beginning in March.
At the same time, the need for affordable housing has never been greater. A recent survey by The NHP Foundation found that 44 percent of Americans surveyed find themselves in “financially forced” living arrangements. These arrangements produce overcrowding and often result in mental and physical abuse, depression and worst of all, deadly fires such as those recently reported in Philadelphia and New York.
Striking the balance between creating and preserving affordable housing and remaining a profitable industry that investors want to be a part of is key to NHPF’s 2022 goals. To that end, we are working with our internal development, construction and asset management teams to find the optimal ways to reduce expenses while never cutting a corner.
The following are our recommendations for reining in expenses.
(1) Greater Focus on Management and Accountability: As we rehabilitate and provide ground-up construction for affordable housing projects, we keep meticulous records that become our “lessons learned” for the next project. One of the outstanding lessons we have gleaned is the necessity to provide more effective project management oversight during construction. This means holding contractors accountable for time, money and resources on a tightly scheduled basis. Mistakes corrected in the moment or avoided altogether are far less costly to a team for whom the budget is sacrosanct.
(2) Bringing the Construction Team in Early and Often: Our relationships with architects and designers are invaluable. Together we produce award-winning work and improve processes over time. One of those processes that is improving our work and providing measurable cost savings is the involvement of the construction team as early as possible during the design process. Examples include Temenos, a permanent supportive housing project in Houston, where an early review resulted in improved internal circulation and a more manageable separation of spaces. Further, this building, designed for those experiencing chronic homelessness, incorporates a hot room for treating bedbugs and resilient, easy-to-clean flooring for those experiencing illness while coping with addiction issues.
(3) Making the Most of Plan Reviews: We have also learned through experience that obtaining a third-party review of our project plans is crucial. We recommend working with an external entity specializing in plan review to determine that plans are well coordinated. This review is conducted prior to construction and identifies internal inconsistencies, resulting in fewer RFIs and fewer contractor-initiated change orders.
(4) Hiring the Right Professionals: It’s not enough to hire architects and general contractors that you personally like or who have done work for you in the past. Look at each project completely objectively to find the right firms for each project and the right teams within those firms. This can save grief—and great expense—down the line.
(5) Agreements: Another way to produce savings during construction projects is to get your own construction experts more involved when negotiating each crucial agreement and contract. These include construction and architectural agreements. Better still, centralize legal reviews of all pending contracts and agreements with a construction attorney.
(6) Making the Most of the Latest Technology: New technology comes online every day. Don’t let it daunt you. Once you and your colleagues are over the learning curve, the tech will save you time and money.
(7) Standardize Your Systems: Start with an audit of your construction management systems, processes and communication channels. What can be streamlined, eliminated or brought up to higher standards? The resulting cuts and changes will realize savings.
(8) Leveraging a Designation: Not-for-profit organizations, for example, can utilize their 501(c)(3) status to alleviate sales tax on building materials. It pays to do your research and see if there are any entitlements accrued to your organization by virtue of its tax or other status.
In these uncertain economic times, or any time, cost savings are essential to optimal business management. In short, continue to sharpen skills, incorporate the views of pertinent team members, and make adoption of new tech a part of daily life.
Stephen Green is executive vice president & chief investment officer for The NHP Foundation.