Homebuilders Can Achieve Both Cost Efficiency and Quality
The demand for affordable housing communities has never been stronger. As home prices rise nationwide, housing affordability is moving further out of reach for a large swath of people.
A recent report from property data provider ATTOM Data Solutions revealed that home price appreciation is outpacing wage growth in 76 percent of U.S. housing markets, and median-priced homes remain unaffordable for average wage earners in 74 percent of markets across the country. Apartment rents are becoming equally unaffordable in some markets, with rental rates rising steeply year-over-year in many areas, according to Apartment List, an online platform that connects renters with apartment listings.
These trends underscore the importance of developing affordable housing to serve people with average or below-average income. However, building affordable communities presents a host of challenges for developers and general contractors — in particular, increasing construction costs, a scarcity of skilled construction labor, and the need to fulfill investors’ ROI expectations while delivering quality product at affordable rents.
In order to meet these challenges, top developers are building affordable housing while adhering to best practices that allow for cost efficiencies without sacrificing quality. Here are a few development best practices that help affordable housing stakeholders achieve their goals:
• Engage the construction team early in the process. Bringing in an experienced general contractor (GC) at the beginning of the development phase — even before permits and approvals have been granted — allows developers and architects to spot potential construction issues early on and solve for these issues before they can become major stumbling blocks for the project.
Waiting until later in the development stage to engage a GC can lengthen construction timelines and ultimately make projects more expensive. When a developer brings in a general contractor after permitting or city approval, the stakeholders may not know early enough that the cost of materials selected will put the project over budget. This can lead to ancillary costs and change orders to fix the problem, which can delay projects significantly. Also, it’s often difficult to gain city approval of changes after a project has already been approved, which can further delay a project or drive up construction costs.
Introducing a GC early can actually save money and time in developing long-awaited affordable housing projects. A good GC offers strong pre-construction services programs that help keep costs in line with the budget while minimizing delays and ensuring a high-quality finished product. Pre-construction services work best when GCs are brought into the development phase early and can spot potential challenges before construction begins and before they can become more problematic.
• Hire general contractors who self-perform instead of subcontracting work. GCs who perform all of their own construction work have more control over project quality, timeline and budget than those who hire subcontractors. These issues are especially important to affordable housing developers, whose budgets and schedules are often tighter and less flexible than market-rate developers.
At a time when skilled tradesmen are scarce, reliance on a subcontractor adds a layer to the construction process that can often result in schedule delays and extra costs. Self-performing GCs can complete certain aspects of the project — such as concrete, carpentry or framing work — with their own skilled labor force, which gives construction teams better quality control while ensuring projects remain on schedule and on budget. On the other hand, subcontracting can derail project timelines, leaves decreased opportunity to compensate for unforeseen delays, and can ultimately be more costly to developers.
• Seek construction partners who can source high-quality materials at lower prices. A scarcity of skilled labor isn’t the only reason construction costs are so high — material costs are rising as well. According to a report from the National Association of Home Builders, the price of goods used for residential construction rose 2.8 percent in 2019; in 2018, that increase occurred in half the time. The report also revealed that the price of softwood lumber rose 2 percent in July — the highest rise in four months.
Experienced construction teams have long-standing relationships with materials suppliers, which allows these teams to better negotiate prices on quality raw goods. Often, this means buying in bulk for economies of scale — which, if a contractor is highly sought after and has many projects lined up, easily works in its favor. Money saved on construction materials can either be added to the budget and spent on extra property features and details that make affordable communities more like market-rate communities or saved for future projects.
As home affordability diminishes and rental rates climb, the call for affordable development is growing louder. Following the best practices of engaging construction teams early, hiring self-performing GCs and seeking construction partners that can source quality materials cost-effectively helps affordable developers deliver projects that heed the call for high-quality affordable communities throughout the country.
Richard Lara is the president and CEO of RAAM Construction, a general building contracting firm specializing in multi-unit construction projects throughout California. Contact him at firstname.lastname@example.org.