Cohousing-L Mailing List: Re: Affordable Housing, Lack of Scale, Not Building Costs

[Sharon Villines (sharon]

> On Aug 30, 2016, at 3:14 PM, Crystal Farmer <crystalbyrdfarmer [at] 
> gmail.com> wrote:
> 
>  I'm learning that our market is
> controlled by the developers and they are all seeking to make a profit.

“Profit” is a much misunderstood word. It means "salary.” Except that a salary 
is guaranteed as long as you show up for work. Profits are entirely based on 
your intelligence and ability.

Profit in construction is usually a percentage of earnings on the property. If 
a developer makes a mistake in estimating costs, or costs increase, the profit 
decreases. A developer can calculate their own salary/profits into the budget 
but can end up with nothing.

As I understand it, the developer will usually charge 15% of the total cost of 
the project but often ends up wth closer to 10% or less. This is the 
developer’s income for probably 2 years. And the developer has no company 
benefits - no health insurance or paid vacation. They also have professional 
insurance to pay. And office rent and staff. 15% of a $7M project is $1.5M or 
$87,500 a month. Benefits in large companies are 30% of salary. That brings it 
down to $61,250. From that subtract professional insurance, insurance, salary 
and benefits for 2-3 staff members, and office space. And travel if the 
developer isn’t local. At least one of the staff members will have to be 
professionally qualified to help with architectural and construction and legal 
requirements. Plus the developer has to have reserves (savings) to cover times 
when they are planning or negotiating new projects and no money is coming in.

With no profit the developer would be working free. If you had no salary, you 
would be working free. Not likely to happen. You want a developer who is 
professional and successful. Not one who charges less because they know or are 
capable of less. 

A good developer will also bring the project in on time. Projects that drag on, 
cost everyone money. Interest rates on construction loans are currently 5.5-8.5 
% of the amount loaned. And that is very low because interest rates are 
historically low. When a construction loan is several million $ that adds up 
significantly with every delay. Interest on $7M could be $500,000 a year, 
$40,833 a month. That has to be added to the cost of houses.

So your best bet is to find a developer who has a track record of bringing in 
projects early or on deadline. You also need to stay out of the developer’s 
way. Changes and backtracking and questions delay construction and increase 
costs. Otherwise costs escalate. 

If you delay construction with changes, for example, and you have 40 units, 
interest alone could add $10,000 a month the cost of the unit.

 (I don’t know exactly how interest is calculated so these numbers are just for 
illustration. I also don’t know the back end costs of developers but I think my 
figures are low if anything.)

> Our
> seniors are certainly concerned about being priced out of cohousing.

And this is too frequently true when building cohousing. People also try to not 
just to build a cohousing complex but to also build their dream home or a 
complex that is an architectural statement. Real estate people out there please 
correct me if I’m wrong, but from what I know from watching cohousing, the 
least expensive units to build are those that have been built before— the 
glitches have been worked out. And all the sub-contractors have experience with 
that kind of building. Stopping to figure out an unusual design or faucet 
connection slows down construction. Unusual materials take time to order, send 
back, and reorder.

If your primary goal is affordability or low income or fixed income, make that 
your priority in _every_ decision. And don’t allow new people who have more 
money and more expensive tastes hijack the process just because you think you 
need more members. I’ve seen this happen and it was very sad. The whole project 
went off track and the founder was priced out.

Write your primary goal down and don’t change it without full group consent. 

Sharon
----
Sharon Villines
Takoma Village Cohousing, Washington DC
http://www.takomavillage.org