TAKING ACTION
HOUSING AFFORDABILITY PLAN | Town of Wake Forest
Influences
Housing affordability is influenced by both market forces and local regulations and investments. Market Limitations In both rental and for-sale housing, the market alone cannot adequately address the affordability issues that Wake Forest residents face. In the case of rental housing, market-rate rents are largely determined by both the cost to build housing, including the price of land, and the cost to operate housing. Because of quickly growing land costs, market-rate rents are higher than what many low- and moderate-income households can afford. Costs of development are paid for with financing. Repayment of that financing and operating expenses make up the ongoing operating costs of the property. In turn, operating costs determine the revenue , or rent, required to make the project viable.
In high-growth markets with high land values, rents will always be more than what most low-income households can pay because wages have not kept up with rising costs (Figure 40). The same applies to for-sale housing: increasing land values in high-growth markets increase the cost to develop new housing. State and local governments often establish policies and regulations that increase the costs of new housing without considering the impact those policies have on prices (e.g., impact fees, policies that limit the number of units that can be built). State and local governments can also create policies and regulations that reduce development costs, which may increase the affordability of new housing.
FIGURE 40: ECONOMICS OF RENTAL HOUSING DEVELOPMENT
REQUIRED RENT
AFFORDABILITY GAP
Developer Profit
Operating Expenses
Soft Costs
Design services, fees, etc.
Rent a Household Can Pay at 60% AMI
Hard Costs
Financing (repayment) of Development Costs
Materials, labor, equipment, landscaping, etc.
Land Costs
INITIAL DEVELOPMENT COSTS
POST CONSTRUCTION OPERATING COSTS + PROFIT
REVENUE GENERATED BY DEVELOPMENT
35
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