Why is it so Hard to Build Affordable Housing?

Housing Matters By Alexandra Goldman, column originally appearing in the Taos News.

Is it greed? Exclusionary zoning? Labor shortages? NIMBYs? How can it be so difficult to build affordable housing in Taos?

In 2024, Taos Housing Partnership investigated what it would take to build affordable homes at scale in Taos County. Through this case study, THP learned a lot about the real costs associated with developing affordable housing under actually existing conditions. 

In this month’s column, we will talk about some of the key cost barriers to building an affordable housing development, and next month we will discuss some concrete ways to address these barriers and move forward. 

A warning: This column isn’t exactly rosy. However, addressing our housing crisis with the seriousness it deserves means acknowledging the full scope of the problem, not softening it. Let’s unearth what is actually happening; then we can actually take meaningful action. 

Imagine a family of three living and working in Taos. One parent works a full-time job in local government and the other works part time at a restaurant. The family earns approximately $69,000 per year, which is the median income for a family of three in Taos County. So half the families in Taos are earning more than this family and half are earning less. 

This family can afford a home that costs around $228,000. As anyone who has recently glanced at real estate in Taos knows, there is almost nothing available at this price point. Can we build them a home?

Three major factors contribute to the high cost of developing affordable housing in Taos: land costs, construction costs, and zoning restrictions. Let’s discuss each of them.

Land
Land costs undergird the whole affordability conundrum. While free or discounted land will not make affordable housing feasible by itself, it is a necessary precondition. 

THP found that existing for-sale land was either too expensive or had complications, such as zoning or easement concerns, which would add time and uncertainty — cost — to the project.  With good reason, all subdivisions in the Town of Taos or within the County are required to have significant infrastructure, which also can be expensive. 

The property that THP found to be the best candidate for affordable housing development required over $2 million in infrastructure investments in addition to the $1 million cost of the land. The property was already approved for a 34 unit subdivision, but could potentially accommodate more with zoning changes. 

Construction costs 
Based on research and conversations, THP estimates that the construction costs between $350 and $400 per square foot in Taos right now. At the low end of that rate, a 1,250 square foot home, for example, would cost approximately $437,500 to build, excluding land, infrastructure and other costs.

Through researching modular building options (housing built off site and then transported and assembled) THP arrived at a reduced cost of $270/square foot, or $338,000 total for construction of a new home.  Modular brought the total construction cost down by $100,000, but the affordability gap is still significant. 

Remember, we need the home to sell for $228,000 to be affordable to our median Taos family. 

Density 
In addition to land and infrastructure, all housing developments incur a set of “soft costs” — architects, planners, project managers, permitting fees, taxes — that are shared across a housing development.  The more units a project has, the more these shared costs can be spread out, reducing the overall cost of each individual home.

For the particular site THP explored, the existing density was too low to support affordable development. There weren’t enough homes to share the soft costs and provide sufficient cross-subsidy for affordability. So THP looked at increasing the density on this particular lot, to a total of 65 homes. Even then, only approximately one quarter of the homes could be affordable. Density helps but does not solve the problem. 

With the most affordable, feasible land available, modular construction, and increased density, the gap between the cost to develop these homes and what our average family can afford was still more than $100,000! 

Could government subsidies and philanthropy help to bridge this gap? THP applied known subsidies to the cost assessment, including state and local housing funds, State Capital Outlay funds, philanthropic grants, second mortgage programs, and down payment assistance. While several of these tools can provide meaningful assistance to individual buyers, none were available at a scale sufficient to offset six-figure per-unit gaps across a development of this size. 

THP concluded even with free or reduced-cost land, modular construction, higher density, and access to existing subsidies, it’s still not possible to build housing that is affordable.

However, exploring this subdivision gave a tremendous amount of clarity around what needs to change in order to create more housing in Taos. Next month we’ll discuss the government partnerships, new revenue streams, and flexible in-fill development patterns that can help us increase housing affordability here in Taos.