TENURE

Will your development be rented to tenants or sold to homebuyers?

For-sale: When considering a development that will be sold to homebuyers, the relationship between the expected sale price and the cost of development will be a critical feasibility concern. Loan eligibility requirements for the targeted population/income, subsidies needed to meet those targets and the estimated time the house will be on the market before sale should also be considered. Housing and financial counseling services, including first-time homebuyer training, may also be warranted.

Rental: For a development that will be rented, the financial feasibility will depend on the cost of development, rent levels, taxes, maintenance, and other costs associated with operating the development (see Financial Feasibility). You will likely consider zoning with rental developments, since multifamily rental buildings can be higher density and/or taller than other residential structures, which may impact the areas they can be built in or the related approval process.

Existing Site Use

• New construction. Acquisition and development of undeveloped land provides a lot of flexibility related to use and design, but it also can have higher costs or require additional zoning or infrastructure investment.

• Redevelopment is new construction that occurs on a site that has an existing building or other designated use. In the case of redevelopment, demolition is often required and that must be built into the budget. You should also be mindful of existing infrastructure and its placement.

• Rehabilitation (also known as rehab or preservation) focuses on improving an existing housing development to create or maintain affordable housing. This eliminates the cost to develop the building from the ground up as infrastructure is already in place and the entitlement process is already complete. While preservation is often less expensive than building new, rehabilitation of existing buildings can still be costly, particularly if abatement is needed, or if the structure needs significant improvements to be brought up to current codes. If you are interested in rehabilitation, thoroughly investigate the characteristics and needs of a potential site so that you can adequately build them in your development budget. If there are residents living in the building, you will also need a relocation plan.

• Adaptative reuse is similar to rehabilitation in that a developer is modifying an existing building but, in this case, the building’s use is adapted from one to another. For example, a hotel or office building could be converted into affordable housing. As is true for rehab, you should do additional due diligence to best predict costs associated with adapting the structure and pay attention to costly items, such as abatement. Adaptive reuse can be an important historical preservation approach to enable buildings that are not serving their historical function to remain useful to the community.

• Accessory Dwelling Units (ADUs) are a form of affordable housing in which a smaller, independent residential unit is developed on the same lot as an existing single-family home. ADUs can be both a form of affordable housing for the person renting the ADU and a source of secondary income for the owner of the lot. ADUs may be relatively inexpensive to develop if the existing home is already well-suited for the purpose or may have costly additions that involve substantial new construction and rehabilitation activities. Financing, zoning, building codes, and parking requirements are considerations when adding ADUs on existing lots.

STRUCTURE TYPE

Single family structures are those designed for only a single family or household to occupy the building. Many single-family homes are developed to be sold, but they are also an important source of rental housing in many communities, particularly rural ones. Single family structures can be attached to other adjacent buildings (townhomes) or detached. They can be developed individually or together with other housing as part of a multi-building development.

Multifamily structures have multiple housing units within the same building and on the same lot. Multifamily units can be renter-occupied (apartments) or owner-occupied (condominiums) and can range from small (two- to four-unit buildings) to large (50 or more units). Multifamily buildings create more housing units on a single site and typically result in greater density compared to single family construction. Multifamily buildings larger than four units will likely require different types of financing than single family and one- to four-unit multifamily buildings.

It is important to note that multifamily projects that take advantage of the scale often needed to bring in financing sources like LIHTC are not limited to large box buildings. Multifamily projects could be designed as single story or with independent entry, like townhomes, which might speak better to the landscape and surroundings (Case Study)?

BUILDING USE

Single-use residential buildings are devoted solely to housing. A single-family home or an apartment building are examples. These are the most straightforward approaches for developing affordable housing. There are fewer actors and public service provisions required. The feasibility assessment and financing will likely be more straightforward than if the building has other uses, as those uses will also generally need some assessment of feasibility to secure funding.

Mixed-use buildings or developments combine housing and other uses within the same building or site. A common example is a residential building with retail or other commercial spaces on the ground floor so that businesses are accessible from the street. Mixed-use developments involve a range of factors that go beyond the scope of this guide relating to commercial real estate development.

A few questions to ask as you evaluate which model to adopt.

• How does this housing type relate to the housing needs in our community?

• Will this housing model advance our organizational goals?

• What financial implications might this housing model have for our organization?

• Can we build this type of housing to be affordable for the residents who will live here?

• What additional zoning and regulatory burdens might this model require?

• Will this type of housing be valued by the broader community, or will some be more likely to face opposition or lack of support?

• Do we have experience with any of these housing models that we could build on?

Site selection also plays in to the housing development model. See Phase IV- Site Selection and Design for more information about project site selection and approvals.