New Mexico Affordable Housing Cost Study

181 Pages·2014·3.06 MB·English

New Mexico Affordable Housing Cost Study

Analysis of NM Construction Cost Trends,
Comparison of NM Construction Costs with Surrounding States,
and Analysis of NM Low-Income Housing Tax Credit Distribution

August 1, 2014

Prepared by Novogradac & Company LLP
Disclaimer: This report is designed to provide accurate and authoritative information with regards to the
matters described herein at the time of its writing. Readers of this report are hereby advised that the
authors are not engaged in providing any legal, accounting, or other professional services with regards
to this report. Any of the information included in this report is subject to change, from time to time and
without notice. Readers of this report are therefore advised to refer to the original source documents
cited herein in order to ensure access to the most up-to-date information.

This report is for the sole use of the New Mexico Housing Mortgage Finance Agency.

The New Mexico Housing Mortgage Finance Agency is responsible for making all management decisions
and performing all management functions with regards to this report. Novogradac & Company LLP is
providing assistance on a consulting basis to the New Mexico Housing Mortgage Finance Agency and is
not responsible for management decisions.

Certain state agencies that provided information for the cost study did so on the condition that project-
specific information remains confidential. This report does not identify projects by name or
development team members, lenders, investors, or any other project participants by name; or give
specific location size or project cost data that might permit a reader to identify a project.

The report does not constitute any form of attestation engagement, such as an audit, compilation or
review.
Table of Contents

I. Acknowledgements
II. Introduction
III. Executive Summary
IV. Methodology
V. New Mexico LIHTC Construction Cost Trends
VI. State LIHTC Construction Cost Comparisons (AZ, CO, NV, NM, TX, UT)
VII. New Mexico LIHTC Distribution
VIII. MFA Policies and Procedures Discussion
IX. Bibliography
X. Appendices with Maps and Charts
• Appendix A – New Mexico Charts 1-33
• Appendix B – New Mexico LIHTC Project Data
• Appendix C – State Tables 1A – 6G
• Appendix D – Comparable State Aggregate LIHTC Project Data (AZ, CO, NV, NM, TX, UT)
• Appendix E – New Mexico LIHTC Distribution Charts 1A – 7I
• Appendix F – New Mexico LIHTC Distribution Maps

Novogradac & Company LLP - New Mexico Affordable Housing Cost Study
Acknowledgements

Acknowledgements

This report was prepared by Novogradac & Company LLP for the New Mexico Housing Mortgage Finance
Agency. Jim Kroger, CPA and Grace Li, CPA with Novogradac & Company LLP were the primary authors
and collected the data necessary to produce the report. We are grateful for assistance from Dan Foster,
Housing Tax Credit Program Manager at the New Mexico Housing Mortgage Finance Agency, who
assisted with data collection and analysis of our observations of New Mexico construction cost trends.

We are also grateful to the state agencies listed below that provided construction cost data:
• Arizona Department of Housing
• Colorado Housing and Finance Authority
• Nevada Housing Division
• Texas Department of Housing & Community Affairs
• Utah Housing Corporation

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Introduction
Introduction

Novogradac & Company LLP (“Novogradac”) was engaged by the New Mexico Housing Mortgage
Finance Agency (“MFA”) in August of 2013 to analyze construction cost trends for 100% low-income
housing tax credit (“LIHTC”) new construction 9% projects in New Mexico, as well as compare
construction costs with surrounding states. Novogradac was also engaged to analyze the distribution of
9% LIHTCs in New Mexico between congressional districts, rural and urban areas, housing types, and
various project sizes; and review MFA policies and procedures for cost containment and cost standards.
The results of this analysis are shown in the attached report (the “Report”) in narrative format, and also
presented in numerous graphs and charts, as well as an Appendix with supporting schedules. With the
consent of MFA, individual project information for New Mexico was included in our Appendix, however,
individual project information for other states is not included, except in the aggregate, at the request of
other state agencies.

Scope of services

New Mexico Construction Cost Trends
We analyzed construction cost trends of 100% LIHTC new construction 9% projects in New Mexico from
2006 – 2013 with analysis of various cost components such as land, site work, structures, architect fee,
engineering fee, contractor fees, and developer fee, as well as comparing costs in various categories
such as location (rural vs. urban), housing types (family, senior, and special needs), project size (less than
30 units, 30 units to 59 units, and 60 or more units), unit type (non-detached vs. detached), and
developer type (nonprofit vs. for-profit).

State Construction Cost Comparisons (AZ, CO, NV, NM, TX, and UT)
We compared construction costs of 100% LIHTC new construction 9% projects in New Mexico and
surrounding states (Arizona, Colorado, Nevada, Texas, and Utah) from 2006 – 2013, which included
analysis of various cost components such as land, site work, structures, architect fees, engineering fees,
contractor fees, and developer fee, as well as comparing costs in various categories such as location
(rural vs. urban), housing types (family, senior, and special needs), project size (less than 30 units, 30
units to 59 units, and 60 or more units), and unit type (non-detached vs. detached). We did not
compare construction costs by developer type (nonprofit vs. for-profit) between the various states.

New Mexico LIHTC Distribution
We analyzed the distribution of 9% LIHTC in New Mexico from 2001 – 2014 between congressional
districts, location (rural vs. urban), housing types (family, senior, and special needs), developer type
(nonprofit vs. for-profit), construction type (new construction, acq/rehab, and combined new
construction and acq/rehab), and participation by tribal entities or housing authorities.

MFA Policies and Procedures Discussion
We read the MFA Qualified Allocation Plan to determine how policies and procedures might influence
construction costs and the allocation of 9% LIHTC in New Mexico. We had numerous discussions with
Dan Foster at MFA to obtain an understanding of MFA’s objectives and priorities; and how to achieve
those with cost containment in mind.

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Executive Summary
Executive Summary

We have highlighted some of the key findings below. Readers are strongly advised to also read our
Methodology Section as well as more specific methodology under “New Mexico LIHTC Construction Cost
Trends” and “State LIHTC Construction Cost Comparisons (AZ, CO, NV, NM, TX, UT)”.

New Mexico LIHTC Construction Cost Trends

Development Costs – Site Work & Structures costs generally decreased from 2007 to 2010, and then
generally increased from 2010 to 2013. The decrease in development costs from 2007 to 2010 was
possibly due in part to increased cost competition as a result of scoring criteria introduced in 2009 and
2010 that gave points for lower costs per square foot. The decrease from 2007 to 2010 and increase
from 2010 to 2013 could also be due to high cost projects built on tribal lands in 2007 and 2013, which
generally have higher construction costs and may have caused the peaks in costs in those years.

Project Location - The weighted average Site Work & Structures costs per unit for urban projects from
2006 – 2013 were generally about 25% less than rural projects, possibly due to higher cost in rural areas
to obtain construction materials, hire construction crews, and other infrastructure challenges.

Housing Type - Family projects and Senior projects appear to have about the same weighted average
Site Work & Structures costs per unit, but Special Needs projects have about 30% less weighted average
Site Work & Structures costs per unit than both of these housing types. Likely contributing factors to
the lower cost for Special Needs projects include the following characteristics of the sample: 1) about
25% more of Special Needs projects were in urban areas, 2) Special Needs projects were generally much
larger projects, and 3) Special Needs projects were mostly non-detached projects.

Developer Type - Nonprofit developers (including housing authorities and tribal entities) had similar
construction costs per unit as for-profit developers. There were some years that show nonprofit
developers with higher costs and some years showing for-profit developers with higher costs, but they
were similar in the aggregate for Site Work & Structures costs per unit on a weighted average basis.

Project Size - Site Work & Structures costs per unit of projects with 60 or more units were about 30%
less than costs per unit for projects with 30-59 units and about 20% less than costs per unit for projects
with less than 30 units. However, there could be other factors contributing to the lower cost for
projects with 60 or more units, such as larger projects being located in urban areas. Another big factor
could be that projects with 60 or more units are all non-detached type projects, which appears to have
significant cost savings as detailed in the Report. Furthermore, projects with 60 or more units have
smaller bedroom sizes, therefore the smaller bedroom factor may be a primary contributor to the lower
cost.

Unit Type - The weighted average Site Work & Structures costs per unit for non-detached projects is
about 40% less than detached projects. Two factors that likely contribute to non-detached projects
having lower costs, aside from the obvious construction cost savings in shared walls and other shared
costs for non-detached projects, include the following characteristics of the sample: 1) there are
significantly more non-detached units in urban areas, where costs are generally less than rural areas,
and 2) non-detached projects are generally larger projects with 60 or more units, where costs are
significantly lower than for projects with less than 60 units.
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Executive Summary
State LIHTC Construction Cost Comparisons (AZ, CO, NV, NM, TX, UT)

Development Costs
New Mexico’s weighted average Site Work & Structure costs per unit, Adjusted Total Development Costs
per unit, and Total Development Costs per unit for 2006 - 2013, after adjusting for bedroom size and
project size, was lower than most states in our sample.

Average Site Work Average
Average TDC
STATE & Structures Adjusted TDC
Per Unit Per Unit Per Unit
Arizona 9 5,039 137,602 172,835
Colorado 113,782 159,678 199,185
Nevada 101,687 143,783 164,781
New Mexico 8 7,897 129,284 143,615
Texas 7 2,038 103,943 123,652
Utah 9 0,483 115,967 141,473
Weighted Average 8 2,139 116,565 140,083

• Site Work & Structures costs per unit includes direct construction costs, costs of
accessory/community buildings and amenity structures, construction contingency, landscaping
and fencing, and demolition (if categorized separately from land costs).

• Adjusted Total Development Costs per unit includes Site Work & Structures listed above, as well
as off-sites, contractor fees/profit/overhead, furniture and fixtures, architect fees, engineering
fees, impact fees, and developer fee.

• Total Development Costs per unit includes Adjusted Total Development Costs listed above, as
well as land, insurance, loan interest, loan fees and origination costs, legal & accounting,
appraisal, inspection and title report fees, taxes, environmental studies, market study,
marketing, state agency fees, syndication, and reserves.

Cost Components
New Mexico’s weighted average Cost Components per unit for 2006 – 2013, after adjusting for bedroom
size and project size, was lower than the total weighted average for the six states for several
components (land, architect fees, and engineering fees).

Average Land
Average Average Average Average
Acquisition
STATE Architect Fees Engineering Fees Contractor Fees Developer Fee
Costs
Per Unit Per Unit Per Unit Per Unit Per Unit
Arizona 10,532 4,318 1 ,648 1 0,715 1 9,381
Colorado 12,991 6,979 1 ,191 1 4,342 1 7,979
Nevada 4 ,973 3,747 2 ,605 9,078 1 7,060
New Mexico 4 ,269 4,367 1 ,136 1 1,153 1 6,818
Texas 7 ,014 N/A N/A 9,432 1 4,108
Utah 12,179 2,504 576 9,710 9,695
Weighted Avg 8 ,313 4,500 1 ,194 1 0,191 1 4,731

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Executive Summary
Cost Components as an average percent of Total Development Costs from 2006 – 2013 do not vary
significantly between New Mexico and the total weighted average for the six states, especially with
regards to contractor fees, architect fees, engineering fees, and developer fees, and aside from land
acquisition.
Weighted Average Values per Project Weighted Average Values per Project
of NM Projects of AZ, CO, NV, TX, and UT Projects
2006 - 2013 2006 - 2013
Weighted Weighted
Cost Component Average per % of TDC Cost Component Average per % of TDC
Project Project
Land Acquisition 233,480 3.0% Land Acquisition 643,089 6.1%
Site Work & Structures 4,807,112 61.2% Site Work & Structures 6,116,846 58.5%
Contractor Fees 609,988 7.8% Contractor Fees 756,863 7.2%
Architect Fees 238,841 3.0% Architect Fees 225,146 2.2%
Engineering Fees 62,107 0.8% Engineering Fees 60,431 0.6%
Developer Fees 919,764 11.7% Developer Fees 1,090,834 10.4%
Other 983,105 12.5% Other 1,565,765 15.0%
Total Development Costs 7,854,397 100% Total Development Costs 10,458,974 100%

New Mexico LIHTC Distribution

Distribution of 9% LIHTC in New Mexico from 2001 – 2014 between congressional districts, location
(rural and urban), housing types (family, senior, and special needs), developer type (nonprofit vs. for-
profit), construction type (new construction, acq/rehab, and combined new construction and
acq/rehab), and projects with or without participation by tribal entities or housing authorities, can be
volatile over the years due to the small amount of credits that are allocated annually in the state,
resulting in generally about five to nine projects that are allocated credits each year. LIHTC distribution
is likely influenced by factors such as LIHTC demand and construction costs, which are further affected
by other variables such as geographic area and available financing.

LIHTC distribution between the three congressional districts in New Mexico from 2001 – 2014 was as
follows:
1st Congressional District 2nd Congressional District 3rd Congressional District
Total Units
1,222 2,332 1,872
Produced
Total LIHTC $15,133,254 $21,803,105 $22,971,170
Average
$13,048 $9,099 $12,150
LIHTC/Unit

MFA Policies and Procedures Discussion

MFA and the state agencies analyzed in the Report require or encourage high quality and low cost
housing through minimum and maximum requirements or scoring selection criteria detailed in each
state’s QAP. In order to lower construction costs while increasing construction quality, QAPs have both
downward and upward pressures on construction costs. For example, construction cost caps, such as
maximum developer fee and contractor fee limits, create downward pressure on construction costs,
while minimum construction standards, such as energy efficiency and amenity requirements, create
upward pressure on costs. Additionally, many measures do not have a single effect and can provide
both downward and upward pressures.
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