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Housing Unpacked
Glossary

Carrying costs

The ongoing cost of holding a property or a project before it produces income: interest, property taxes, insurance, and the return owed on money already invested.

Carrying costs are what a developer pays simply to wait. From the day land is purchased until the day tenants begin paying rent, the project consumes interest on borrowed funds, property taxes on the land, insurance, security, and the opportunity cost of the equity tied up in it. None of that money produces anything visible; it is the price of time.

Carrying costs scale with two things: how much has been spent, and how long it must be carried. Early in a project, only the land and initial design fees are at risk, so a month of delay is relatively cheap. Late in construction, nearly the whole budget has been drawn on the construction loan, and each month of delay accrues interest on a large balance with no offsetting income.

Carrying cost of delay
Carry = capital invested × cost of capital × (months ÷ 12)

Assume $6,000,000 of land and soft costs invested, an 8% blended cost of capital, and a 12-month delay: carry = $480,000, or about $33 per unit per month on a 100-unit building once financed at our default assumptions.

For housing costs, carrying costs are how delay becomes rent. A review process that adds a year to a project changes nothing about the building, but it raises what the building must earn. That is the subject of What Does a Year of Development Delay Cost?, and it is why we say the length of a process is a cost as real as any fee it charges.

Where this comes up

Analysis that uses carrying costs in the arithmetic.

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