Total development costTDC

Total development cost is everything a project costs from the first option payment on the land to the day the building is stabilized. It includes the land, hard costs of construction, soft costs of design, permits, and fees, interest and lender fees during construction, lease-up costs, and contingency. It is the number the lender divides by to set loan-to-cost, and the number a developer divides income by to compute yield on cost.

Land                              $2,400,000
Hard costs                       $16,800,000
Soft costs                        $3,600,000
Financing costs and contingency   $1,200,000
Total development cost           $24,000,000  ($240,000 per unit)

Cost per unit is the form in which TDC is most useful for thinking about rent. Under our default financing, each $10,000 of cost per unit requires about $68 per unit per month of rent. Our sensitivity shows the whole relationship: at $200,000 per unit the illustrative building needs about $1,882 per month; at $240,000, $2,154; at $280,000, $2,425; at $320,000, $2,696. The relationship is close to linear, because nearly all of the cost is financed with the same blend of debt and equity.

Nearly every subject on this site is a story about a line in TDC. Zoning and land prices set the first line. Building codes, labor, and materials set the second. Fees, process, and time set the third. Interest rates set the fourth. The reader who understands how each moves, and how the total becomes a monthly rent, can evaluate most housing policy proposals on their own. We walk through the whole chain in Why a New Apartment Costs $2,000 a Month.