Why housing costs what it costs: how land, construction, financing, regulation, taxes and required returns combine into the rent a new home must charge.
Affordability is the outcome everyone argues about and the input almost nobody sees. A monthly rent is the end of a long chain: the cost of land, the cost of building, the cost of borrowing, the cost of complying with rules, the cost of operating the building, and the return the capital behind it requires. Change one link and the number at the end moves.
Our approach to affordability is arithmetic rather than rhetoric. We ask what a new building must charge to cover its total development cost, its debt service, its operating expenses and the return its investors require, and we compare that required rent with what households can pay. The gap between the two is where most affordability problems live. Every article here measures some piece of it.
We build an illustrative 120-unit apartment project on paper, line by line, and show where every dollar of the rent it requires comes from.
Housing 101
The rent on an existing apartment is set by the market, not by what it cost to build. New construction is the link between cost and market rent. This lesson explains how that link works and why it matters.
Housing 101
The owners of a new building put in the money that absorbs losses first. This lesson explains why that money has a price, how the price is measured, and what happens to construction when it is not paid.
Housing 101
Two different questions: what rent a landlord can charge (set by the market) and what rent a new building needs (set by cost). Where market rent falls short of required rent, nothing gets built.
Housing 101
Revenue, vacancy, operating expenses, net operating income, yield on cost, cap rate, DSCR, cash-on-cash. The pro forma decides whether a building gets built. If the math does not close, nobody builds.
Construction Costs
Cheaper cabinets and counters move the required rent of a new apartment by about $34 a month. Land, parking, building type, fees, time and interest rates move it far more. Here is the scale of each lever.
Interest Rates
A one-point rise in the loan rate adds about $93 a month to the rent our illustrative 120-unit project requires, before investors and construction lenders reprice. We show the arithmetic and the second-order effects.
The evergreen pieces that explain the mechanics behind everything else in this topic.
Housing 101
The rent on an existing apartment is set by the market, not by what it cost to build. New construction is the link between cost and market rent. This lesson explains how that link works and why it matters.
Housing 101
The owners of a new building put in the money that absorbs losses first. This lesson explains why that money has a price, how the price is measured, and what happens to construction when it is not paid.
Housing 101
Two different questions: what rent a landlord can charge (set by the market) and what rent a new building needs (set by cost). Where market rent falls short of required rent, nothing gets built.
Housing 101
Revenue, vacancy, operating expenses, net operating income, yield on cost, cap rate, DSCR, cash-on-cash. The pro forma decides whether a building gets built. If the math does not close, nobody builds.
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