What accounts for multifamily housing costs

I have written recently in The Daily Transcript about the future housing supply of San Diego County. I concur with SANDAG’s estimates that 85 percent of the future housing to be built in this county will be multifamily, both rental apartments and condominiums.

Now I want to discuss the costs associated with the development of condominiums and the prices that have to be obtained to justify their development.

I have developed four scenarios that represent most condominium development in the county: the three-story town house with a two-car tuck-under garage; a three-story walk-up flat; a five-story wood-frame structure over two decks of above-surface parking (podium); and a high-rise.

The costs for these developments are typical for the county. The only two factors that vary are the price of land and the development fees levied by the cities. The development fees can range from $30,000 to $80,000 per unit. And obviously, the cost of land in University Town Center and downtown San Diego is far higher than in the far reaches of suburbia. Those differentials are taken into account.

The units per acre, or density, increases substantially as the product changes. Thus, in these four examples, which envision a 200-unit project, three-story town houses built out at 20 units per acre require 10 acres, while a 200-unit high-rise requires less than an acre.

The construction costs of a condominium project change substantially when a project goes from a walk-up wood-frame product to one that is all concrete. The town houses and three-story walk-up projects are all wood frame. The podium project is five stories of wood frame over two stories of above-surface concrete parking and the high-rise is all concrete and steel.

In these examples, the cost of construction ranges from $85 per saleable square foot for the town houses and flats to $314 per net saleable square foot for the high-rise.

A major factor of cost is the parking in a high-rise structure. Typically, in a high-rise structure, all the parking is subterranean. The cost per space can be dramatically different depending on the number of subterranean levels and the size of the parcel.

The deeper you dig and the smaller the parcel, the higher the cost per space. Thus, if you have a full square block downtown (60,000 square feet) and go down two decks, the cost per space may be $20,000.

That same space in a building sited on 20,000 square feet may be $40,000. The difference is the percent of the space that is devoted to ramps and turnaround space. And downtown, you may hit water at 8 feet below ground; then you have to build a boat — a parking garage that is insulated against water intrusion.

Now, let’s cut to the chase.

The differences in land, development fees and construction costs result in varying development costs per square foot and then, the price of a product and price per square foot.

• Product 1: a 1,200-square-foot three-story town house in the following example will sell for $300,000, or $250 per square foot.

• Product 2: an 850-square-foot flat will sell for $250,000, or $294 per square foot.

• Product 3: an 850-square-foot unit in a five-story project with two levels of above-surface podium parking will sell for $340,000, or $400 per square foot.

• Product 4: an 850-square-foot unit in a high-rise downtown will sell for $400,000, or $471 per square foot.

The monthly carry increases as you go from a wood-frame to a high-rise product because of the obvious price differential but also because the association fees per unit are significantly higher in a high-rise than in a three-story walk-up. Such factors as window-washing, garage maintenance and elevators drive up the HOA cost in a high-rise.

Thus, San Diego condominium homebuyers have several choices. They can get the best value on a dollar-per-square-foot basis by buying a wood-frame product in the exurban areas of the county.

Unfortunately, there are no condominiums being built downtown right now, but eventually they will surface. In the meantime, if you want to live downtown, you can buy an existing condominium and it will be priced significantly less than when the new ones are built. I guarantee it.

The killer factor for condominium developers is litigation. In downtown San Diego, of the 57 projects built or converted since 2000, 72 percent had litigation, most often related to water-intrusion problems. As an aside, Xpera Group has been involved as experts in 78 percent of the downtown litigations.

The litigation specter is unfortunate, because the dearth of condominium construction places a major hardship on first-time buyers and causes a long-term imbalance in the housing market.

Perhaps the burgeoning demand for condominiums will outweigh the fear of litigation and all those condominium builders who abandoned San Diego will return.

Here’s hoping.

Nevin is a team leader in market research and forensic services at Xpera Group, the West Coast’s largest source of experts in construction and real estate. He can be reached at

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Paul Herstein 8:37am April 8, 2014

Mr Nevin, Thanks for another thoughtful, informative summary. Should we assume the quoted construction costs do not include the variable costs: land, fees, parking, litigation? Are design/construction management/sales costs included? Are the quoted selling prices minimums which would cover all costs and allow a profit? Developemnt downtown must also be inhibited by the inherently large scale of an allowable project; fewer units on smaller suburban parcels imply less risk and lower cost. Thanks again, Paul Herstein

Lee A. Homer CCIM - Kensington Properties Inc. 1:40pm April 4, 2014

Alan : Excellent piece !! I am constantly asked by clients as to why building costs are so expensive. Heretofore, I would need to go into a lengthy diatribe as to the economics and driving forces behind market pricing and the forces at work to get a project done. You, my friend have nailed it in a concise and economic way to make it clear and understandable to the general public.