The high cost of building homes, and what Thurston County can do about it | Opinion
According to state legislators, we need to build over a million new homes statewide in the next 20 years to catch up with the demand for housing. For Thurston County, that would be roughly 40,000 new homes by the year 2043. That’s a lot of lumber, concrete and windows, not to mention labor. And the cost of construction keeps going up.
The cost of building homes matters because nearly a third of our neighbors are already “cost-burdened,” meaning they pay more than 30% of their income for housing, according to the Thurston Regional Planning Council. That puts them at higher risk of homelessness. And when housing construction prices go up, the affordable housing crisis gets worse, especially for homebuyers and renters of low and moderate incomes.
To get an idea of the current cost of building apartments, I looked at two very different projects. A new subsidized housing project called Unity Commons Phase 2 is being built by the Low-Income Housing Institute (LIHI) at an estimated cost of $27.6 million for 64 new homes. Because this estimate includes onsite healthcare facilities and community rooms, the average cost is nearly $400,000 per unit.
By comparison, the Laurana Apartments built a few years earlier on the former site of Les Schwab in downtown Olympia offers 44 market rate apartments of various sizes. While construction costs are not available, the building was valued at $12.5 million at the time of construction, suggesting an average of about $300,000 per unit of unsubsidized housing. Viewed together, this comparison charts a range of $300,000 to $400,000 per unit in construction costs for new rental apartments.
Among of the less obvious costs of new construction are “impact fees.” First enacted in 1982 as part of the Legislature’s Growth Management Act, these locally administered fees are intended to make new construction pay for the public amenities needed to serve the new residents, such as roads, parks and other public infrastructure.
Impact fees have increased over the years to an estimated $75,000 per unit in Olympia, according to City Manager Jay Burney. While these fees help local government pay the costs of growth, they also greatly increase the cost of housing.
Another driver in housing construction cost is size. According to populationeducation.org, the size of the average American home has grown radically since 1790 when the average home offered 830 square feet for six people. By 2019, the average home size had grown to nearly 2,500 square feet for an average of 2.5 people. And all that added square footage costs more.
Hands down, the most affordable housing is factory-built manufactured homes, averaging $125,000 per home, according to Manufactured Homes. This is less than a quarter of the cost of a conventional home in Thurston County, reported as $529,000 in a September 2023 Olympian article by Rolf Boone. Yet, in spite of the bargain prices, few housing developers are pursuing this model, nor are local governments offering incentives to build them or offer them sites.
One exception to this apparent aversion is a new Housing Authority project: It is creating a new manufactured housing park called Sequoia North, offering 36 homes for low-income seniors in Tumwater.
“As a Tumwater City Council member, I support this project because manufactured housing developments like this are critically needed to provide affordable housing for our lowest-income neighbors,” Leatta Dahlhoff said.
So how do we bring down construction costs to keep housing affordable?
Some affordable housing advocates blame developers, characterizing them as greedy, but is it reasonable to expect investors to privately subsidize housing? Some blame non-profit developers who often build higher cost-per-unit projects, but it’s often more expensive to build subsidized housing. Still others wonder how to offset the negative social impacts of high impact fees, but that leaves cash-strapped local governments to pay for infrastructure.
Ultimately, someone has to pay these construction costs, guesstimated at $14 billion (average $350,000 per unit) to build the 40,000 homes needed by 2043. Most likely it will require a mix of smaller units, support for manufactured homes, deeper subsidies and a revamp of impact and other development fees. If we value affordable housing for all of our neighbors today, we must begin planning for our future needs now.
Anna Schlecht is retired from the City of Olympia where she worked on housing and homeless issues for several decades. This column is part of her year-long exploration of housing issues in our region.
