Why Private Developers are Rejecting Government Money for Affordable Housing
March 16, 2024 by California’s efforts to address its housing crisis through government-funded affordable housing have faced high costs and slow progress. SDS Capital Group, an investment firm, is bypassing government assistance to build a new 49-unit affordable apartment complex in South Los Angeles at about half the cost per unit compared to publicly funded projects. This approach allows them to avoid the regulations and costs that come with government funding. State and local governments in California have spent tens of billions on affordable housing, yet high costs remain an issue. For example, affordable housing units built with public funds in San Jose cost around $939,000 each. In contrast, SDS’s project costs about $291,000 per unit, significantly lower than the average $600,000 per unit for publicly funded housing in Los Angeles. SDS’s privately funded model relies on an impact fund, attracting investments from banks and foundations. These projects benefit from recent state and local regulatory changes that streamline approvals and increase allowable unit densities. However, privately funded projects often still depend on government funds for operational costs, such as federal housing vouchers for tenants.