Our previous article discussed zoning barriers to attainable housing. In this article, we’ll discuss how infrastructure improvement costs, stimulus money, and onerous regulations are also affecting the attainable housing market.
The initial land purchase can be a significant cost for any development, however, horizontal infrastructure single-handedly drives development costs and home prices. Raw materials such as sand, rock, cement, and steel used to manufacture stormwater and sanitary sewer pipes, potable water pipes, and asphalt have increased substantially the past few years. Material availability also wreaks havoc on development costs.
Covid shutdowns are a well-publicized cause of material prices and limited supplies. However, a main driver of supply and cost issues—federal stimulus money—is rarely discussed. State and local governments became eligible for $65.1 billion dollars in federal stimulus to be used for “necessary investments in water, sewer, or broadband infrastructure” through the American Rescue Plan Act (ARPA). These funds include State Revolving Funds (SRF’s) which fund the Clean Water State Revolving Fund (CWSRF) and the Drinking Water State Revolving Fund (DWSRF) for example. SRF’s provide low interest loans to finance the building or repair of wastewater and drinking water plants, distribution systems, and stormwater quality improvement projects. SRF’s are attractive to the public sector because they provide artificially low fixed interest rates, loan repayment deferment until the construction completion date, and a percentage of loan forgiveness. Through December of 2022, Alabama had received applications totaling $3 billion dollars for ARPA and SRF eligible water and sewer upgrades.
Although road projects are not eligible for SRF funds, in Alabama, road improvement projects have seen an infusion of cash thanks to the Rebuild Alabama Act (RAA). Passed in 2019, and phased in over several years, RAA generated $344 million dollars in 2022 fiscal year revenue. RAA funds must be used for road and bridge infrastructure projects, preservation, and maintenance, and they can be used to match funds for federal road or bridge projects. The proceeds are divvied out as follows: 67% percent go toward the state’s Department of Transportation (DOT), 25% percent go to counties, and 8% percent go to municipalities. For fiscal year 2022, Alabama’s DOT received $230 Million, Alabama counties received $86 Million, and Alabama municipalities received $27.5 Million. Competition from the public sector’s use of materials has significantly increased development costs for private developers.
Perhaps the most perplexing element to the unprecedented flow of government money is the resulting financial burden it has placed upon private developers, and then consequently homebuyers, to improve offsite infrastructure. Municipalities often condition a subdivision’s approval on improvements to sewer, water, and roads. These required improvements often extend to a larger geographic area than the proposed subdivision. When a residential subdivision’s approval is conditioned upon these improvements, developers are required to push that cost on to homebuyers in the form of more expensive housing.
According to the Pew Research Center, about half of Americans (49%) say the availability of affordable housing in their local community is a major problem. Not cheap housing or government subsidized housing, but affordable housing. The average sales price of newly constructed homes in the State of Alabama reached $379,193 in February of 2023, yet the per capita income is $30,458. In other words, the average Alabamian cannot afford a house. The same is true for markets all around the country. Until these barriers to attainable housing can be addressed, home ownership will remain out of reach for millions of Americans.