Let’s start at the beginning.
Steve Wilson wrote a letter, which you can read here:
In response, John Collins wrote the following:
Now comes Steve Wilson with this reoly:
Willson Rebuts Collins on high cost of low income housing
Mr. Collins says that I have a “fundamental misunderstanding of how affordable housing is built and financed”. With 42 years in the municipal finance business, including analyzing literally thousands of multifamily housing projects, I think I probably understand the business well enough.
First, Mr. Collins says the project includes land acquisition, legal fees, etc. That’s true. But all apartment projects include land acquisition and legal fees, etc. So citing these costs as somehow unique to taxpayer subsidized low income housing is simply wrong.
Second, saying the cost is reasonable compared with the cost of other taxpayer subsidized low income housing only shows that the taxpayers are regularly fleeced by such projects, not that this project is reasonably priced.
No, the only relevant comparison is the market price of similar units, and the average condo in McHenry sells for around $233,000, so the cost of this project is more than twice the market price for similar units.
Third, while direct taxpayer subsidies are only a part of the total cost, the rest is financed, as Mr. Collins notes, using tax credits, another government subsidy. If it weren’t for these deep taxpayer-financed subsidies, this project would never be built, because it is fundamentally uneconomical.
Fourth, in addition to subsidizing the construction, taxpayers will directly subsidize this project for the next 30 years.
Let’s see if the cost is reasonable.
If the project were 80% financed today at market rates, the annual mortgage payment would be about $1.5 million. Property taxes alone would be $375,000 to $400,000 per year. In addition the owners would have to pay maintenance, management, etc. So, very generously, the total annual cost would be $2 million per year. Probably more.
That means the real, economic cost of the project is at least $3,333 per month per unit.
But tenants will pay only $1,000 per month. So the monthly subsidy is $2,333 per unit per month. That comes from the taxpayers.
But, as Mr. Collins notes, market rents in the area are around $1,350 per month.
So a direct subsidy of $350 per month would permit tenants to rent market rate apartments and save taxpayers $1,983 per month, or $1.2 million per year for the next 30 years.
