The rents in the brand-new apartment buildings all around town have caused some serious sticker shock. If you’ve wondered just how the rent got to be so damn high, you might find a few minutes with a new online game to be instructive.
”Inside the Rent,” created by New York City’s Citizens Housing & Planning Council, lets you examine the construction and operating budget for a new-build apartment building — and translates those up-front costs into average monthly rents.
Players get to choose between various factors like location, construction type, and how much to pay construction crews and maintenance staff. Then they watch the costs add up. In the likely scenario that the costs exceed the player’s “market price,” the player can also apply for various government subsidies, like tax breaks or free land.
Although construction costs and land prices in the Washington region aren’t quite at New York City levels, many factors apply nationwide. For instance, federal law requires that subsidized housing pay “prevailing wages” to construction workers, which raises costs.
One quirk that I noticed in the game: the game shows that construction of high-rise buildings costs 25% more than mid-rise buildings. (Here in DC, the same 25% cost differential exists between mid-rise and low-rise buildings.) However, the game doesn’t acknowledge that high-rise buildings can fit more units onto the same piece of land, and thus reduce the land cost per unit. Another cost that isn’t part of CHPC’s game, but which can very substantially raise rents, is the high cost of building parking.
Interestingly, one of the few “costs” that is fixed in all game scenarios is the developer’s minimum profit, which is 5% in all cases. That might seem generous at a time of near-zero interest rates, but consider that for investors, a whole lot more can go wrong with a construction project than with with long-term bonds, which are often considered a comparable (but less risky) asset. Indeed, as the prices to buy or build apartments have risen, the profit margins that investors make on operating those apartments have fallen to new lows.
If you’re the type of geek who prefers to examine Excel spreadsheets rather than constantly reload your phone’s browser, CHPC has also made the spreadsheet underlying the game available.