A Lean Model For Housing Affordability

High land and labor costs, thorny regulations and opposition to density choke the housing supply in Massachusetts and drive up the cost of living in one of the nation’s priciest real estate markets.
What if there was a way to shave years and millions of dollars off every multifamily project?

The 49-unit Walker Park affordable housing development in Boston’s Egleston Square is a pilot program testing the potential for Lean construction techniques to save time and money through collaboration between developers, designers and builders. Roxbury developer Urban Edge has been pursuing the revitalization of three vacant and blighted parcels with plans for two apartment buildings that could be models for affordable housing cost containment.

In a departure from a traditional project, the construction manager, Waltham-based Commodore Builders, was brought on early in the design phase. Commodore and Cambridge-based architects Prellwitz Chilinski Assoc. met at the outset with an alphabet soup of city and state agencies that have a say over the project. That consolidated the design process, since each of the agencies has separate guidelines.

“Instead of tail-to-nose like elephants at the circus, we got all the elephants in a room,” President David Chilinski said.

The nonprofit Massachusetts Housing Partnership approached Urban Edge in 2014 about using Walker Park as a case study, with the goal of spreading limited housing subsidies further by controlling development costs.

Originally, Urban Edge planned to build a steel or concrete podium on the ground floor, said Jeremy Wilkening, the company’s director of real estate. As the result of discussions with Commodore Builders and the engineering team, parking was relocated under the building, enabling the entire structure to be built with wood framing. And original plans for three buildings were consolidated into two.

Those and other changes cut $1 million from the estimated $12 million construction costs, Wilkening said. The developers are seeking low-income state tax credits which would enable them to break ground in early 2017.

Controlling Costs Upfront
Multifamily projects take years to design and build while affordable projects tend to have the most sluggish timelines, given developers’ need to assemble multilayered financing packages. The average multifamily unit costs $400,000 to build in Boston, according to industry research, with labor and construction materials accounting for three-quarters of the total.

Applying the principles of Toyota’s influential manufacturing approach, Lean construction techniques put a premium on collaboration among developers, designers and builders. Designs drive costs, rather than vice-versa, with the goal of minimizing surprises during construction that blow up budgets. Some projects include contract language indemnifying parties to avoid costly litigation that results from project delays.

Bringing engineers and construction managers onboard early allows architects to shift gears – reducing the size of units or scaling back urban design flourishes, for instance – if material costs or site conditions raise red flags.

“From an end-user standpoint, it helps to get those numbers out on the table and say, ‘This is what it costs,’” Chilinski said.

With construction costs escalating at a rate of 5 percent to 8 percent annually in the booming Greater Boston market, the savings are potentially significant, he said.

Market-rate developers have adopted many of the Lean principles in recent years, but affordable housing developers have been slower to get on board. Because most projects use public funding, state regulations steer most projects toward the traditional design-bid-build model, Chilinski said.
As a pilot Lean project, Walker Park is working with the Boston Redevelopment Authority, Boston Department of Neighborhood Development, Massachusetts Housing Partnership and affordable housing financiers Enterprise Community Partners to test cost efficiencies. All units would be reserved for households making no more than 60 percent of the area median income, including 15 percent for those earning a maximum 30 percent of AMI.

The project received final BRA approval last July, but the developer is awaiting additional financing sources before breaking ground.

Redistributing The Risk
Near the heart of the Lean model is the concept of shared risk, said Joubin Hassanein, Lean practice leader for Boston-based Shawmut Construction.

The firm has participated in approximately 30 projects with Lean principles, mainly for educational and health care institutions. The complexity of such projects cries out for greater coordination from start to finish, Hassanein said.

“One of the main focuses is really to focus on reliability among the trades,” he said. “The traditional model did not address the ability of construction managers or subcontractors to come through on their promises. There’s a lot of buffering to accommodate the unknowns, and that contributes to a lot of waste in the industry.”

To reflect the efficiencies of the Lean model, some projects use the integrated project delivery (IPD) mechanism. A contractual arrangement, it encourages owners, designers and builders to consider the overall project so that all can share in cost savings.

In a traditional project, subcontractors reap the bulk of the benefits from completing the project ahead of schedule. In the IPD model, the potential savings are shared. But the owner assumes more risk, without the option of legal action.

“Because you agree to pay people’s time and materials, there’s no end cap to what you pay if things go bad,” Hassanein said.

A Lean Model For Housing Affordability

© Copyright 2016 Banker & Tradesman. All Rights Reserved.