Why Affordable Housing Fails at the Operating Level

There is no shortage of affordable housing proposals. Every year, billions flow into construction—subsidized developments, nonprofit projects, government initiatives. Units get built.

And yet, decade after decade, affordable housing crumbles faster than it's created. Not because of construction quality. Because of operating costs.

Affordable housing fails at the operating level, not just the construction level.

The Operating Cost Problem

When a unit costs $400,000 to build, that's a one-time expense. When a unit costs $800/month to operate, that's $9,600 per year—forever.

Over a 30-year building lifespan: - Construction cost: $400,000 (one time) - Operating cost: $288,000 (cumulative)

Operating costs don't get the same attention as construction costs. They're not as visible, not as dramatic, not as easy to campaign on. But they determine whether housing stays affordable.

What Drives Operating Costs

Operating costs in common-interest developments break down into:

1. Management overhead - Property managers, administrators, decision-makers
2. Maintenance execution - Contractors, repairs, capital improvements
3. Insurance - Property, liability, D&O coverage
4. Reserves - Future repairs, component replacement
5. Utilities & services - Shared systems, common area maintenance
6. Compliance - Legal, accounting, regulatory requirements

Each of these has structural overhead built in. And most of that overhead is invisible—baked into the way things are done rather than questioned.

The Management Layer Problem

A typical 50-unit condo association pays $30,000-50,000 annually for property management. That's $600-1,000 per unit per year—just for administration.

What does that fee cover?

• Coordinating with vendors
• Preparing financial reports
• Organizing meetings
• Handling resident communications
• Maintaining records
• Ensuring compliance

None of these are inherently expensive activities. They're expensive because:

1. Each association is managed separately - No economies of scale
2. Communication is manual - Phone calls, emails, paper notices
3. Record-keeping is fragmented - Different systems, no integration
4. Compliance is reactive - Problems caught after they become expensive

The structural overhead isn't in the activities. It's in how the activities are organized.

The Contractor Markup Problem

When an HOA needs a roof replacement, the typical process:

1. Board decides repair is needed
2. Property manager requests bids
3. Contractors submit proposals (often through manager relationships)
4. Board selects contractor (often based on manager recommendation)
5. Manager oversees work
6. Manager approves payment

The contractor's bid includes: - Actual repair cost - Overhead and profit margin - Markup for the management relationship

That last item is invisible but real. Contractors who work through property managers price in the cost of maintaining those relationships—lunches, referral expectations, the understanding that responsive service to the manager matters more than the board.

Direct contractor access is an affordability lever. When boards can find, evaluate, and work with contractors directly—based on verified work history rather than relationship networks—the markup disappears.

The Insurance Spiral

Insurance costs for HOAs have increased 40-80% in many markets over the past five years. This isn't random—it reflects underwriting reassessment of risk.

Factors driving increases: - Climate-related claims - Construction defect litigation - D&O claim frequency - Deferred maintenance patterns

But also: - Poor governance documentation - Harder to defend claims - Inconsistent financial controls - Higher fraud risk - Inadequate reserve funding - Deferred maintenance becomes emergency spending

Associations with better governance get better rates. Not because insurers are generous—because governance quality predicts claims. (See Compliance Is Not Paperwork.)

The Reserve Underfunding Cycle

State law typically requires reserve studies and disclosure of reserve fund status. It rarely requires adequate funding.

The result:

1. Special assessments - Large, unpredictable costs that strain affordability
2. Deferred maintenance - Components deteriorate beyond repair
3. Emergency spending - Repairs cost more than planned replacement would have
4. Property value decline - Buyers discount for deferred maintenance

Each cycle makes the next cycle worse. The association that skipped a $50,000 planned expenditure faces a $150,000 emergency repair five years later.

Reserve discipline is an affordability mechanism. Consistent small contributions prevent catastrophic large assessments.

What Would Fix This

Reducing structural overhead requires changing structure—not just cutting corners.

1. Shared Infrastructure

Why does every 50-unit association need its own: - Property management contract? - Accounting system? - Communication platform? - Compliance tracking?

Shared infrastructure across associations would reduce per-unit costs while maintaining (or improving) service quality.

2. Direct Contractor Access

If boards could: - Find contractors through verified work history - Evaluate based on outcome quality, not relationship - Pay based on performance, not network position

...the markup layer would compress. More money to the worker, less to the middleman.

3. Governance Automation

Most compliance failures are calendar failures—missing deadlines, forgetting requirements, not scheduling necessary actions.

Systems that: - Track state-specific requirements automatically - Generate required notices on schedule - Create compliant documentation by default - Maintain audit trails without extra effort

...reduce the cost of compliance while improving outcomes.

4. Financial Integration

When accounting, banking, and payment systems don't talk to each other: - Reconciliation is manual (expensive) - Fraud detection is delayed (risky) - Reporting takes effort (error-prone)

Integrated financial infrastructure reduces the overhead of being financially responsible.

The Policy Implication

Most affordable housing policy focuses on construction: - Subsidies for developers - Zoning changes for density - Tax incentives for projects

Less attention goes to operations: - Standards for governance quality - Requirements for operational efficiency - Support for shared infrastructure

Units that cost less to build but more to operate don't stay affordable. They transfer cost from the visible (construction) to the invisible (assessments, special assessments, deferred maintenance).

Sustainable affordability requires operational discipline—not just construction subsidy.

What This Means for Associations

For boards and residents:

1. Management overhead is negotiable - Understand what you're paying for and whether you need it
2. Contractor relationships have costs - Direct access saves money
3. Governance quality affects insurance - Better process, better premiums
4. Reserve discipline prevents crises - Consistent funding beats emergency assessments

For policy makers:

1. Operating efficiency matters - Don't just count units built
2. Governance standards matter - Well-run associations cost less
3. Shared infrastructure is possible - Small associations can share overhead
4. Direct access expands options - Reduce dependency on intermediary networks

The Bottom Line

Affordable housing doesn't fail because construction is too expensive—though it is.

Affordable housing fails because operating costs compound indefinitely, and operating structures are designed for convenience, not efficiency.

Operational affordability comes from governance discipline. Reduce structural overhead. Enforce financial discipline. Build systems that make correct operation the default.

This isn't exciting. It's not a ribbon-cutting. But it's what determines whether housing stays affordable after it's built.

Related Concepts

• What Is Fiduciary Duty? - Board member obligations for cost management
• What Is Fund Accounting? - Reserve fund management requirements

We reduce structural overhead through governance discipline. This is how operational affordability works.