The affordable housing shortage is a market problem and that is usually very much forgotten in land use decisions at the Planning Commission level and at the City and County Commission level. A part of the market problem is the costs involved in financing and building a project. It's about a brutal economic reality that makes seasoned developers run the other direction: the numbers simply don't work.

Picture this scenario: You're a developer eyeing a potential affordable housing project. Construction costs hit $15 million. Land costs another $3 million. Factor in design fees, financing costs, government fees and your own salary and you're looking at a $20 million investment. Now here's the kicker—your maximum rental income caps out at levels that would make a traditional apartment investor laugh.

The math is unforgiving. While market-rate apartments might generate $2,000-$3,000 monthly rent per unit, affordable housing restricts you to perhaps $800-$1,200, depending on income levels. That difference isn't just about profit margins—it determines whether banks will even lend you money.

Banks don't care about your good intentions. They care about cash flow. When they calculate how much they'll lend, they look at your projected rental income minus operating costs. If that net operating income is too low, you simply can't borrow enough to build. It's not personal; it's risk management.

This creates a vicious cycle. Low rents mean low operating income. Low operating income means smaller loans. Smaller loans mean you can't cover construction costs. Game over before you even break ground.

This isn't developer greed talking. Developers need to make it make business sense and provide income, and they can't run sustainable businesses on projects that lose money. The ones who do attempt affordable housing often rely on a complex web of tax credits, grants, and subsidies that may or may not materialize.

The uncomfortable truth is that truly affordable housing requires someone to absorb financial loss. Either developers lose money (and go out of business), or taxpayers subsidize the difference with money or density providing extra market-rate housing to cover costs. There's no magical third option where market forces alone solve this problem.

Every time you see a local level of government pound the table that market-rate developers are not providing enough affordable housing to get the density they are allowed to ask for under the local government’s affordable housing density rules, you see a level of government that completely misunderstands the fundamentals of the housing and construction market when it comes to affordable housing. Government misunderstanding the economics of housing are a big impediment to affordable housing.

Until we fully acknowledge at the local government level that affordable housing causes developers to lose money —we'll continue wondering why private developers don't enthusiastically build housing they can't afford to construct.

Christine Robinson is the Executive Director of The Argus Foundation.