Why Subsidized Affordable Housing Can Cost More to Build Than Market-Rate Units

Written by:

Steve Marcinuk

Date:

23 Feb 2026

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Rising regulatory and compliance costs have pushed the per-unit price of subsidized affordable housing above that of market-rate projects, according to Marc Norman, Associate Dean at NYU School of Professional Studies Schack Institute of Real Estate. Developers now face a system in which building subsidized affordable units often costs more and takes longer than constructing market-rate housing. As a result, some builders are bypassing traditional subsidy programs and choosing less regulated approaches that allow projects to move faster and cost less.

Norman attributes the higher costs to a growing list of requirements attached to subsidized projects: larger minimum unit sizes, mandatory amenities, strict energy efficiency standards, and other compliance measures that do not apply to market-rate developments. “Subsidized affordable housing today is more expensive to build than market-rate housing,” Norman says. “One of the reasons is that it comes with a laundry list of requirements, minimum unit sizes, and kinds of amenities that match or exceed what the market-rate community is building.”

These requirements, intended to ensure quality and sustainability, have the unintended effect of reducing the number of affordable units that can be produced with a given amount of funding. For example, energy-efficiency requirements, such as LEED certification, may improve a project’s eligibility for funding but also impose high costs, thereby limiting the number of units that can be built within budget.

How Parking and Compliance Requirements Increase Costs

Parking requirements are among the most visible drivers of cost in affordable housing development. In some areas, affordable projects are subject to stricter parking mandates than market-rate buildings. Norman cites Newton, Massachusetts, where affordable housing is subject to parking requirements that do not apply to market-rate projects, thereby increasing costs and slowing the pace of construction.

The compliance burden extends well beyond parking. Subsidized projects must often meet higher standards for energy efficiency, accessibility, and on-site amenities. These rules are intended to improve the quality of affordable housing, but they also increase construction costs and reduce the number of units developers can deliver. “Energy efficiency standards, like LEED certification, get you more points for funding but are more expensive,” Norman explains. “It’s not bad, but it is increasing costs and meaning that less is getting built.”

The regulatory burden is particularly pronounced in affluent suburbs, where local zoning boards frequently impose additional requirements on affordable housing that market-rate projects do not face. These can include enhanced landscaping, extra parking, or architectural features intended to blend with existing neighborhoods. Each new mandate raises costs and slows development, thereby further limiting the production of affordable housing.

Why Some Developers Avoid Subsidy Programs

The widening cost gap has prompted some developers to avoid traditional affordable housing programs altogether. By building without subsidies, they can circumvent the regulatory requirements that increase costs and delay projects. Norman notes that a growing number of developers are opting for this approach, delivering units at rents below market rate but above the strict income limits required for subsidized housing.

“There are developers bypassing the standard affordable housing programs because they can build cheaper and rent at lower rates, even if not the lowest,” Norman says. By skipping subsidy programs, these builders eliminate many compliance hurdles. This allows them to complete projects more quickly and at lower cost. However, the resulting units may not serve the lowest-income households.

This trend highlights the impact of regulatory costs on the supply of affordable housing. Developers who avoid subsidies can often deliver more units, more quickly, and at lower rents than those who participate in heavily regulated programs. While these units may not serve the very lowest-income renters, they still increase the supply of below-market housing and relieve some pressure on the rental market.

Norman argues that regulatory reform is as important as increased funding in solving the affordable housing shortage. Reducing compliance requirements for subsidized projects could enable developers to build more units with the same level of public investment.

Zoning Laws That Eliminated Older Affordable Housing Types

Norman points to a deeper regulatory issue: many of the housing types that once provided affordability are now illegal under current zoning codes. Single-room occupancy hotels, rooming houses, boarding houses, and garage apartments have historically offered low-cost options for newcomers and those seeking to save money. Today, most jurisdictions prohibit these forms of housing.

“There’s a list of about 40 things that could not be built today,” Norman says. “A lot of those were the ways affordability presented itself — not through subsidy or regulation, but through the ways things were built and rented.”

He explains that post-World War II zoning codes effectively froze the range of legal housing types, eliminating the flexibility that once allowed the market to respond to changing needs. In earlier eras, large homes could be converted into rooming houses, and rooming houses could be converted into multifamily buildings as demand shifted. Current zoning rules prevent such adaptation.

The loss of these housing types has removed a significant source of naturally occurring affordable housing from the market. Norman suggests that re-legalizing flexible housing arrangements, such as accessory dwelling units, boarding houses, and single-room occupancies, could restore some lost affordability without relying on subsidies or heavy regulation.

Building Code Reform and Single-Stair Designs

Norman points to building code reform as another way to reduce costs and increase flexibility. In the United States, most multifamily buildings must have two means of egress, typically two stairwells, for fire safety. This requirement, unique to the U.S., adds significant expense and constrains building layouts.

“People have been saying the U.S. is unique in mandating two means of egress and double fire stairs, which add costs and create odd configurations,” Norman says.

By contrast, single-stair buildings are common in Europe and Asia, where they are considered safe and cost-effective. Allowing single-stair designs can make floor plans more efficient, improve daylight, and reduce construction costs. Norman notes that at least one U.S. jurisdiction has recently approved single-stair buildings, though he does not specify which jurisdiction.

He also highlights the work of So Ill (Solid Objectives) and Tankhouse, a New York architecture firm and developer that are building precast concrete buildings with external circulation instead of internal corridors. By eliminating hallways, these projects save on construction costs and reconfigure apartments to maximize daylight and views. The firms have completed four buildings and are constructing a 120-unit project in Gowanus that includes 20% affordable units under New York’s mandatory inclusionary zoning.

“They are doing interesting buildings in New York City that don’t have internal corridors,” Norman says. “That means you save money on hallway infrastructure and can give more light and air to apartments.”

Norman presents So Ill and Tankhouse as examples of developers pursuing cost-reduction strategies without sacrificing design quality. He argues that the industry needs more firms willing to challenge conventional building practices and explore alternative construction methods.

The Case for Greater Regulatory Flexibility

Norman maintains that regulatory flexibility is essential to increasing the production of affordable housing. Jurisdictions that permit greater variety in building types, unit sizes, and construction methods achieve better outcomes than those with rigid requirements.

Many regulatory rules are rooted in important goals. Energy efficiency standards lower operating costs and environmental impact. Accessibility features ensure housing is available to people with disabilities. Parking requirements address concerns about neighborhood congestion. But Norman argues these rules must be weighed against the need to produce more housing overall.

“The more flexibility, the better,” Norman says, noting that developers who avoid subsidy programs can deliver lower rents simply by sidestepping costly mandates.

He suggests that cities consider tiered regulatory systems that allow developers to choose different compliance paths. Projects receiving public subsidies could be held to higher standards, whereas unsubsidized projects could operate under more flexible rules. This would allow the market to determine the most efficient way to achieve affordability.

Norman’s analysis points to a broader conclusion: deregulation, not just increased funding, may be necessary to address the affordable housing crisis. The current regulatory framework increases costs and reduces production, resulting in fewer units delivered at higher prices. Modernizing building codes, reforming zoning laws, and streamlining subsidy program requirements could enable developers to build more units more quickly and at lower cost, thereby improving affordability for a wider range of renters without additional public spending.

Looking ahead, Norman’s research suggests that policymakers should prioritize regulatory reform alongside new funding. Restoring flexibility in building codes and zoning could help revive housing types that once provided organic affordability. Encouraging experimentation in design and construction could further cut costs and speed delivery. Ultimately, Norman argues that affordable housing policy must balance quality and safety with the urgent need to build more homes quickly and at prices people can afford.