Making It Pencil: the Math Behind Housing Development – 2023 Update

In 2019, Terner Center published Making It Pencil: The Math Behind Housing Development, which explained the basics of how developers build new housing in California. This publication has served as an important resource for policymakers and stakeholders who want to know more about what goes into project costs, how financing is obtained, and how rents are determined.

Today, we are excited to announce an update to this work—Making It Pencil: the Math Behind Housing Development – 2023 Update. This refresh updates our original case study development pro formas with numbers based on current market conditions to illustrate how the costs have changed across key regions of California, and the challenges those costs pose to new housing production.

The landing page also has an interactive feature that allows the user to walk through the high-level decisions that go into new market-rate real estate development projects.

The project includes pro forma analyses for prototype mid-rise projects in four California markets: the East and South Bay areas, the Westside of Los Angeles, and Sacramento. We illustrate what goes into project costs, how financing requirements of investors and lenders work, and, ultimately, how developers decide whether or not a project “pencils.” We also include an explanation of how various costs have increased and how difficult it is for new housing development to work financially given these new realities.

Please visit our project page here to learn more.

Join us for a webinar on Tuesday, January 16, 2023 where we’ll walk through the pro formas, discuss how costs have risen in the past several years, and hear from experts and practitioners. Sign up here.