Lifecycle Underwriting – Analyzing the Lifecycle Costs of Affordable Multifamily Rental Housing

Lifecycle underwriting represents a new way of thinking about the costs of multifamily affordable housing.  Rather than looking simply at the initial costs to develop a property and the ability of a property to remain financially viable for an initial 10- to 20-year period, lifecycle underwriting examines whether a property’s finances are sufficient to cover the expected costs of maintaining the property over its full lifecycle, which can be as long as 50 years.

The following materials describe the principles behind lifecycle underwriting, the practical and policy implications of this new approach to underwriting, and the results of a research study applying this methodology to compare the costs of two methods of producing multifamily affordable housing: new construction and acquisition-rehab.  The materials also include a free online tool that enables users to apply lifecycle underwriting to their own properties.

Resources from webinar presentations on Lifecycle Underwriting are archived here.

L-Cycle

L-Cycle: The Lifecycle Cost Modeling Tool

This free tool enables users to estimate whether a property is likely to have sufficient funds to meet expected capital needs over a full 50-year lifecycle.  Users can input basic property characteristics and obtain an estimate of when the property’s reserves are likely to show a deficiency under different scenarios, as well as how much in additional funding would be needed to remain viable over a 50-year period.

Use the tool

   
Comparing the Costs of New Construction and Acquisition-Rehab In Affordable Multifamily Rental Housing

Comparing the Costs of New Construction and Acquisition-Rehab In Affordable Multifamily Rental Housing

This research working paper uses the lifecycle cost methodology to compare the total cost of developing and maintaining multifamily affordable rental housing over a 50-year period using either acquisition-rehab or new construction. Our analysis of a convenience sample of more than 200 properties found that, all else equal, new construction added approximately $40,000 to $71,000 (25 to 45 percent) per-unit to the lifecycle costs. 

Read the paper

NOTE: The full statistical analysis underlying our comparison of the costs of new construction and acquisition-rehab will be documented in a forthcoming journal submission.  For more information on this analysis in the interim, we are making available a memo from Summit Consulting documenting the results.

   
Lifecycle Underwriting: Potential Policy and Practical Implications

Lifecycle Underwriting: Potential Policy and Practical Implications

This policy working paper explores the policy and practical implications of lifecycle underwriting and opens up a debate about the trade-offs of financing properties for a 50-year viability period, rather than the more typical 15-year time frame.

Read the paper


 
The Lifecycle Cost Adjustment Methodology: An Exploration of the Baseline and Alternative Assumptions

The Lifecycle Cost Adjustment Methodology: An Exploration of the Baseline and Alternative Assumptions

This technical working paper describes the lifecycle cost adjustment methodology in greater detail.

Read the paper

These materials were produced by the Center for Housing Policy in partnership with the Compass Group and Summit Consulting.  The National Housing Conference was also a collaborator on the policy paper.

Readers are invited to provide feedback on these materials in our HousingPolicy.org Forum thread.

Acknowledgements

The Center for Housing Policy gratefully acknowledges funding for these materials from the John D. and Catherine T. MacArthur Foundation as well as input from this project’s advisory panel. Any errors or opinions, however, are those of the authors alone.