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Demystifying Development: Does It Pencil?

In this interactive resource, the Terner Center demystifies the math behind the developer journey to build and finance new housing.

A project “pencils” when a developer concludes that they can build new homes at a cost and sales/rental price that allows them to pay back their debt and make their equity partners a good return. A combination of high construction costs, interest rate increases, and shifting demand in many high-cost cities means that most projects today are not penciling out.As a consequence, places like California are continuing to fall behind on housing supply goals. To put it another way, the time, expense, and risk of a new project won’t be worth it to investors if their returns are not higher than simply buying a nearby occupied apartment building.

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