achieving cost savings and in passing such savings along to consumers. Indeed, some analysts have accused the construction industry of refusing to use cost-saving technologies in order to keep the price of housing high. Over the years, much effort—both public and private—has been invested in finding a solution to the high cost of housing production. Success has been more marginal than hoped, but the effort has helped to reveal the complexity of the housing cost problem and the extent to which its components are intertwined.

The key factors that contribute to rising production costs are land and financing. Land is by far the more important of the two. Other components—labor, materials, and profit—have remained steady, or have declined. Table 2 shows the relative importance of various production components over time.

In reviewing Table 2, it is easy to recognize that even a dramatic reduction in any one factor will make only a small difference in the overall cost of a unit. For instance, assume that the price of land were reduced by 50 percent for an average newly built home (priced at $99,200 in 1985). This would show up as an 11.5 percent reduction in the total cost of a unit, or a reduction in final cost of $11,000. This savings would lower the minimum annual income needed to purchase the home by only $4,000. Further, a 50 percent reduction in the cost of financing would reduce the final cost of the home by 6 percent, and lower the income needed to purchase it by only $2,000.

Multifamily construction offers some important cost savings largely because of the lower land allocation per unit. In 1980 HUD conducted a study to compare production factors among several of its multifamily programs. The report provides comprehensive cost information on thousands of units in twelve HUD-sponsored rental housing programs. Of special