# Episode 11: How Projects Pencil

Explains development feasibility, yield, financing, construction costs, rents, and municipal fiscal effects.

## Sources and attribution

- [The Local Official's Handbook](https://github.com/jstart/podcast-tts/tree/main/local-officials-handbook-audio) by Author unavailable in repository materials; published by Publisher unavailable in repository materials.
- [City Government, Plans, Meetings, and Department Resources](https://www.torranceca.gov/government) by City of Torrance; published by City of Torrance.

This episode is an independent study production based on the sources listed above. Source attribution does not imply affiliation, approval, sponsorship, or endorsement by any author, publisher, or institution.

## License

No source license identified in repository materials; all rights reserved unless the rights holder states otherwise; No broad open license identified; public information summarized with attribution

## Production notes

Independent civic study production. Not legal, planning, election, or financial advice. The narration is an original synthesis. Verify current law, guidance, course requirements, and source terms before relying on it.

Stable episode ID: `05681a02-abf4-5be8-96d5-8079c81415c2`

## Transcript

A rental project gets built only if its yield on cost, its yearly net income divided by the total cost to build it, beats what an investor could earn buying an existing building by about one to one and a half percentage points. With Los Angeles apartment buildings selling at yields around five and a half percent in 2026, new projects need roughly six and a half to seven. Most South Bay projects sit near that line, which is why a single condition can decide whether a project happens.

Total cost has three parts. Land. Hard costs, meaning the building and its parking. And soft costs: design, fees, financing, insurance, and contingency. In Los Angeles, construction runs roughly two hundred seventy to four hundred forty dollars per square foot, and each parking space in a garage costs about fifty thousand dollars above ground and more than seventy thousand below. Total costs in California routinely exceed half a million dollars per home before land. Entitled land in Torrance has recently sold for about seventy-six to ninety-two thousand dollars per unit. And here is the whole problem in one comparison: an existing Torrance apartment building sold in 2024 for about five hundred ninety thousand dollars per unit, close to what it costs to build a new one.

Consider an illustrative project, built from placeholder numbers, not a real proposal. A hundred apartments, a hundred fifty parking spaces, average rent of thirty-eight hundred dollars a month. Total cost comes to about fifty-six million dollars, and the yield to about five and a half percent, short of the six and a half or so an investor would need.
Now change one thing at a time. Requiring the parking Torrance's code calls for, about two point two spaces per unit, drops the yield to about five point two. A fifteen percent affordable housing requirement drops it to about five point one. A year of added delay, or twenty thousand dollars more in fees per unit, each cost a few tenths of a point. On the other side, rents ten percent higher lift it to about six point one, and cutting parking to half a space per unit lifts it to about six point two. No single change gets the project over the line. That matches what Berkeley's Terner Center found: it usually takes a combination of changes, not one.

So when an applicant says a condition kills a project, ask concrete questions. What is your yield on cost with and without it? What does the condition cost per unit, and how many units does it eliminate? What did you pay for the land, and when? Are your construction costs backed by contractor bids? Are your rents supported by comparable buildings? Is there a design alternative that meets the condition's purpose? And will you share your financial model with a reviewer the city hires, at your expense? Warning signs include a land price far above comparable sales, costs at the top of the range without bids, rents below the market, or a refusal to share the model.

The fiscal side matters too. Torrance keeps only about twelve cents of each property tax dollar, but it keeps a cent and a half of every taxable sale. Consumer goods and autos produce nearly sixty percent of its sales tax. That is why the K Line route fight was really about twenty-eight million dollars a year from car dealerships, and why turning big-box stores into housing has a fiscal cost the city should see before it decides. For any large change, ask what the site produces in taxes today and after, what services it will add, and whether one-time money is being used to cover ongoing costs.
For more, see the development economics and fiscal sections of the Local Official's Handbook.