Escalating costs to purchase land, build, secure materials and operate apartment communities are spurring developers and property managers to look to lower expenses without affecting quality. We talked to six sources with different expertise, who shared what they’re doing and suggesting to meet cost challenges.
Jeff Klotz, CEO, The Klotz Group, Atlantic Beach, Florida
What are the costs you’re most concerned with as a developer? Inflation is real. Land is expensive; materials are expensive and labor for construction and additional fuel and delivery charges and surcharges all add up. Everyone has figured out how to charge extra for everything. Even city and state fees for permitting for development and construction have gone up. Also, architecture and engineering as well as other consulting fees and professional liabilities are up. There’s so much more litigation. The same building design today is twice as costly as it was five years ago.
What are you doing to control costs? Developers are hyper-focused on every penny, from the cost of land to the design and all pre-development costs with a value-engineered focus on using the least expensive materials as possible to design buildings so they require less maintenance and staff to operate. Resilient materials and automation are key.
Does going smaller help? Some are going to micro units of 450 square feet or so. They’re taking tricks from student housing developers and having bedrooms and a private bath open to a shared common living area. They’re taking cues from hotel developers and having one space serve all functions. Furniture manufacturers are stepping in with furniture that can convert to a bed or seating. We’re exploring the concept in a small project, which will be for artists who can share common outdoor space.
Do partnerships with cities and states help? The old public-private partnerships, or P3s, were hot in the 1980s and ’90s but many weren’t successful, so developers shied away from using them. But now they’re returning to solve the housing shortage crisis with better negotiations. Such laws as Florida’s “Live Local Act” help, which is packed full of incentives to encourage developers to build affordable rental housing. It offers grants, special financing and tax breaks, all of which are meant to lower developers’ costs. These have proved helpful in the Southeast and Sun Belt where we operate.
Is one solution to pare amenities or use less costly ones? We depend a lot on value-engineering, cutting costs and stretching the dollar. But we also see the limits of creativity. Years ago, the Las Vegas-style resort pool was popular, so was the mega-fitness center but developers found fewer used pools, and residents could go down the street to get a fitness membership. So, what they did was build a dipping pool and a smaller gym with less equipment or virtual equipment. Many are also doing away with a high-end clubhouse and replacing it with an active rooftop that costs less. Natural nature spaces that require next-to-no maintenance and very little startup costs are becoming popular.
Are you and others building in less costly areas? Yes, but a slowing market makes this strategy more challenging. There are secondary markets and transit-oriented developments that help lower costs.
Does more retail add revenue? Yes, and sometimes land costs are shared. Developers look for ways to charge for services and share other costs with retailers and commercial developers. Sometimes, they build so residents can walk across a parking lot to retail or co-working space. Some also do short-term rentals to generate income. Outsourcing maintenance and security can control overhead. Using technology is getting big when possible. We’ve been impressed with what we’ve tried with AI, which has allowed us to reduce staff by having more virtual tours and leasing, which also helps us respond faster than with live people. Younger residents are happy not to talk to a live person.
Though it may seem counterintuitive, do some buck the trend and go bigger and better to stand out: Yes, instead of a race to the cheapest and bottom, which isn’t good for the industry, some do larger and quality luxury in places such as Orlando, Tampa and Miami in Florida; and Atlanta, Charlotte, N.C., and Nashville, Tenn., elsewhere in the Southeast.
Mary Cook, Founder, Mary Cook Associates (MCA), Chicago
What are key strategies you see being used? Developers are building in more affordable and development-friendly areas. Sometimes, they reduce size and offerings. Putting together a successful project today is like completing a puzzle. You must look at every piece and evaluate its cost, timing, impact, performance, perceived value and market comp. Since most of our work is ground-up development, each of our projects kicking off in 2025-26 will wrestle with elevated material and capital costs, labor shortages and timing challenges.
Are there some best practices to share for this value-engineering? We evaluate products, cost, performance, impact, availability. We first emphasize there’s a big difference between cost cutting and effective value-engineering. We advise clients to develop budget parameters for design, millwork, finishes, lighting and FF+E (furniture, fixtures and equipment) early in the process before concept design. This allows design professionals to manage specifications from the start that align with their targeted budgets. We also make the process multidisciplinary. We encourage subcontractors to collaborate openly with designers, sharing their insights on best ways to reduce costs while maintaining design integrity. It could be material cost, multiple markups, installation specifics, air freight charges. We help our clients validate material costs by including the manufacturer’s net and list prices with the specification. We also evaluate the capabilities and resources of the trades they work with. We have saved six figure amounts by moving custom built-in booths and banquets and custom tech-enabled worktables out of the millworker’s bucket and sourced them separately with shops that specialize in those pieces to lower costs.
Most importantly, the design lead must be resourceful, creative and flexible to adjust. We have painted medium- density fiberboard (MDF) to look like aged iron metal brackets on ceiling beams and since it was two stories up no one could tell. That creative solution saved thousands of dollars and maintained design integrity. A large-scale patterned wallcovering replaced applied molding on a two-story wall with great impact at half the price. Just like the project, the fit and finish of the interior and exterior resident spaces is a puzzle that takes resources, talent and creativity to pull all off well.
How do your locations curtail costs? They’re mostly urban brownfields that are less costly and require some remediation but where authorities are business friendly and sites offer indoor and outdoor possibilities. They are complicated but that’s where demand is. Governments and municipalities incentivize developers taking on these sites.
Are buildings getting smaller? That’s more dependent on location. Developers aren’t lopping off pieces but rather being more strategic in their decisions. They look at what’s around them. Is there a gym across the street that can be accessed, or can they lease equipment or do without some services such as free coffee, which used to be big but is expensive. The good news is that Gen Z is cost conscious and strategic about how they and others spend money.
Are developers going bigger and better? Yes, especially in Florida, Arizona and Texas where land and labor may be less costly. It can differentiate their project and be perceived as more valuable.
What about changing materials or systems to pare costs? Gen Z cares more about sustainability than being green. They want to know the products are energy efficient, they do their research and listen to friends.
Chris Nebenzahl, Vice President, Rental Research, John Burns Research and Consulting, Irvine, California
Are you finding that developers are cutting square footage? There has been discussion about making units more versatile/flexible with the use of a den/office/dining space. Amenity space has been changing, and smaller footprint amenities including dog spas, co-working spaces, meditation and yoga rooms, are becoming more popular. I toured an apartment last week that had a podcast studio. Gyms and pools are still sought after, but not as much as they were.
How about changing up or cutting services? Concierges are still in demand for higher-end apartments. That’s seen as a differentiator. But some communities share a concierge across multiple buildings.
Has lowering energy costs helped? Performing energy efficient updates has become somewhat of a standard must-have for many new buildings and most value-add projects. Sensors that alert teams to maintenance issues, smart appliances that are energy efficient and other tools have become ubiquitous.
Does using technology and AI help? Yes, to streamline operations such as doing more virtual tours and leases rather than having live staff. The property I saw last week with a podcast studio was a new build that had one centralized management office for a 1,200-unit community spanning three buildings. The tour I took was self-guided.
How about more focus on resident retention? This was a huge focus last year as many properties competed with new lease-ups offering significant concessions. The supply boom led to a period where renters had leverage for the first time in a long time. As a result, property management companies turned their focus to residents’ experiences and retention to avoid competing with new supply and paying turn costs, vacancy losses, and lower rent on new leases. We have seen REITs reporting lower turnover in recent quarters as well.
Dr. Desen Lin, Assistant Professor of Finance, California State University, Fullerton, with a focus in real estate finance and economics
Do you see developers cutting square footage? In markets like Nashville, studio apartments in high-rise buildings of 20 stories can now be as small as 300 to 400 square feet, whereas they were previously 500 square feet or more. This shift allows developers to maintain affordability while preserving demand.
Are they also replacing amenities with less costly ones? Certain amenities are standard such as a pool, lounge and barbecue area. Overall, I don’t expect more amenities to be added to new developments as units get scaled back.
Are they cutting services such as hiring a part-time door attendant? Yes, because such changes are relatively easy to implement and have already been adopted in many cases to cut costs. For example, a leasing office might operate with in-person staff from 9 a.m. to 6 p.m. and rely on virtual assistance outside those hours. Younger generations are happy not to talk to a live person and prefer a virtual assistant.
Are they adding more retail to ramp up revenue? Developers are incorporating bakeries, cafes and dining options—focusing on food-related businesses rather than apparel.
How about energy efficient updates? LED lights are popular for cost savings due to their long lifespan. Smart doorbells are also being adopted, though smart thermostats require a larger investment and may not be implemented everywhere. New technology enables virtual tours and leases, while AI provides instant responses to inquiries.
Is there more attention to preventive maintenance? Yes, particularly with laundry equipment, as well as routine cleaning of ducts and clearing sewage in bathrooms and kitchens.
How about favoring less costly materials? Definitely. I’ve seen carpeting in hallways replaced with LVT and lumber alternatives, which can result in significant cost savings.
Wendy Deetjen, Vice President, Market Rate Portfolio, Habitat, Chicago
Are you replacing amenities with less costly ones? In our new developments, residents desire core amenities such as co-working spaces, resident lounges/game rooms, fitness, pet spas, dog runs, pools and spas. We continue to design flexible spaces so that resident lounges, for example, can be used as co-working spaces. During development, we try to be creative to differentiate properties but find amenities that focus on small group interests, such as golf simulators, sometimes do not get utilized as often and have high software costs and subscriptions and there is a cost savings sticking with core amenities with wider appeal.
Do you perform energy efficient updates to cut costs? Energy efficiency upgrades are ongoing, and we conduct energy audits and constantly evaluate utilities, lighting, appliances and building systems to maximize efficiency and savings.
How about new technology to streamline operations? We used AI to nurture leads during the preleasing stages of a new development and delayed additional staffing until the building was delivered, which saved $35,000. We were able to manage leads with one team member.
Do you focus more on resident retention? To boost retention, we have implemented creative value-add programs. We curated custom closet systems that residents can purchase. We find residents are more likely to renew when they have invested in their home. With older assets, we’re upgrading appliances and find we get better retention.
Are you favoring less costly materials? During the development process, we are favoring new environmentally friendly manufactured and sourced products and energy efficient products, especially glass, acoustic materials, mechanicals, lighting, heating, cooling pumps, etc. We work to ensure that any value-engineering still delivers the high level of design and functionality residents expect.
Anything else you’ve done? We have created various Area Roles that are allocated across properties to reduce payroll costs and enhance the resident experience. We’ve also leveraged AI in leasing and resident communications to reduce manpower and increase customer touchpoints and follow up. We have become more efficient in answering questions, collecting rent and obtaining lease renewals.
KrisAnn Kizer, Vice President of Leasing and Marketing, Pierce Education Properties, San Diego
Are you cutting square footage of units or amenity spaces? We’ve observed increased demand for larger units, particularly with more bedrooms and bathrooms, using this as a way to keep costs down for individual residents under an individual leasing model. To accommodate this, we’ve optimized floor plans by offering more three-, four- and five-bedroom units, allowing students to split costs while maintaining affordability. Additionally, we’ve downsized amenity spaces but made them more flexible, ensuring they serve multiple purposes without sacrificing functionality or resident appeal.
How about replacing amenities with less costly ones? We regularly poll residents and prospects to understand which amenities hold the most value. Traditional spaces like movie theaters and large computer labs have declined within demand, as residents now prefer streaming in their units and using personal devices, with printing being the primary need. In response, we’ve shifted to offering more free printing options rather than maintaining full computer labs. We’ve also prioritized creating flexible communal spaces that can serve multiple purposes, ensuring they remain active and engaging. Meanwhile, pools and fitness centers continue to be high-demand amenities that see consistent use.
What about changing up or cutting services? Our focus on affordability means we prioritize cost-effective, resident-friendly solutions over high-cost services like door attendants or concierges. Instead, we use fob/electronic key access for controlled entry. In our fitness centers, we’ve integrated equipment with pre-filmed classes and occasionally supplement with live instructors during resident events. To streamline package management, we’ve transitioned to package rooms or lockers, reducing staff time spent handling deliveries while offering residents convenient, secure access to packages. These adjustments allow us to maintain strong service levels while keeping costs manageable.
Any energy efficient updates to help save? We’ve enhanced energy efficiency across several properties by upgrading to LED lighting and implementing water-saving measures such as low-flow showerheads. The improvements not only support sustainability efforts but reduce overall utility costs, benefiting residents and operations.
Any new technology to streamline operations? We prioritize virtual tours and online leasing, recognizing that many students may not have the opportunity to visit in person before move-in. While digital accessibility is key, we also maintain a strong onsite team to ensure personalized service and a seamless leasing experience.
Are you also focusing more on student retention? We emphasize resident retention to reduce turnover costs associated with marketing, new lease processing and unit turnover expenses like painting and maintenance. Our approach includes proactive renewal outreach, competitive pricing and resident engagement through community events and responsive service.
Can materials help save costs? We continuously evaluate and update materials to balance durability, aesthetics and cost efficiency. We transitioned to luxury vinyl plank (LVP) flooring instead of carpet due to its longer lifespan and lower replacement costs. In high-traffic areas, we opt for quartz or solid-surface countertops over laminate to reduce long-term maintenance. We also use low-VOC, high-durability paint to extend repainting cycles. These material changes help lower operational expenses while maintaining a high-quality living environment.
Barbara Ballinger is a freelancer for units. She is the co-author of 20 books; her latest is Kitchen Conversation: Sharing Secrets to Kitchen Design Success (Images Publishing).