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Self-Help, Durham Housing Authority and the city: Big questions about affordable housing

By Lisa Sorg

In the closing minutes of a recent heated City Council work session that focused on the lack of affordable housing downtown, Councilman Steve Schewel dropped, almost off-handedly, a bombshell.

Self-Help, a leader in developing affordable housing, wants to build 80 to 100 such units on a prime piece of property downtown. Prime as in next to the Durham Transportation Center, a.k.a. the bus station and the future light-rail stop. Prime as in placing affordable units in the midst of high-end apartment complexes, thus diversifying a neighborhood. 

Self-Help would ask the city to donate the land (kudos to Durham CAN for identifying this parcel), and in return people earning less than 60 percent of the area median income (e.g. up to $37,000 for a household of one, $43,000 for two) could live downtown. 

Self-Help would apply for the very competitive 9 percent Low Income Housing Tax Credit for 2016, and if awarded by the N.C. Housing Finance Agency, that tax break would be a major carrot—worth about a $9 million—to dangle in front of a builder.

However, Schewel’s aside did not so much as put a period at the end of that marathon work session, but an ellipses.

Since then, the future of Jackson Street property, as it’s now known, not only has become complex and politically fraught, but these complications also underscore the city’s lack of a larger vision for affordable housing. To the city’s credit, Council just approved $100,000 to hire the consultants Enterprise Community Partners to help Durham sort out its priorities and establish a plan. “We have a tendency to want to be tactical rather than strategic,” City Manager Tom Bonfield says. “We need get this right.”

Complicating factor No. 1: First, for his part, Bonfield plans to bring to Council a recommendation in September that the property not be donated to Self-Help, but instead declared surplus and sold. The land would need an updated appraisal, but as of several years ago, Bonfield says, it was valued at $2 million. 

The city would then write and issue an RFP that could in fact give priority to bidders interested in buying the land to build at least some affordable units. Or not: Developers have been frothing at the mouth over that property wanting to build office, residential and even a hotel (please, no more hotels).

Schewel says that regardless of whether the Self-Help deal goes through, that Jackson Street parcel should be reserved for affordable housing. “When you think about the area, there are a lot of high-end rentals”—West Village, Whetstone and 605 West—“and putting affordable housing in there is important.”

Complicating factor No. 2: The Durham Housing Authority also is applying for that same tax credit—and a city rarely receives two in the same year—for a project on East Club Boulevard. Meredith Daye, DHA’s director of development, says the organization’s master plan calls for East Club community to be next in line for renovation or demolition and then rebuilt. This would cost the city no money, nor a donation of land.

“Being able to redevelop its communities is important for the Housing Authority,” Schewel says, noting that the DHA is the main provider of affordable housing in Durham. More than 6,000 households live in its communities—and there’s a waiting list of more than 1,000—and another 6,000 receive Section 8 vouchers, which also have an extensive waiting list.

“It’s very delicate,” Daye says of the competition with Self-Help for the tax credit. However, the Housing Finance Agency scores the applications and awards the credits based on that number. 

(Lanier Blum of Self-Help told the Coalition for Affordable Housing and Transit Monday afternoon that the Jackson Street site scored a 100.

 Other complicating factors No. 3 and 4: Mayor Bill Bell has been lobbying for a city-sponsored rental subsidy, which has been met with lukewarm response by the Council. Not because it’s a bad idea , but because several Council members have public stated that using Penny for Housing Funds to place people in luxury apartments downtown is not maximizing those dollars.

This all brings us back to the Big Question of What To Do, which Enterprise Community Partners will help clarify. For example, Earlier this year, a UNC analysis showed that the city and county owns about 18 acres downtown that could be converted into affordable housing. 

“When I consider that property, I believe it needs to be reserved for uses that the free market is unlikely to provide—open space, public parking and low income housing,” says Councilman Don Moffitt. "There are a lot of competing visions for downtown, each with a claim on the city's property. I'd like us to develop a plan for the use of our property over the next 30 years.” 

 

Comments

Natalie

I'd rather see Self-Help design and build affordable housing over the Durham Housing Authority any day of the week. They seem to 'get' downtown in a way that DHA does not.

And I'm biased. A good friend lives in a DHA property downtown and the stupidity of their bureaucracy and favoritism he describes on a weekly basis is maddening.

AL

Slight correction, DHA has 1706 units, not 6000.

From http://www.durhamhousingauthority.org/public-housing.asp

There are 14 Conventional Public Housing communities located throughout Durham: McDougald Terrace, Scattered Sites, Oldham Towers, Cornwallis Road, Liberty Street, Club Boulevard, Hoover Road, J.J. Henderson Housing Center, Morreene Road, Damar Court, Oxford Manor, Forest Hill Heights and Laurel Oaks. These communities provide a total of 1,706 dwelling units.

AL

Durham seems obsessed with locking out for-profit builders from affordable housing markets. Perhaps advocates and civic leaders could explain why?

In limiting supply of bidders, doesn't that raise prices, making project less affordable, and in the end delivering less affordability to the city?

Who says 501 c3s like Self-Help or Builders of Hope are inherently better equipped to build housing more affordably than Skanska or Wexford, or a local outfit like Cherokee, TND, LeChase or Resolute?

Doesn't a collusion where a non-profit gets a $2m property for free, at no-bid, encourage the politically-connected back scratching rampant in affordable housing markets?

To Tom's point, why don't we put these properties out for RFP, with no restrictions on business type?

Why doesn't city council just state what they want, say 50 units at 60% AMI in perpetuity, then put it out for RFP?

Bull City Rising

@AL: The Southside project's rental component saw McCormack Baron Salazar brought in to build out the rental apartments on the old Rolling Hills site. From their website, MBS self-describes as "the nation’s leading for-profit developer, manager and asset manager of economically-integrated urban neighborhoods."

Doubtlessly that was a case where having national expertise was far preferable to the previous two unsuccessful attempts -- one by NC Mutual, the other by Larry and Denise Hester.

Southside's owner-occupied single family houses were built by Andrew Roby Homes (founded in Charlotte but with local offices) and B. Wallace (a Durham company.) I actually think the process for those was a good way to drive quality and choice: buyers could pick a house from either of the two builders, leading to competition on price and quality.

To be honest, I haven't seen the latest-and-greatest accounting of the Rolling Hills/MBS project. I did a pretty thorough analysis of the economics of the MBS portion of the effort back in 2010: http://www.bullcityrising.com/2010/05/rolling-hillssouthside-does-the-plan-make-dollars-and-sense-for-the-city.html. At the time, we were looking at $52 million for 248 housing units, or about $210,000 per unit. (That doesn't include the funds the City spent to acquire or demolish the old Rolling Hills; also, that number includes both phases, not just the phase that's opened to date.)

Was that a good deal? Well, it's tough to find an exactly comparable property, but one interesting comparison has to be the Whetstone, across the street from the proposed Self-Help/RFP site and the transit station. According to this press release (http://www.multifamilybiz.com/News/6069/Armada_Hoffler_Properties_Announces_Sale_of_203Uni...), the 203-unit Whetstone sold for $35.6 million, or $175,370 per unit. The developer notes they made a 20% profit on the deal, but I wouldn't think you can directly impute from that a construction cost of $140,000 per unit -- that 20% profit, I would suppose, is probably a total return factoring in cash in the deal and leverage. (I also am guessing that the MBS project's unit mix has more 2 and 3 bdrm. units than Whetstone, another factor as to why per-unit comparables are dangerous.)

One reasonable argument could be that this shows the challenge in working with a private-sector developer focused on affordable housing, vs. what a straight-up private sector developer like a LeChase or Resolute or Wexford. My guess is that MBS and their competitors are well-positioned in a narrow, highly regulated space (involving lots of compliance with lots of Federal dollars like CDBG grants) that pure-private sector folks don't want to play in. Of course, the really intriguing thing about the idea of affordable housing on this site is, you're looking at affordable housing tax credit compliance, not necessarily the extra headaches that some of the Rolling Hills funds drew on.

The plus side to Self-Help is that they are a superb known quantity, beloved in Durham and for good reasons, and with a track record of success. Their work in downtown, Walltown, Southside, etc. speaks for itself. There wouldn't be many developers I'd be comfortable doing a carte-blanche with; this is one.

But I see the reasonableness of your point here. My sticking point in the forthcoming recommendation from the manager is in the idea of bidding the land out for market price. If the City wants to encourage affordable housing, trying to exact the highest price for the fund balance accounts seems like it could run at cross-purposes.

So, here's a probably-unrealistic-but-sounds-good idea: instead of offering the site for the maximum price obtainable, why not offer it at no cost to the developer -- Self-Help, private sector, or otherwise -- who pledges to build on the site the greatest number of affordable units and/or the project best matching the City's vision? If we want to avoid the creation of concentrations of low-income housing in one area, let the developer mix in market rate and allow -- heck, require -- street-level amenities such as retail, and incentivize ways to add connectivity and interest to the transit station.

TL;DR: I hear what you're saying on getting private developers involved; the City already is in similar projects; why don't we be really innovative here and make it about outcome rather than maximum land sales price?

John Martin

Lisa says: "To the city’s credit, Council just approved $100,000 to hire the consultants Enterprise Community Partners to help Durham sort out its priorities and establish a plan." I certainly hope they can come up with a plan that is better than the answers their vice-president, Karen Lado, gave to Lisa in an interview published in the Indy earlier this month. Lisa asked: "What are the forces behind the affordability gap?" Here is Karen Lado's answer in it's entirety: "A city's growth and people's changing lifestyle preferences. People are waiting longer to have families, so there are fewer households with children. People are choosing to live a more urban lifestyle. There is a lot of interest in downtown and central neighborhoods."

Does that make sense to anyone? Fewer households should lead to lower aggregate demand and, therefore, lower prices and rents and greater affordability, not the opposite. And so what if there's a lot of "interest in downtown"? That just means that downtown may become more expensive relative to other neighborhoods, but it doesn't necessarily mean that overall affordability will decline.

Let's try a different news source. The Wall Street Journal, as it happens, ran a news story Monday entitled, "Midtier Rents Outpace Rise for Luxury Units." Luxury apartments are called Class A in real estate lingo and their rents rose 4.2% in 2015 according to Axiometrics, Inc., an apartment research firm. Class B rents rose 5.8% while Class C rents rose 4.9%. What's going on? Nationwide, there's "a severe shortage of midtier apartments [Class B]," said the Journal, "causing rents for these units to rise at a faster pace than for luxury ones." Why don't developers build more? "Construction costs are generally too high to justify building new complexes for low-and middle-income tenants. . .The difference in costs between installing granite countertops and stainless-steel appliances is so slight compared to buying land and installing elevators that economists say developing a luxury apartment and a midtier one comes out roughly the same."

So now you know why practically everything being built in downtown is expensive. And it's happening all over the country. According to the Journal, 80% of the apartments built nationwide last year were Class A. It would be well for the City to ask the question: what can we do to lower building costs?

I happen to know something about the kinds of fees that City charges. In 2008, I moved the Tate house from Markham Ave. to Edith St. in order to preserve that 100-year old house from the wrecking ball of Jeff Monsein. (He wanted to build a much more expensive rental house on the Markham St. site--which he did.) The lot on Edith St. had never had a house before and that gave the City a chance to charge me me "impact" fees and water and sewer connection fees. I paid $1165.56 in "impact fees," which including $817 in street fees even though that part of Edith St. was unpaved then and unpaved now. (I'd say the street had more "impact" on my car's shock absorbers than my car had an "impact" on the street, but never mind.) The water and sewer connection charges were $6114.87. Now the City did have to do a little work. But my plumber ran my water and sewer lines to the street, and the City's water and sewer lines were already in the street. So connecting the two was neither expensive nor time-consuming for the City. But the total of these two fees were $7280.43. And, of course, there were other permit fees, inspection fees, etc.

Now do a little thought experiment. If you're a builder or a developer and you're confronted with fees like that before you turn over a shovelful of dirt, what kind of building are you going to build? A hundred-thousand dollar "affordable house?" Not bloody likely.

Governments love fees like this because most people don't even realize that they're paying them in the price of their house or the rent on their apartment. Then to remedy the problem they've helped to create, they build "affordable" projects like Rolling Hills that Kevin cites as "only" costing $210,000 a unit not counting land or demolition costs. I've been told, by someone who should know, that Eastway Village, another affordable housing project, probably cost the City about $300,000 a unit. (At those prices, why not just buy poor people townhouses in Treyburn and be done with it?) And, of course, to finance these projects, the City has to raise taxes, such as the inaptly named "penny for housing." And who do you suppose pays the property taxes on rental property. Sure the landlord signs the check to the tax office, but who really pays? Oh, and who's going to pay the $100,000 that goes to Enterprise Community Partners to write a report spouting platitudes? Right.

John Martin

And if I may add to my rant this factoid from today's (Thursday) Herald-Sun. In June, the median house price in Durham, according to Zillow, was $164,000. Leave it to Durham to build "affordable" housing that costs between 25% and 80% more than the median market-rate house.

AL

@John - you left a lot there worthy of commenting on.

RE: "Fewer households should lead to lower aggregate demand and, therefore, lower prices and rents and greater affordability, not the opposite." -

I suspect you misunderstood this. I took it to mean there are fewer household formations, in the traditional sense (married/kids, etc.), meaning more people are living alone. This trend creates more demand for housing, specifically housing designed for single occupancy. (check out the book Going Solo by Eric Klinenberg). Single person occupancy is the fastest growing segment of the market.

I challenge the premise that single people inherently want to live in multifamily (which seems implied by our current building patterns). Durham’s real problem is a severe shortage of detached homes. Most single people (like coupled people) overwhelmingly prefer this form. I know many single people who bought 1000sf single family detached homes in the urban core. Affordable houses still exist in Durham, I found more than 700 on Trulia, but fewer in the core. Your class B strata fits this starter home mold, in my view.

The affordable housing 'crisis', articulated weekly by someone these days, is as much a middle class issues as a working class (not once have I heard this mentioned in local media). Even on the upper end, you could note that Trinity Park has long suffered a housing shortage (Durham should totally build more historic houses! :>), creating annual appreciate rates of between 8-10%. So we could say affordable housing issues exist across income bands, and across household types. But I suspect urban price acceleration is greater in the middle & upper bands.

The only real solution is supplying more detached housing to the urban core. It needs to be done at scale. There is such a long list of policy and organizational resistance to this solution, I wouldn’t hold any breaths.

John Martin

@AL: There are a lot of ways you can construe her comments, but she didn't mention more single-person households. She just said that "fewer households with children" was somehow connected to the "affordability gap." If she meant to say, as you're saying, that more single-person households are creating an "affordability gap," then that's a different point. I suppose she could also argue that a couple with two incomes and no children can afford to pay more for housing, thus bidding up the price of housing. But whatever connections she had in mind are not clear.

BTW, new household formation (of all sorts) in the U.S. has been rising (not falling) since the middle of 2014 after declining for the previous couple of years.

http://ycharts.com/indicators/us_household_formation

This does put pressure on prices and rents and, combined with the supply constraints that I talked about, drives up house prices.

Bull City Rising

@AL, John--

I would agree that the best solution to affordable housing is creating jobs that pay wages that can afford housing. That is a middle class diminution problem, and it's very, very hard to solve at a muni level. The efforts at a state level to attract skilled industry like auto manufacturing are somewhat attractive, though given the corporate tax handouts used to win these plants, it's hard to see them as "private sector" actions, really.

But we can influence housing creation, to a certain extent. And I see no reason why we shouldn't.

Fundamentally, I do think there are legitimate reasons to worry about prices rising too fast in the central portion of Durham. As a community, we do seem to value diversity of all kinds -- race, age, belief, and I would add income to that. There have to be opportunities to maintain affordable housing stock, or we'll end up with a city that doesn't look like the Durham any of us chose to move to.

John, I love ya and respect ya, and I've also had my share of aggravations with T.P.T.B. -- from having to rearchitect the stairs to a second-floor accessory dwelling unit after the unit envelope was complete and the building bricked in, to a very frustrating run-around when getting my leaky water line replaced. But that's not unique to Durham. I've lived in a posh, very upscale suburb of Orlando and a more liberal, crunchy city outside Boston, and dealt with the same headaches. I think developers everywhere deal with them. Yes, the imposition of REAL, substantial impact fees -- a la those in places like California -- distort housing markets. So do zoning restrictions. We aren't dealing with those here.

In fact, we've got with the UDO and design districts a fairly wide-open path to developers, developing. It clearly wasn't too expensive for developers to profitably add thousands of apartment units. Yet the density bonuses under the old affordable housing incentives weren't working. What's wrong with the public sector fixing those and taking other steps to incentivize more affordable units? And ultimately, I'm sure there is a process by which those fees can be mitigated for affordable housing .

I think there's a path forward that celebrates and supports Durham's growth while trying to make sure that we don't wholesale lose the spirit and residents in and around downtown that have been here before, during and after revitalization.

AL, I agree on needing more housing units and supply. I don't agree that they "have" to be detached. I think we will end up with a mix of detached and MDUs. Clearly, there's a lot of MDU energy right now. I'm not too worried about our area losing its largely suburban flair -- indeed, I would argue the market is providing denser housing both as a cost-reflection as land prices rise, but more importantly to reflect the demand patterns of people who want to move and live near downtown.

Natalie

you know, I asked this of the folks who tried to build SROs in my neighborhood. Why spend $125k to build an SRO when at the time that would buy and fix up a house in Cleveland Holloway.

Why doesn't Durham invest in the land trust model (as flawed as that is keeping the very poor from accumulating the benefits of gentrification) or just buy and fix houses that are boarded up from NIS.

If we're going to spend millions, we could have a much larger impact than 60 apartments in the city center. There are HUGE SWATHS OF LAND IN EAST DURHAM THAT NIS HAS DEMOLISHED WHERE THEY COULD START.

I'm grumpy and havent had my dinner yet. /capslock

Jonathan Jones

Where can I find out more about DHA's plans for the East Club Boulevard community? As a resident of an adjacent neighborhood, I'm very interested in what they've got in mind.

Khalid Hawthorne

East Club Blvd Projects??? I think we called that Bluefield and something else that I can't remember right now.

There is definitely a shortage of middle rent places especially "safe" ones. Affordable housing advocates always talk about the rent to income ratio. There plenty of low/middle income people who are spending up to 50% (vs. the recommended 30-35%) on housing to have their children in a better school district and/ or safer neighborhood. Some pay more to stay in nicer housing. Let's be honest...most un-subsidized rental below $800 (probably higher now) is only affordable because it is crappy and/ or run-down.

My thinking is that if people can "move up" out of this raggedy places (think Colonial Apartments off of University or Garrett Square/ Wellington/ whatever the name is this week) to a nicer apartment/ neighborhood these older places could be renovated in to affordable housing units using grants/ subsidies/ etc.

This is what I hope comes out of Enterprise Community Partner's study. We need to figure out how to make the market work for our community goals and provide smart subsidies to make up any differences.

I agree with BCR regarding the disposition of this property which would be more like a RFP process. State the parameters/ goals and award the property to the developer with best plan that achieves those goals. Goals that can be enforced with deed restrictions and other methods.

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