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Affordable housing crunch
Why aren’t developers building more affordable rental units?

11/19/15
By Ryan Lessard news@hippopress.com



 New Hampshire has a high demand for affordable rental housing, but factors ranging from zoning rules to land costs are keeping developers from building more.

 
Supply and demand
According to the 2015 Rental Cost Survey by the New Hampshire Housing Finance Authority, limited production of new rental properties is keeping vacancy rates as low as 2.8 percent, and 2.2 percent for two-bedroom units.
Bill Ray with the NHHFA says the state normally wants to be around 5 percent. Plus, Ray says, they generally assume 2 percent of the vacancy rate is due to turnover, meaning that a unit that happens to be vacant during the polling likely has a new renter waiting to move in.
“That is clearly an indication that there’s a lack of supply,” Ray said.
To make matters worse, the supply of subsidized, rent-controlled apartments is expected to effectively shrink as about 88 New Hampshire developments from the 1970s will be seeing their mortgages paid off and subsidies disappear.
This high demand and low supply naturally create high rental prices. The highest rents are in the southern parts of the state, where most of the rental units (and the lowest vacancy rates) exist. In Rockingham County, the average rent is $1,270. In Hillsborough it’s $1,219 and in Merrimack County it’s $1,113.
According to the report, rents have increased by 54 percent in the past 15 years and by nearly 12 percent for two-bedroom apartments in Hillsborough County over the past five years — despite sluggish income growth (24 percent among renters since 2000).
Ray says that means residents are now paying a greater portion of their income for rent.
Close to 75 percent of renter households earning less than $35,000 in annual income are paying more than 30 percent of that income in rent. State law defines affordable housing by that 30-percent mark.
“We know that overpaying represents a hardship, in effect,” Ray said.
Not only is it difficult for families paying those rents, but the state economy overall suffers as the high rents mean fewer young people are moving to the state — in fact, more are moving out — and businesses can’t hire the workforce they need. People in their 20s have high levels of college debt, making it difficult to pay the 10- or 20-percent down payment often required. Plus, few public transportation options exist for commuters, and they must compete against older homebuyers who have equity who are buying smaller homes.
David Juvet at the New Hampshire Business and Industry Association places the affordable housing shortage among the state’s top five barriers for economic growth.
 
New construction
“Clearly one way to solve a lack of supply is to build more, but … what comes on the market as new construction is not going to serve the lower-income population,” Ray said.
The only new rental units getting built in Manchester will charge market-rate rents, and some will even be upscale, catering to those with higher incomes. The Manchester Planning and Community Development department says none of the projects under way are for workforce housing.
For example, Bill Binnie of the Carlyle Group is renovating the historic Citizens Bank high-rise to supply high-end, market-rate one- and two-bedroom units. 
And William Socha of Socha Companies recently finished building more than 30 upscale townhouse units at Evergreen Way (with rents between $1,675 and $1,700) and is currently constructing 152 townhouses down the road at Hidden Oak Way. The rent at those townhouses will be between $1,775 and $1,850.
In Merrimack, a project to build 240 one- and two-bedroom apartment units will be voted on in December. Each of the garden-style buildings built by the John J. Flatley Co. will have 48 market-rate units. 
Another project proposed by Nashua developer Mark Maynard would demolish two downtown buildings and construct a four-story apartment building with 97 market-rate units. And Brady Sullivan Properties plans to convert a Nashua mill building into 168 apartment units with average rents at about $1,500, according to Arthur Sullivan.
In Concord, the only apartment project currently underway is a senior housing building with 140 units built by Calamar.
 
Arrested development
Sheila McDonough, the business manager at Socha Companies, says the high cost of land and permitting means they have to charge higher rents to cover those costs.
“The numbers have to work, no matter what,” McDonough said. “We would like to build things as reasonably priced as possible for people, but when you get into what your permitting costs are and your land costs ... there’s no way I can only charge $800 a month for a unit.”
In addition to paying new construction fees based on the cost, application fees and review fees, developers must pay school and fire impact fees. In Manchester, for example, the fire impact fees range between $146 to $196 and school impact fees can be as low as $633 for townhouses and as much as $1,169 per unit of a multi-family building with five or more units. 
Local developer Dick Anagnost says one of the reasons land can be so expensive is its growing scarcity.
“Finding a piece of multi-family land is a chore to begin with,” Anagnost said.
He says this is partly due to what he calls “exclusionary zoning” by local planning boards. This means local officials have gradually whittled away the supply of multi-family housing land by re-zoning it as something else, like industrial land. Or they will lower the allowed density of units per acre.
“When I started this business 30-some-odd years ago, I could get 20 to 30 units per acre. Now, I can only get 10,” he said. “Without a significant amount of density … costs are spread over a smaller number of units.”
And even without explicit ordinances, some local officials generally won’t approve plans for multi-unit workforce housing buildings because they fear they would have too great an impact on the schools or change the rural character of the town.
“The largest objection to workforce housing is the NIMBY effect — not in my backyard,” Anagnost said.
Building housing for lower-income families is impossible without development subsidies, Anagnost says, and those are limited. And as long as higher-income families exist to fill market-rate developments, there’s little incentive for a developer to bother.
“One of the reasons why housing is coming in at the higher end of the market is because if the incomes will support it and there’s a shortage of rental housing, then the rents will go up and those units will get built,” Ray said.
New Hampshire passed an affordable housing law in 2008, which requires communities to create reasonable opportunities for workforce housing. According to the law, developers can appeal denials by towns and cities in superior court. Ray says some communities have already begun to amend their regulations, and three cases (one in Hooksett and two in Windham) have been appealed to superior court so far. One case in Windham resulted in overturning the town’s decision to deny a 10-unit workforce housing project. 





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