APG authored the following spotlight as seen in the December 2022 issue of the Southeast Real Estate Business magazine.
When it comes to real estate and specifically development, few topics are as hot as affordable housing. Especially in cities experiencing explosive growth like Raleigh and Durham, NC.
The Triangle metro region’s top quality of life, culture, and high-performance workforce have long been drivers of major corporate relocations and expansions. The Triangle is now considered a national hub for entrepreneurial startups, particularly tech and life sciences. Durham specifically has celebrated announcements by Fidelity, Google, Jaguar Gene Therapy, and BioAgilytix, to name just a few of the job creators bringing over 7,000 jobs and total investment of over $1.3 billion to Durham.
Durham’s population has grown by nearly 70,000, or 20.7%, since 2010. With so much economic growth happening, the number of new residents moving to the area has driven the housing demand and prices to all-time highs, and vacancy rates to historic lows. An average Class-A apartment of 500-700 SF sees asking rents ranging from $1,400 to $1,900 per month. The overall average rate of $1,517 represents a 4.3% increase YOY, and 32% increase over five years. Rent increases peaked in 2021, when we saw an 18% increase YOY.
In the last five years, 22 multi-family buildings were developed in Durham, with a total of 5,258 units added to the market. Of those properties, only one featuring 82 units was technically classified as affordable housing. Another 257 affordable units are now under construction with delivery planned for Q1 2023. There are 2,834 market rate units under construction that will deliver by year-end 2023. Preliminary asking rents are roughly 7% above current market rates.
All this exciting new residential development has resulted in new investments from both the institutional and private sectors more than ever before, simultaneously fueling the affordable housing crisis debate. What is considered affordable for the residents of Durham and beyond? And why is it difficult to bridge the gap between the desire for more affordable housing and the market’s ability to deliver a finished product?
There are some very specific residential product types that have not been yet been produced at scale in Durham and the surrounding Triangle region that have been proven successful solutions elsewhere. A few of these more affordable single family construction styles include: cottage courts, tiny houses, micro-apartments, ADU’s, and properties incorporating a co-living model. There are other creative building styles not yet widely seen in the Triangle market such as container homes, 3D printed homes, and modular homes built entirely off-site. All these alternative building styles save significantly reduced costs, allowing a developer to pass on the savings to the end user, if they are allowed. That can be a big “IF”.
What if a city allowed all these unique product types and building styles “by right” based on zoning if delivered at affordable rates? Housing would be built. The next way for Durham and other municipalities to encourage affordable housing is to implement local strategic financing programs that help with affordable projects. The most commonly used option is the Low-Income Housing Tax Credit (“LIHTC”), and Federal, state and local loans or grants. Banks should be rewarded for offering more favorable lending terms on affordable projects. These terms would include lower interest rates and longer amortization periods in exchange for Community Reinvestment Act credits and looser regulatory burden. North Carolina could consider property tax rebates, and even income tax credits for developers of true affordable housing projects as an additional incentive.
Considering construction, municipalities could come alongside the developer to lessen parking requirements, minimize setback requirements, limit the open space requirements and tree save areas, offer stormwater treatment relief, and bonuses for affordable units including increased heights. Another helpful way to promote affordable housing would be a “fast track” for site plan approval and building permitting process, prequalifying projects. Lastly, the City and State should work together to eliminate some of the developer costs associated with off-site improvements, lower or eliminate permitting fees, infrastructure costs, etc. Cities should pay back developers faster for any regional infrastructure development costs, via assessment of other separate developments that benefit from the original work. Approve alternative building materials and technologies that can reduce costs, after a state Department of Insurance mandate.
In short, there is a lot that developers and municipalities can do to deliver more affordable housing. However, none of it will happen without private/public engagement and collaboration. State legislatures often must be engaged to advance initiatives such as what we have described. Let’s get busy! We at APG certainly are. To learn more about APG, explore our websites at apgcre.com and aacre.com.