Latest Challenge to Housing Affordability? Wood

Over the past year prices for lumber have skyrocketed and that has put added pressure on homebuilders and apartment developers alike. From an article in the Wall Street Journal:

The bad news: wood prices are still up 67% over the past year, adding thousands of dollars to the cost of each new house.

The historic run-up in lumber prices–attributable to a trade dispute with Canada, wildfires and limited rail capacity–comes as U.S. home builders are already struggling to meet demand amid shortages in buildable lots and labor…

For a generation setting off to start families in the suburbs, pricier construction materials are another hurdle to homeownership, on top of rising borrowing costs and competition from institutional investors, who are gobbling up homes to turn into rentals in some of the country’s hottest markets.

Apartment developers are also facing skyrocketing costs and, according to several who are members of PTAA, it’s affecting their ability to do deals. One said in an email exchange that his company has passed on several otherwise good projects because cost far outpaces rental rate.

This news is not good for housing affordability either. We’re already seeing an imbalance between supply and demand which will only be exacerbated by higher costs and suppressed development. Until development can catch up with demand it’s hard to see a way in which the affordability question can be answered.

Underlying Factors In the Housing Affordability Policy Debate

Ken Szymanski, the Executive Director of the Greater Charlotte Apartment Association, has written an outstanding piece on the underlying factors contributing to the housing debate in Charlotte, and many of them apply to us here in the Triad. Some key points are excerpted below, but you really should read the full piece here.

  • Moderate-, middle-, and upper-income households are served perfectly well by the dynamics of the marketplace. But low-income households cannot be served by the marketplace because their buying power is too low. That fact always has and always will generate social and political reactions, because those households are cost-burdened and have to deal with problems of housing quality and overcrowding…
  • At all levels of government—federal, state, and local—for many decades the political will has generally been lacking to materially increase this subsidy coverage of 25 percent. To quote Joseph Califano, a Cabinet secretary under President Jimmy Carter, “You can only go ‘so far’ at redistributing wealth.” We have not seen the political will to spend the money that would increase this materially. Regardless of who the HUD secretary was or whether the person in the White House was an “R” or a “D,” the appetite of elected or appointed officials—or the general public—is not there to go much over 25 percent…
  • State government has a role.  The N.C. Housing Finance Agency has been the state administrator of the federal Low Income Housing Tax Credit program.  The federal tax credit program was created in 1986 and generally aims to house those whose income is at or below 60 percent of the area median income level. 
  • The federal government has a role. Formerly, the role of the federal government was to fund public housing and provide below-market interest rate mortgages for multifamily rental housing. The role has been substantially diminished in recent years…
  • Inclusionary policy for new development/mixed-income housing has not attracted developers. Nearly three years ago, the Charlotte City Council approved a voluntary affordable housing “density bonus” for developers. If a developer wanted to build in affluent areas, the city would allow it to build extra units if it included some apartments or homes for low-income residents. But no developer has participated in the program, and the city may be starting over. A number of misconceptions underlie the city’s current inclusionary housing policy, including: a misunderstanding of the importance of return on cost in development feasibility; an overestimation of economies of scale in construction; a stereotype that private developers want to discriminate against poor people.

  • “Source of Income” civil rights issue. Somewhat akin to the inclusionary policy for new development are calls to mandate the acceptance of Section 8 (housing choice) vouchers in existing communities. Some advocates are attempting to make the market-rate rental sector shoulder a disproportionate burden of the city’s affordable housing crisis by making it “discriminatory” for a housing provider to elect not to participate in the voluntary Section 8 program. Making Section 8 voucher administration more market-like, not passing a state “source of income” statute, is the proper way to improve the workability of the federal government’s major housing assistance program.

Update: Governor Signs H201, Bill That Eliminates Protest Petitions

Update 7/22/15, 12:20 p.m.: We just received word that the Governor has signed the protest petition repeal, so it is now law.

In an 82-28 vote the North Carolina House today (7/15/15) voted to concur with the Senate’s final version of H201, a bill that eliminates protest petitions in North Carolina. It will now go to the Governor who has already indicated he will sign it. The bill takes effect August 1, 2015 and affects rezonings initiated on or after that date.

To get an idea why this was good for our members, and why it was a key issue we worked with the Apartment Association of North Carolina to address, just read some of our talking points from our discussions with state legislators:

Protest Petitions in North Carolina city and town re-zoning cases raise the bar to a Super-Majority 3/4 vote requirement by City Councils to overcome.  This seems unreasonable given how easy it is for a Protest Petition to be triggered. Think about how common it is for neighbors to disfavor a proposed land use change (Not in My Back Yard). This currently results in an inordinate empowerment on local land use decisions placed in the hands of a few.

Zoning Protest Petitions are favored by a number of groups in North Carolina cities who stand to gain by the higher-level of negotiations/concessions/exactions that the Super-Majority vote requires of the land developer: neighborhood groups, planning staff, commercial property owners, and re-zoning consultants. All have vested interests in the filing of a protest petition and delaying, adding cost to, or killing a development proposal. The approval rate for projects subject to a protest petition is 52 percent, compared to a 76 percent approval rate for rezoning petitions overall – according to the UNC School of Government.

In H201, A simple majority City Council vote would instead be needed to defeat a re-zoning proposal; meaning that all proposals would be fully vetted before the elected officials take a vote, with a majority deciding. We know of no other Super-Majority vote requirement in municipal administration; even a City Council’s vote on their Fiscal Year Budget only requires a simple majority vote.

 

Large Multi-Use Development Planned Next to BB&T Ballpark in Winston-Salem

A few years ago the mayor of Winston-Salem took a bit of a political hit for leading a public bailout of the development that would eventually become the BB&T Ballpark just off of Business 40 in downtown Winston-Salem. Really the mayor and the rest of the city’s leaders didn’t have a choice – if they didn’t come up with the financing to finish the construction the private developer had started, then the city would have a giant red clay mud pit on a site that was envisioned as a vital part for the redevelopment of downtown – and because of the recession that was in full swing at the time there really weren’t any private sector options. Since they took the political hit and came up with the dough the city now has one of the nicest minor league ballparks in the country, the baseball team regularly sets tremendous attendance numbers and thousands of people are regularly drawn downtown from spring through the early fall. Oh, and they were able to restructure the debt so that it would be payable over 25 years and could eventually net the city some money.

So why the brief history lesson? Because today we’ve learned that a private developer is planning a very large multi-use project that will help the city realize the vision it had for that part of downtown those many years ago. From the Triad Business Journal:

An Atlanta-based real estate investment group has announced plans for more than 1 million square feet of retail, office, hotel and residential property adjacent to Winston-Salem’s downtown ballpark.

The proposed development by Brand Properties, called the Brookstown District at BB&T Ballpark, would include 300,000 square feet of retail, 300,000 square feet of office space, 250 hotel rooms and 580 luxury residential flats.

If this comes to fruition then the overall downtown plan that’s been promoted by the city’s leaders for years, with the Innovation Quarter to the east as one bookend and the ballpark/Brookstown area to the west as the other, will take a HUGE step towards being realized.

18 Acre Mixed Use Development in Adams Farm Could Include Apartments

According to a story in the Triad Business Journal a mixed use development in Adams Farm might include apartments:

Tribek Properties of Charlotte is in the preliminary stages of planning a multi-user, mixed-use development on a 17.6-acre tract at High Point and Mackay roads at the site of a former Fortress Wood Products plant.

The site at 1 Metals Drive is near Guilford Technical Community College and sits behind a stretch of High Point Road that’s currently being widened near the Adams Farm community…

Bortz said Tribek was just starting to talk with potential tenants and could envision multiple uses for the property: apartments, a grocery store, a discount retailer, an office building, an institutional or medical facility.

“A lot of it just depends on who has interest in that market,” he said.

 

450 Housing Units, Including 242 Apartments, Proposed for Lake Jeanette

LM Napper Development is proposing to develop 33 prime acres at Lake Jeanette for mixed residential use. From the Triad Business Journal:

Plans call for twin homes, townhomes, apartments and an assisted living facility — a residential development spanning 450 housing units that will cost about $90 million to fully develop in the coming years…

Mary Oaks Manor, the $7 million first phase of the Cora Bella development, broke ground earlier this spring. Mary Oaks Manor comprises 20 twin homes and eight townhomes to be sold by Sedalia’s D&G Realty Co…

…a master plan for the 28 twin and townhomes on about 5 acres at 837 Roberson Comer Road, which is located off Lake Jeanette Road. For the parcel fronting Lake Jeanette itself, the master plan shows 242 apartments on 13.5 acres, and 160 assisted living units and 20 “healthy care” senior cottages on 14.5 acres…

Construction on the apartments would not start until after the Mary Oaks Manor twin and townhomes are complete, which should happen in about a year, Cofield said. He would like to be at least 75 percent complete on the apartments before beginning work on the assisted living units.

Housing Pinch Highlights San Fran’s Burdensome Regulatory Environment

In a Wall Street Journal article about San Francisco’s tight housing market the authors look at how the city government has contributed to the problem:

San Francisco’s plodding construction pace has added to the shortage. In most major cities, there are few legislative or permitting hurdles to developments that don’t require major zoning changes. Here, even projects with a handful of units are subject to a legislative and appeals process that can take years—raising the cost of housing.

Mr. Erickson, the developer, estimates it costs $650,000 to build an 800-square-foot unit in a midrise building, and as much as $100,000 of that can be chalked up to the elongated pace of construction. “Every single [building] permit is subject to discretionary review,” Mr. Erickson said. Because of that process, he said, “anybody can fight” any development.

Supervisor Scott Wiener, whose district includes many transit-heavy neighborhoods that are popular with young technology workers, has pushed to cut down on delays tied to the appeals process. His proposal to curb the city’s environmental-appeals process to 30 days after approval was signed into law last July.

400 Acre, $200 Million Mixed Use Project Coming to Kernersville

According to this article in the Triad Business Journal, Winston-Salem’s Arden Group is ready to start work on its long-planned 400 acre mixed-use development in Kernersville that will include 1,000 housing units:

The planned Carrollton project will feature up to 1,000 residential units and 1 million square feet of commercial space on acreage bounded by Old Salem Road and N.C. 66, just south of the Interstate 40/N.C. 66 interchange. Arden Group has been accumulating land for the project since 2005 and is now ready to begin actively marketing the site, said Paul Williams, project manager.

The property is located less than a mile from the $150 million Department of Veterans Affairs Health Care Center, which is now under construction and will employ hundreds.

The full site plan for Carrollton is still in the works, and Arden is working to identify a design team and housing types that it wants to incorporate. But it has identified that residential development will be the starting point.

Full residential development will range from 600 to 1,000 units, including a mix of single-family homes, townhouses and apartments, with the base price for single-family homes ranging from $145,000 to $275,000 and sizes ranging from 1,250 square feet up to 3,000 square feet. The first phase would include 100 to 200 homes, which Arden is planning to have ready in about 15 months.

Winston-Salem Home to One of Country’s Largest Economic Development Projects

Wake Forest Innovation Quarter in Winston-Salem is one of the largest economic development projects in the country and includes a variety of uses including housing:

Eric Tomlinson is President the Innovation Quarter. He says more than $500 million will be invested in the project by the end of 2014.  

“When you add it all up together, by the end of 2014, we expect there to be about 2,800 people working in Innovation Quarter, compared to about 1,000 today. We expect there to be in addition about 2,200 accommodation units in and around this research park, so that means a town, a community suddenly is developing within downtown Winston-Salem,” says Tomlinson…

Tomlinson says Innovation Quarter will eventually become a destination, with a park and Greenway. The Greenway would link with the Salem Connector and Salem Lake.  Overall, Innovation Quarter has 140 developable acres. Tomlinson says only about one-sixth will be completed by the end of next year.

Landmark U.S. Supreme Court Case Favors Private Developers in Public Planning Actions

PTAA received the following update from our friend Ken Szymanski, Executive Director of the Greater Charlotte Apartment Association and the Apartment Association of North Carolina:

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I went to a city planning continuing education webinar today, and the focus was 6 nationally-prominent land use lawyers and their take on the landmark case, Koontz v. St. Johns River Water Management District. Their conclusion was that the conservative Court gave private developers reason for optimism in dealing with local governments, planning boards, and public permit granting agencies. There could well be some favorable ripple effects from the case for North Carolina land developers, as the case will be noted by city attorneys, planning directors, and others with the understanding: “don’t cross this new line”.

The issues are complex, but pertain to the U.S. Constitution’s 5th Amendment “Takings” clause, unconstitutionality, and a verification/amplification/embellishment of 2 other landmark U.S. Supreme Court land use cases decided in the 1990’s on “Reasonable Relationship” (or “Rational Nexus”) cited in the Nollan v. California Coastal Commission case, and on “Rough Proportionality” cited in the Dolan v. Tigard case. These pertain to development exactions, impact fees (proportionate share and others), “voluntary” cash payments for off-site public improvements, so-called “mitigation fees”, “payment in lieu” of contributing to public facilities, and the like.

The Florida Supreme Court had made a judgment in favor of the St. John’s River Water Management District, in a case where the District offered the landowner 2 choices on his 14.9 acre site east of Orlando near a major highway, that was largely classified as wetlands: reduce his development proposal from 3.7 to 1 acre and give an easement on the remaining 13.9 acres OR alternatively, develop the 3.7 acres, but make public improvements several miles away, on no particular project. Koontz refused the counteroffers, and sued in state court, where he lost. The various appeals lasted about 13 years, and Mr. Koontz is now deceased.

The Supreme Court reversed the Florida court’s judgment, saying, “We hold that the government’s demand for property from a land-use permit applicant must satisfy the requirements of Nollan and Dolan even when the government denies the permit and even when its demand is for money. The Court expresses no view on the merits of the petitioner’s claim that respondent’s actions here failed to comply with the principles set forth in this opinion and those two cases.”

Thus, the Supreme Court concluded that money exactions, in connection to a land development condition, are subject to Nollan/Dolan.

Ken Szymanski, AICP
Executive Director
Greater Charlotte Apartment Association &
Apartment Association of North Carolina

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