‘Affordable’ not luring investors

Many Rhode Island communities have fought the state’s Low and Moderate Income Housing Act for limiting their ability to stop development projects.
But while the law has endured, the economy and shrinking government budgets have done more to minimize its impact than any repeal efforts. Even with the real estate market in recovery, new residential construction, including affordable housing, remains anemic in the Ocean State.
Last year, three developers sought streamlined permitting under the Low and Moderate Income Housing Act, the lowest number since the law took its current form, open to for-profit and nonprofit developers, in 2005.
Low home prices, especially compared with construction costs, are still choking off private investment, while public investments in affordable housing continue to fall because of state and federal budget cuts.
“We are still in that mode of not a lot of development happening,” said Chris Hannifan, executive director of Housing Networks Rhode Island, a coalition of nonprofit community-development corporations that build affordable housing. “Financing is still tough for development and the credit market is very tight.”
The slowdown has meant that despite many suburban communities softening to new affordable-housing construction, Rhode Island has not made any progress since 2005 on its goal of making 10 percent of all homes affordable.
Instead, the share of units classified as affordable fell from 8.26 percent in 2006, the height of the real estate bubble, to 8.25 in 2011, according to figures from quasi-public lender Rhode Island Housing.
That lack of new supply is reflected in the fact that, while the cost of buying a house has fallen, rents keep going up.
According to the National Low Income Housing Coalition’s Out of Reach report released last month, the average two-bedroom rent in Rhode Island climbed from $924 in 2011 to $945 last year.
In both years, Rhode Island housing costs ranked as the 17th most expensive in the country. Massachusetts and Connecticut last year traded places on the list, with Massachusetts going up to seventh most expensive and Connecticut falling to eighth. To promote construction, the Low and Moderate Income Housing Act gives developers who build deed-restricted affordable housing a streamlined permitting system that sidesteps local zoning hurdles in communities that have not reached 10 percent affordability.
The developments have to fit into each community’s affordable-housing plan, but if they do, they have higher density than what would normally be allowed in local zoning.
Going back to 2005, the first year for-profit developers could use the system, those applications to Rhode Island Housing trace the change in the market away from ownership, especially condominiums, toward rentals.
In the last three months of 2005 (the for-profit moratorium was lifted in October of that year), eight projects, proposing 310 new units, 147 reserved for low- or moderate-income residents, were declared eligible.
Of those 147 units, only 10 units, or 7 percent, were rentals, with the rest “almost exclusively condominiums,” according to a 2005 Rhode Island Housing report. Of the eight projects, five were from for-profit developers.
Two years later, at the height of the market in 2007, 22 projects started comprehensive permits proposing 739 units, 481 of them affordable. Of the affordable units planned in 2007, 236, just under half, were going to be rentals.
Predictably, by post-recession 2011 the level of activity had fallen dramatically. That year seven projects were granted eligibility for 218 units, 143 of them affordable. With the condominium market moribund, 86 units, 61 percent of those affordable, were rentals.
And in last year’s three applications, all from nonprofits, developers planned 96 total units – with all 77 affordable units rentals.
“For-profit developers tend to build single-family subdivisions or condos, and clearly we have seen a big downturn in that type of development,” said Carol Ventura, director of development at Rhode Island Housing. “Nonprofits are playing a bigger role, but we are in an era of sequestration now.” Last fall, Rhode Island voters approved a $12.5 million state bond for affordable-housing creation, which Ventura said should inject some new projects into the construction pipeline starting this summer.
Building-rehabilitation projects funded by the state historic-tax-credit program had been a financing source for some affordable-housing creation before the program was suspended in 2008.
The U.S. Department of Housing and Urban Development’s Home Investments Partnerships Program, which funnels money for affordable housing to states, has scaled back Rhode Island’s funding from $5 million in 2010 to $3 million annually now, Ventura said.
And that’s before any sequestration-related cuts take effect.
By most estimates, the downturn in development activity has eased some of the opposition some local officials and communities feel toward building more low-income housing.
Although there are exceptions, GrowSmart Rhode Island Executive Director Scott Wolf said local communities appear more willing now to accept denser developments that include affordable units than they were before. Attempts to repeal or declaw the Low and Moderate Income Housing Act have become less frequent.
“There are more municipalities that are allowing denser development, including affordable, but we haven’t reached the level of acceptance we need for well-planned affordable housing,” Wolf said.
Rhode Island’s affordable-housing law is similar, if less aggressive, than Massachusetts’ Chapter 40B law, which also provides a way around local permitting and is known as the “anti-snob” housing law.
Although the Rhode Island law has not achieved its goal, it has added new units and affordable units to the housing stock at a time when hardly anything is being built.
Rhode Island Housing figures list 445,902 total housing units in 2011, up from 425,610 in 2005. Affordable units rose from 35,150 in 2005 to 36,797 in 2011.
As for what strategies might help create more affordable housing in the future, Wolf suggested more incentives for development and making housing targeted to regions, as opposed to town by town. •

No posts to display