KABA recently partnered with the FDIC to host a community-wide discussion about the challenges and opportunities facing the housing market in Kenosha County. Several community planning and residential development experts participated. We asked three of them to answer some questions to relay some of the ideas and information gleaned from the summit. See pictures from the event here.
Michael Harrigan, Partner, H & A Advisors, LLC
Q: What would you consider workforce housing? How do you define it?
A: Housing for persons with the 80 – 120% of Median Household Income range that is affordable assuming 30-35 % of their income is limit on expense for housing.
Q: How do you make financial models for workforce housing work?
A: By subsidizing the gap between the amount that the family can pay and the cost and by eliminating the hurdles imposed by local regulations on building construction, lot size and impact fees. Also by providing time to capture appreciation of value to help bridge gap to fund home ownership.
Q: How can TIF (tax incremental financing) be used for housing?
A: To bridge the gap between housing costs and income. Using the 1 year extension, changing statute to allow for 3 years and use of existing TID law for rehabilitation, mixed use and blight elimination. Change statute to allow for 60% residential in mixed use vs 35% under existing laws.
Q: What are other unique ways you’ve seen municipalities fund workforce housing developments?
A: Creation of revolving fund to encourage home ownership. See the H & A Advisors plan that I and my partner have developed for a housing endowment program… this requires more space to explain than allotted here but we are happy to share details.
Kurt Paulsen, Professor of Urban and Regional Planning, University of Wisconsin
Q: What happens when a community does not have enough workforce housing?
A: When there is not an adequate supply of housing – at a wide range of styles, sizes, and price points – to meet the needs of the workforce in an area, then it becomes harder for businesses to recruit and retain workers. For businesses, particularly in the service and manufacturing sectors, if workers have to live far away from jobs, the transportation difficulties can make it hard to workers to be on time. If there is snow or traffic problems, workers might face difficulties getting to work. Alternatively, if they cannot live near where they work, they spend a lot of time driving and not able to interact with their children or their kids’ schools. When a kid gets sick or there’s a problem at school, this poses great challenges for workers.
For workers, they adapt in one of two ways: either they live farther away and drive long distances every day, or they spend more than half of their income on housing, which doesn’t leave much room for other expenses such as food, health care, etc.
One way to think about this is that a home is where a job goes to sleep at night. Economic development officials and local communities create opportunities for employment through land use and tax policies that encourage businesses, shops, offices or manufacturing facilities. But if they are not also accepting housing for the workers who will work these jobs, then they are exacerbating the workforce housing shortage. Eventually, if housing is too expensive or not available near where people work, the workforce will go elsewhere. We either have to build more housing near jobs or make massive investments in our transportation infrastructure to get people to jobs.
Q: What are some of the causes of the workforce housing shortage?
A: In my report Falling Behind (available from the Wisconsin Realtors Association), I identify 3 main causes of the workforce housing shortage in Wisconsin. First, in terms of the number and types of housing units being produced, we are not producing enough to keep up with overall population and job growth. That’s a macro trend across the state. But in many of our regions, while the overall number of units produced equals population growth, the units are either too expensive or too far away from jobs.
Second, the cost of construction (which local governments really can’t do much about) has grown much faster than inflation and incomes. When the cost of new construction goes up, the value of existing homes also goes up. In many parts of the state, even a smaller home on a smaller lot will just cost too much to build to support the rent or price levels in an area.
Even if we assume an “average quality” build for new construction of about $150 per finished square foot, for a 2000 square foot house that’s $300,000. And that doesn’t even include the price of land or infrastructure.
The third cause of the workforce housing shortage is the land use regulations adopted by municipalities which impose larger minimum lot sizes, prohibit attached housing such as townhomes or duplexes, limit multifamily construction, along with minimum parking requirements. In many cities and towns in Wisconsin, the type of entry-level (“starter”) home that I grew up in and many of us grew up in is just not possible to build because of zoning regulations.
Q: What can be done about the shortage of workforce housing?
A: In the state report Falling Behind, I identify a large menu of options and strategies to increase the supply of housing affordable to the workforce. Many of those are state policy issues, and so I do urge local businesses, local elected officials, and local economic development practitioners to always be communicating with your Representatives and Senators about the workforce housing shortage in your community and to be educating your elected officials about the needs. Invite them to tour a new development, or have them meet with developers to show them how the costs add up to an unaffordable product.
For local government officials, the strategies include examining your comprehensive plan housing element to ask a basic diagnostic question: are we providing enough opportunities in our community for builder to provide a range of housing choices that meets the needs of persons of all income levels? (That’s state law, by the way). Examine your zoning ordinance to see if the “missing middle” type housing (see: https://missingmiddlehousing.com/) can be built under your zoning ordinance. Consider reducing lot sizes and parking requirements to get more modestly priced housing built. Consider allowing townhomes and duplexes in residential areas. Downpayment assistance programs and low-interest loans to help rehab older homes are also important strategies, because most of the workforce will live in already-built housing.
For communities just starting to address the workforce housing shortage in their community, what I’ve seen be successful around the state is to organize a committee or task force to examine the issue, hear from all stakeholders, and help drive innovations and change. For example, a committee could include elected officials, developers, realtors, community advocates, churches, employers, etc. Having a dedicated committee looking at addressing the housing shortage helps give the issue the priority it deserves.
Q: What are some unique developments or ideas that other communities have done successfully?
A: There are so many communities that are allowing builders the flexibility to build smaller houses on smaller lots, allow creative infill on older lots, allow accessory dwelling units (ADUs or “granny flats”). I have a Powerpoint slide I did for the League of Wisconsin Municipalities that includes lots of pictures and design ideas for creative housing solutions, many drawn from my own city of Middleton. You can see the slide show at: https://www.lwm-info.org/DocumentCenter/View/3491/WED-AM-Deep-Dive-3-Innovative-Housing-Solutions. (Starting at about slide #81. Yes, that’s a lot of slides!)
Michael Pollocoff, CEO, Springbrook Municipal Strategies
Q: What kind of traps to municipalities find themselves in when they’re trying to develop workforce housing Projects?
A: The first trap is political. A municipality can become embroiled in a number of difficult issues in trying to develop workforce housing outside of a State sanctioned housing program. From a political perspective, any type of housing projects traditionally produce community resistance, long numerous public meetings, and general controversy over any types of development. If a municipality is assuming the role of a residential developer by using public funds or putting the taxpayers at risk will generate even more opposition from taxpayers; since this has long been perceived as a private sector market activity. If a municipality is trying to solve a workforce housing shortage within their boundaries, while surrounded by other municipalities that could also provide additional opportunities for housing, they will face difficult marketplace risks.
The second set of traps are financial; and there are a number of them to be considered. First, municipalities are entering their 10th year of levy limits. For single family housing developments City and Village officials have seen their current and available revenues for providing services reduced each year. Whatever value a single family lot and house are initially assessed at will not change or grow over the time; unless the entire tax base grows from new construction. Taking advantage of the increase in new construction to fund the increasing costs to existing residential properties, assumes there are no new or additional costs that are attributed to the new construction. Such an assumption is financially unsustainable.
Second trap is using the same development paradigm for suburban development standards is as unsustainable for local government as it is for residential developers. The construction of 1/4 acre lots or more of single family developments are expensive to build an even more expensive to maintain by the municipalities. The current median value for single family homes will generate a range of only $1,000 to $1,400 per year per lot in property taxes to fund police, fire, rescue, street maintenance, park maintenance, and all other operations. The taxes do not support the costs of service. Increasing the density of single family housing by means of cluster developments, or even the classical urban development with private service drives can reduce the miles of streets that need maintenance and snow removal and infrastructure maintenance needed to support single family lots and homes. Apartments and condominiums cannot be expected be the sole solution to the density issue.
A third trap is using special assessment powers to generate and fund capital improvements. Historically there has been municipal efforts to specially assess streets, grading, and utilities that would be paid for when the residential properties were purchased. This typically was done to improve the margins for residential developers, and has had little impact on the cost of single family lots and home prices.
The last trap is using TIF for single family housing in association with a commercial or manufacturing development. The over reliance on the residential component being the driver of the commercial development can result in the TID being in effect for the maximum time, with any remaining going to the tax roll. If the district is established with a “developer TIF”, the municipality could be faced with a difficult time funding services, while sending a check every year to the developer to pay for their TIF expenses. Since the tax revenue available to support existing development has shrunk, this trap has no escape when it involves the use of TIF to create and develop residential housing.
Q: What types of developments should we be encouraging our municipalities to move forward on?
A: Municipalities should closely examine their current master land use plans to incorporate higher density single family land uses in a manner that it doesn’t make it an exception to existing uses. Workforce housing shouldn’t be identified as a “isolated use” that could put a stigma upon to it.
Cluster developments that increase density and reduce actual street frontage while also decreasing public and private park space needs that could be funded in part through a home owners association. There has been increasing development of these types of developments in arid parts of the country, that are typically facing water shortages. In an area that is dealing with high development expenses it could serve to reduce everyone’s expenses.
The re-introduction of the “New Urbanism” model of development can also reduce development expenses and subsequent municipal service expenses. It does represent a throwback to the older development patterns of narrow streets and the use of private alleys, but there are a number of newer architectural designs that reduces expenses and exposure to future improvements.
Apartment and condominium developments with no common access hallways are another development model that has been slowly growing in this area, and it should be encouraged to continue.
Q: What are some unique developments or ideas that other communities have done successfully?
A: Cluster homes as I mentioned above do represent a way to reduce expenses for everyone. The other type of development would be “Patio Homes”. This type of development puts the garage right off the street, which can also be private, and the front door opens to a common open area that is landscaped and shared with neighbors. This type of development can completed in a single family unit format or a multi-family format where each housing unit has an independent access to the common area. Some of these developments across the country have utilized stormwater retention ponds with fountains as the centerpiece that is surrounded by housing units.
Both of these types of developments have the impact of reducing linear street expenses while providing opportunities to address storm water issues that municipalities can share in the cost of as they resolve surrounding drainage issues.