Sunday, July 14, 2024

The push for affordable housing: Tax credits, tiny homes and 3D printing

How North Carolina is combating the affordable housing shortage.

The longstanding shortage of homes for essential workers continues to worsen. Throughout North Carolina, teachers, firefighters, hospitality staffers and other rank-and-file workers are struggling to find affordable housing near their jobs. 

“This is one of the biggest issues for employers across the state,” says Mark Brooks, president of Brooks Engineering Associates, an Asheville-based civil engineering firm. “I’ve run this company for 20 years and when I make a job offer out of town or out of state, I’ve rarely been turned down. Now I can’t get anyone from anywhere to come because they say it’s too expensive to find a place to live.”

In North Carolina, 27% of residents are considered cost-burdened because they spend more than 30% of their income on housing, according to the N.C. Housing Coalition, a nonprofit advocating for affordable solutions. The squeeze is even tighter in counties including Buncombe, Durham, Guilford, New Hanover and Watauga.

“Developers are not going to build affordable, price-restricted units all on their own. There’s a math problem,” says Tyler Mulligan, professor of public law and government at UNC Chapel Hill’s School of Government. “At lower rents, there is just not enough revenue for those developers to make a profit. So we aren’t getting affordable housing at the level that is needed.”

North Carolina communities are using everything from tax credits to a new kind of construction popular on TikTok to address the problem. This story looks at several examples:

  • The Low Income Housing Tax Credit programs, which Greensboro developer Chester Brown III calls “the best vehicle for workforce housing right now.”
  • Chapel Hill, Davidson and Manteo have mandatory zoning ordinances that call for developers to designate 10% or more of their for-sale units as affordable. Or, they can pay a set fee into a city-run housing fund.

  • Asheville, Durham, Wilmington, Winston-Salem and other cities have amended residential zoning to allow for smaller, secondary homes, which are called accessory dwelling units.

  • Charlotte and Raleigh instituted new zoning rules that broaden where townhouses, duplexes, triplexes and quadruplexes can be built. The theory is that denser housing will boost affordability and diversify neighborhoods.

  • Mills River, which is between Asheville and Hendersonville, has a thriving 80-unit community of “tiny homes” that are 400 square feet or smaller. It’s a low-cost  alternative in the increasingly pricy mountain region.
  • Dare County has about 500 housing rental units in the works after partnering with UNC consultants to combat its housing shortage.

These measures may just be a splinter in a two-by-four. Five hundred affordable homes in Dare County barely touch the 5,000 households that are considered cost-burdened. Eighty tiny homes in Mills River compare with 45,000 households in Henderson and Buncombe counties that are paying nearly a third or more of their income for housing. 

But you have to start somewhere.

Here’s a look at efforts that optimists say might make a dent in the state’s housing crisis.

Tax credits work 

Greensboro nonprofit Affordable Housing Management has been involved in eight projects for essential-worker housing, each typically 70 to 90 units. Board President Chester Brown III credits the Low Income Housing Tax Credit program, which appeals to advocates of different political stripes. 

“Conservatives tend to favor it because it supports privately constructed and managed housing and is also a tax credit to reduce the tax burden of those who take advantage of it,” UNC’s Tyler Mulligan says. “Those on the liberal spectrum like it because it ensures housing is available to those with lower to moderate incomes.” 

The federal program allows private developers to sell tax credits to investors to fund projects and reduce borrowing. Investors are typically institutions that use the annual credit and take depreciation to offset their tax liability for 10 years.

The apartments or townhomes are leased to residents who earn an average of 60% of an area’s median income. The federal government requires the housing to be priced below market rates for at least 15 years. State housing finance agencies, which allocate the credits, often mandate longer terms.

An example is Affordable Housing’s Redhill Pointe Apartments in Greensboro. It opened this fall with monthly rents ranging from $283 to $785 a month, well below the city’s market rates. About 900 people signed up for a waiting list at the 84-unit project, Triad TV station Fox 8 reported in October. 

Brown complains that a limited amount of credits are allocated to each state annually, although the federal government is offering more than $1 billion in various programs this year. Many developers who meet the rigorous qualifications aren’t awarded credits. As a result, many projects don’t progress he says.

In 2021, 35 developments in 29 N.C. counties came to fruition after receiving tax credits. About 129 developers pitched projects. 

“It’s a very competitive process,” Brown says. “If the developer (who is awarded the credits) doesn’t do a good job on the project, they won’t be eligible for future developments.

Forcing affordable housing

In Chapel Hill last year, fewer than 200 homes were sold at a price affordable to a four-person household making 80% or less than the average median income (AMI) of about $75,000, according to Nate Broman-Fulks, assistant director of affordable housing. He estimates the city has a gap of about 1,500 units, considering the number of households earning 80% or less of AMI and the existing base of homes and apartments. 

The Community Home Trust nonprofit works to fill that hole. More than 270 homeowners with an income of 80% of AMI or lower have bought a home in Chapel Hill or Carrboro through the nonprofit since 2011. 

Typical buyers are nurses, teachers, public safety officers and UNC Chapel Hill employees, according to spokesperson Daniele Berman. “A lot of people who work in Chapel Hill commute from Burlington or Mebane or further,” she notes. Many would prefer to live in Chapel Hill and Carrboro so their children could attend the highly-rated local schools.

Community Home Trust sells homes to qualified buyers with traditional mortgages, but maintains ownership of the land, which is leased to homeowners. It also caps price appreciation at no more than 1% per year of ownership. When the homes sell, the price hasn’t escalated with the market, paving the way for a new moderate-income buyer.

If residents make home improvements, the investment is pre-approved and factored into the asking price at the time of a sale.

Community Home Trust receives money through grants and private donors, but mostly from town funds that result from an ordinance passed in 2010. It mandates developers building more than five for-sale housing units must designate 15% to be sold at prices affordable to low-to-moderate-income households. (The percentage is 10% in the town center.)

“If they don’t want to make those units affordable, they can make a payment in lieu,” Berman says. 

In 2019 Epcon Communities sued Chapel Hill to recover $800,000 paid in lieu of setting aside 15% of its units to be sold at below market rate. The lawsuit came after the sale of all 63 homes in Epcon’s Courtyards at Homestead development. The Dublin, Ohio-based builder argued the town didn’t have the authority to enact its “inclusionary zoning” ordinance. The case was later dismissed because of statute of limitations.

Mandatory inclusionary zoning in North Carolina is a legal gray area. State law doesn’t prohibit the plans, but there isn’t specific enabling legislation, either.

A 2009 Court of Appeals ruling said a zoning ordinance may restrict various components of a development such as height, size, density, and use of buildings. While price was not listed as a characteristic, some lawyers argue that “use” could be interpreted as relating to price-sensitive affordable housing.

“The town does not believe that our inclusionary housing program is in imminent jeopardy at this time,” says Broman-Fulks.

Still, Lennar Homes is challenging Davidson County’s similar inclusionary zoning plan after the Miami-based builder paid $700,000 to the county’s Affordable Housing Fund. Lennar had not dedicated 12.5% of its units as affordable as required by the county.

Density triumphs

This year, Charlotte and Raleigh city councils passed zoning changes that allow more density in single-family neighborhoods, overcoming significant opposition. About 60 residents from Raleigh’s Hayes Barton neighborhood protested outside a city council meeting to oppose the city’s new “Missing Middle 2.0” plan. The city’s zoning modification cleared the way for a developer to buy a large Hayes Barton home, which would be replaced with 17 townhomes priced at $2 million each.

“These changes are an assault on single-family homes and the people who built this city,” Hayes Barton resident Terry Henderson told the council. “You have introduced a Trojan horse and presented it as if it were a gift to affordable housing.” 

A city of Raleigh website states the more flexible zoning code is “designed to allow for smaller homes on smaller lots and denser development near high-frequency transit [that will] promote alternative and missing middle housing types so that Raleigh can better accommodate existing and future residents.”

Similarly, Charlotte now allows developers in many areas to replace a single home with three or four smaller units to help meet the city’s big shortage of affordable housing. Changing the zoning rules passed by a 6-4 council vote.

Critics say the measures could harm a neighborhood’s character without improving affordability. Former Charlotte city councilman Matt Newton predicts that lower-income neighborhoods with less expensive land will attract many developers planning new, higher-priced homes. 

Coastal response

Dare County faces a major challenge because of a land shortage and increased housing demand. The mainland is dominated by tens of thousands of acres that are part of Alligator River National Wildlife Refuge and Dare County Range, which the Navy and Air Force use for bombing practice exercises. 

“We only have the land on the barrier islands where we all live and very little on the mainland. It makes it very difficult to develop here,” County Manager Bobby Outten says. “It’s not profitable for (developers) to build apartments that can cater to the essential workforce. So we have teachers, police officers, and people working in offices and restaurants driving from as far as Currituck, Plymouth, Columbia and Elizabeth City.”

Two years ago, the county made workforce housing a top priority and partnered with the Development Finance Initiative at UNC’s School of Government. About 500 workforce housing units are in the works after officials amended regulations allowing residents to construct guest houses, garage apartments and so-called accessory dwelling units on their properties. 

Coastal Affordable Housing, a business led by Aaron Thomas of Pembroke-based Metcon Construction and Raleigh architect Robbie Ferris, plans to build 400 subsidized apartments by the end of 2023. In the public-private partnership, Dare County is providing a $35 million forgivable loan, using money from the state budget. Coastal will also borrow $65 million separately. 

Dare County is also investing $9 million in a 100-unit affordable housing project by Columbus, Ohio-based developer Woda Cooper Co. on county-owned land.

Neighbors in single-family homes may not be pleased, Outten notes.

“No matter where you put anything, somebody is not going to like the fact that there is county-owned land. It’s new and it’s not what they are used to,” he says. “We don’t expect everybody to like it but in the long run it’s really what we need to do. These 500 units are going to be important for our community.”

Tiny homes, big potential?

Acony Bell Tiny Home Community in Mills River was almost completely leased before developers broke ground on its infrastructure in 2017. Now, the waiting list to lease one of the last 19 lots is capped at 100 names.

The 60-acre development charges $550 a month for people that provide their own tiny homes, which typically cost from $30,000 to $60,000. All utility hookups are provided. It will eventually total 94 homes, the vast majority housing full-time residents.

“We are providing a nice community and affordable place to stay that’s an alternative to apartments,” says managing partner Mark Brooks, also president of Brooks Engineering. He knows residents who pay $550 and have a mortgage of a similar amount. “You can’t get an apartment in Asheville for $1,100 a month,” he says.

The majority of Alcony Bell residents are single, middle-aged women. A few couples and families with children are also residents. Brooks recalls a married couple with a baby who lived in a 120-square-foot home for about two and a half years. 

“We had neighbors who were upset when we broke ground. There was a knee-jerk reaction. Now they love us,” he says. Each home has a different style. Amenities include vegetable gardens, a chicken coop, campfire ring and an early-1900s stone cottage that serves as a clubhouse. 

“There is a real close sense of community here,” Brooks says. “They have potluck dinners, poker nights. People take care of each other.” 

Shazam! 3D-printed homes

In January, Raleigh-based TNT Development and partner Austin, Texas-based  ICON plan to assemble an $800,000 3D printer that dispenses concrete for a home frame, based on a digital file’s blueprint. The project is occurring in Littleton, a Halifax County town 70 miles northeast of Raleigh, with backing from private investors including the Ed Fitts Charitable Foundation. Fitts is a retired packaging CEO who is revitalizing his hometown with a vocational school, retail stores and a restaurant.

He also plans an affordable housing community with 20 3D printed homes and about 150 tiny homes. The 3D printing system’s technology comes from Denmark’s COBOD, which has affordable housing projects in Germany, Kenya and other nations. 

The process will enable construction of homes within 10 days and save as much as 40% compared with a stick-built home, says TNT President Tone Terrell, who has worked to combat homelessness in the Triangle. 

“There is a lot of interest and hope for 3D-printed homes,” says Mulligan.

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