Use housing market forces to help

So much for the law of supply and demand.

Council has approved a plethora of high-end market-rate apartments because a majority of council members believe that flooding the market with high-rent units will saturate housing demand and eventually inhibit rent hikes. These council members ignore the fact that in Chapel Hill, as in most cities, an abundance of pricey rentals raises the rent floor all over town. An apartment that previously rented for $700 a month now charges $1,000 because that increase appears affordable compared to the $2,000 average in the new buildings.

Now these high-rent buildings are coming online, and there aren’t enough people willing to pay such rates. Many units sit empty. But instead of lowering rents to fit the market, these landlords have quietly advocated for a taxpayer bailout. Landlords want taxpayers to subsidize the rent and use some of those empty units for affordable housing until full-price tenants move in.

This proposal holds good news and bad news.

On the plus side, affordable housing would be mixed in with market rate, providing the landlord doesn’t designate one section of the building as the low-rent district. Studies show that the most successful affordable housing initiatives blend subsidized units with market rate tenants.

On the other hand, a bailout would not create the time and space for supply-and-demand tensions to impact the market. And many landlords enacted policies to rid their property of low-wealth tenants, so taxpayers making it possible for those folks to move back in might be inviting them into a living situation where they would be made to feel unwelcome. If the town were to institute a program subsidizing market-rate units, I would lobby strongly that the landlord’s history with low-wealth tenants be taken into consideration.

A taxpayer bailout of existing units would be a better fiscal deal for the town than having to build new units. But we would need to set some parameters. For starters, the town would have to negotiate how long the units would remain affordable. Having a year-to-year agreement does not provide the stability most tenants seek.

Clumping the affordable units together in one section would warrant closer scrutiny. The least desirable apartments, second-floor units, for example, have lower rents, as do those on the back of the building near the dumpsters, and these would be the natural choice for affordable housing. But if a landlord set aside one section of a complex for the affordable units, that might be unnecessarily ostracizing low-wealth tenants.

Finally, I would press the town to draw on the model health-insurance companies use: capped charges. If my physician sends me a $500 invoice for an office visit, my insurance company might say it caps the cost of a visit at $300, which would be applied to my deductible. An “in network” physician would honor the $300 cap, and that’s all I would be charged. I would expect landlords to honor the “in network” system, especially if the length of time the units would remain affordable is significantly less than 30 years.

We have some opportunities, but we must make sure they improve the functioning of the town as a whole.
— Nancy Oates

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  1. Terri

     /  May 22, 2017

    “these landlords have quietly advocated for a taxpayer bailout.”

    Who are these landlords? From whom are they requesting bailout?

  2. Evan

     /  May 22, 2017

    Do you have any evidence for this assertion?
    “. . . an abundance of pricey rentals raises the rent floor all over town. An apartment that previously rented for $700 a month now charges $1,000 because that increase appears affordable compared to the $2,000 average in the new buildings. ”
    In any case, it is obvious that the right thing to do here is to not subsidize these apartments.

  3. Bonnie Hauser

     /  May 22, 2017

    I love the idea of using market forces for affordable housing – but I’m still missing a plan that shows what kind of housing is going where. and IMO- the plan would include the towns and the county, developers and the NFPs.

    I’m impressed that Carrboro got Legacy Real Estate to build Shelton Station with 20% of its unit for Workforce Housing. It didn’t cost a nickel – but Legacy did get a density bonus to make the numbers work.

    Does it bother Chapel Hill residents to be giving the county millions of dollars for AH (in addition to the bond), and now the town is asking for another 5 points for AH?

    And given the millions in profits that are now coming from new development (Alexan, Liberty Warehouse, etc), might developers kick a little into the pot?

    The politics are creepy. Maybe its not about the money.

  4. Del Snow

     /  May 25, 2017

    Years ago, Council member Gene Pease said that applicants come in with built in concessions in order to get approval. Nowadays, most applicants don’t seem to feel that they owe anything to the community that enables their profits. Even more importantly, they don’t seem to care about the world in general – getting green building standards (benefiting everyone, including them and their families…) or helping those who aren’t as wealthy as they are. If the police station moves, couldn’t a development (market rate and affordable mix), occur there? Financial segregation is not a winning strategy.