Editor’s note: Charlotte City Council voted on November 28 to allocate around $20 million between Housing Trust Fund and American Rescue Plan Act money for all but three of the projects.
Developers who received city funds to build nearly 900 affordable homes now say those projects will not be built without more subsidy.
Context: Developers apply for funding from the city’s Housing Trust Fund, which voters approve in the form of a bond every two years. Voters OK’d raising the amount in the fund from $15 million to $50 million in 2018, and approved another $50 million in 2020 and as part of a bond referendum on Tuesday.
- But the city says there’s only $6.7 million left in the HTF.
Driving the news: Eleven developers who received $23 million from the HTF are now asking for an additional $32 million to complete their projects, according to a presentation City Council received in late October. Inflation has driven up construction costs, the developers say.
- Axios spoke with the developers responsible for six of the 11 projects. They said without the extra funds, they would either abandon their development or reduce the number of affordable units — or the projects would be in limbo.
- A number of the developments are in “high-opportunity” areas where the city has prioritized building affordable housing.
Why it matters: Charlotte has a shortage of approximately 23,000 affordable housing units for its poorest residents, per a 2021 UNC Charlotte report. The city’s main approach to that housing crisis has been to subsidize affordable housing developments.
- But it appears the city’s money isn’t going as far anymore in the current economic environment.
What they’re saying: Developer Laurel Street is building affordable housing in Ballantyne as part of a larger mixed-income community with Crescent Communities. It’s also working with Crescent to construct affordable units at the River District, a 1,400-acre master planned project west of the airport along the Catawba River.
- The rents for those projects are slated to range from $416 to $1,657 per month.
- But Dionne Nelson, the firm’s president and CEO, says they would not be able to build the same number of units at the price ranges that they committed to without the extra city money. They are asking for another $6.15 million for the River District and $1.4 million for the Ballantyne project.
The options: The developers are suggesting that the city pull money from the $39 million it has remaining in American Rescue Plan Act designated for housing for the projects.
- The city could also use the $50 million in bond money that voters just approved. But that would leave less money for the new projects that apply. Plus, the earliest that would be accessible is around February, per the city.
Flashback: The city started to hear concerns in 2021 and this year from developers, Shawn Heath, the city’s interim director of Housing and Neighborhood Services, told Axios in an email. In September, it issued a formal request for updated financial information from projects the trust fund has supported.
Without another $5.5 million, Crosland Southeast, the firm also developing the old Eastland Mall site, would put a for sale sign on the property it owns on Morris Field Drive where 132 affordable units are planned, with rents ranging from $400 to $1,417 per month, says Tim Sittema, managing partner.
- Sittema says affordable housing deals take longer because developers have to look for city funding and seek tax credits from the state. But that means they are more exposed to economic changes like higher interest rates, he adds.
- Construction costs on the deal grew by 51% since January of 2021, he says, and the amount they were able to borrow shrunk because of rising interest rates. The firm has worked through every option to try to reduce the cost of the project, Sittema says.
- Crosland already abandoned another 168-unit affordable housing deal that was privately-financed, Sittema says.
Zoom out: The city would lose two years of a development pipeline of affordable housing if it doesn’t provide the additional money, he says, since new projects would take time to build.
- “Now that the macro economy is facing the potential for a recession next year, there will be more people that will be in need,” he says. “And it would be, in my view, pretty unfortunate to lose the opportunity to produce … 886 units in total.”
DreamKey Partners is building three of the projects looking for additional subsidy: 104 affordable housing units on the YWCA Central Carolinas campus on Park Road, 82 homes near the Scaleybark light rail station and supportive housing for formerly homeless people on Caldwell Presbyterian Church’s property in Elizabeth.
Julie Porter, president of DreamKey, says affordable housing deals across the country are seeing project costs like labor and supplies surge. But the city alone can’t address that.
- “There need to be larger solutions, because we can’t just keep putting deals in front of the city that have these huge gaps,” she says. For instance, she says the Low-Income Housing Tax Credit that developers use to finance their projects should be increased.
The bottom line: Charlotte is pouring resources into affordable housing, but the amount of money it takes to close the gap on already approved projects shows it’s a drop in the bucket compared to the magnitude of the problem.
- “The world has changed dramatically,” Nelson says. “So when you look at construction costs increases, when you look at interest rate increases, when you look at the market realities that we have been dealing with over the last two years, then that capital will buy less as we move forward in terms of funding affordable housing.”
What’s next: City Council is expected to provide feedback on the next steps on Nov. 14. City staff will work on a plan based on that input, Heath says. He said addressing affordable housing remains a priority despite the market challenges.