The Housing Needle: Part Three
Editor’s note: This is the third and final installment of MuncieJournal.com’s exclusive three part series on housing in Muncie and Delaware County.
By John Fallon and Steve Slavin—
MUNCIE, IN—In the minds of many folks in our community, any assessment of the housing situation is the product of subjective judgment. Even though such an analysis lends itself to factual verification, it seems that many rely on assumptions and personal opinions. Our research confirms that most people believe what was good for development and growth in the past should work going forward.
We think the solutions need to be more innovative and entrepreneurial than that. This difference of perspective is both longstanding and challenging. But based on our review of related data and information, it is clear to us that the community would benefit from a targeted plan for additional housing that is rooted in local demography, economics, trends, and specific aspirations set at some point in the future. It is toward this that we believe that the housing needle must be moved. But how does the needle get moved? Toward what specific directions should the needle tilt? What procedures and systems are involved? And how is this decided?
In Part I of this series, we made the case for a housing commission or task force to study this matter in great detail and come up with a forward-thinking plan for housing. Further, our recommendation included the appointment of individuals to this that represented a variety of “stakes” in more and better local housing…and represented knowledge, insights, and experiences that would qualify them to render sound and solid judgments…folks like builders, developers, realtors, local government officials, bankers, appraisers, and even leaders of large organizations for which employee housing has proven problematic in the past. We know folks in each of these categories and, rather than waiting on the establishment of a body to take this on, we decided to ask them what they think. The balance of this piece includes their perspectives.
A local government leader believes strongly that additional housing is required to accommodate current and future employees, retirees, and families. While there are opportunities to develop additional housing in various sectors of the community, the core downtown area and adjacent neighborhoods are priorities. To the extent that such development can take place in any of the three designated Opportunity Zones in the community, there are economic advantages and benefits associated with doing so. Further, a “revolving housing fund,” patterned after local business loan programs, holds promise. Other communities have been successful with these approaches and we can learn from them.
Tax abatements could be a tool used again in our community, but these are time sensitive and require formal approval. Other innovative incentives are certainly options, but politicians are not particularly keen on securing them during an election year. Are other Federal grants available to us? Yes, but smaller communities like ours do not have dedicated staff to research and pursue them. Can we demolish more abandoned homes? Of course, but this is expensive. Even though we have more than 1,000 homes ready to be torn down, we have limited financial resources to do so.
The fact that virtually all housing in the core downtown area is occupied was of concern to a local non-profit executive. Most of this housing was developed by local investors and deploys a market-based rate structure. This squares with housing trends nationally as does an ongoing demand evidenced by regular calls regarding downtown housing vacancies. The executive embraced the strategic view of strengthening and increasing the core of downtown housing to accommodate demand and managing such development prospects to eventually spill into the adjacent neighborhoods.
When talking to developers and home builders, a common theme was this: sale price minus cost equals profit. The cost of a 2×4 here is basically the same as one in Dallas, TX. The cost of adding roads, curbs, sewers, and labor is only going up there as it is here and these costs are essentially the same. Yet other markets offer greater consumer amenities or have business and industry driving population up which pushes home prices up as more people seek to buy the limited supply of homes. Developing 50 building lots here costs the same as it does in Pensacola, FL, but developers here have a much smaller profit potential because the sale price is less.
So, the developer asks: ‘why develop here?’ Beyond this, interest expense is a major concern for developers and builders. Holding lots as they sell for 10+ years is not an option for most. This “velocity of sales,” as it’s called in the business, just takes time. When we ask a regional builder to construct three hundred homes here, their response is: ‘how fast can your market absorb them?’ The honest answer is…we just don’t know, but we sense it’s more than they think. To them, though, that’s not good enough.
Even with potential tax credits to offset possible short appraisals, local builders would think twice about building in less desirable parts of town. Why? Builders simply would invest first in areas that represent less risk. This is why we must continue to look to outside investors who have the capacity to take on this perceived risk.
Local bankers and mortgage brokers have recognized the need to incentivize home ownership by offering types of loans where deposits are minimal. Local police, firefighters, EMTs, professors, and medical professionals all have home loans available to them with no money down. The Indiana Housing and Community Development Authority (IHCDA) offers down payment assistance if you live in the state and qualify for an FHA mortgage. The Veteran’s Administration and the USDA offer zero-down programs. With FHA loans, only 3.5% down is required. Of course, all these loans require favorable credit. But lending money to develop lots is quite another story. These speculative loans are not often a priority for conservative banks.
As difficult as it seems to spark new development, our community DOES have a lot to offer new residents: location with easy access to Indianapolis, improving schools, remarkable trails and emerging river amenities, active private and community foundations, precious cultural attractions, an increasingly vibrant downtown district, high-quality higher education opportunities, many and varied health and medical resources, and no small measure of Hoosier friendliness.
Among those who fully understand the dynamics associated with more and better housing, there is no shortage of ideas. We have both assets and challenges. The establishment of a housing task force/commission represents a mechanism through which all these ideas can be discussed, validated or not, refined, and considered for their potential. From there, then, a strategic plan for housing—something that has never existed in our community—can be developed and implemented.
The needle will get moved.
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