Housing Affordability in Norwalk. A study of alternative methods for creating diverse housing options December 2017

Transcription

1 Housing Affordability in Norwalk A study of alternative methods for creating diverse housing options December 2017

2 *South Norwalk and Downtown Norwalk Census Tracts 440, 436, 437 Current Housing Figures Review of multifamily housing constructed since 2011 Multi-family since 2011 Rent/SF SF Studio $ BR $ BR $2.02 1,227 3BR $1.87 1,638 Rent premiums on new studios + 2BR Multi-family Rents Rent/SF Rent/SF Since 2011 Before 2011 % +/- Studio $3.45 $ % 1BR $2.42 $ % 2BR $2.02 $ % 3BR $1.87 $ % Approximately 4,721 housing units in study area* as of 2016 American Community Survey (-11% vs ACS)

3 Recent projects & rents The Berkeley at Waypointe 1BR 785 SF - $1,825 1BR 897 SF - $1,285 $2.32/SF $2.44/SF 2BR 1,139 SF - $2,165 $1.90/SF 2BR 1,783 SF - $3,445 $1.93/SF SONO Ironworks Studio 524 SF - $1,750 $3.34/SF 1BR 749 SF - $2,400 $3.20/SF

4 Model Assumptions & Complexity What might a typical multi-family development in Norwalk look like? 100 units; 4 stories of housing over 1 story commercial 40% 1BR & Studios; 50% 2BR; 10% 3BR 10,000 SF commercial space 140 parking spaces (1.3/resi. unit; 1/1000 SF commercial) 10% units affordable to earners of 80% of SMI.

5 Model Assumptions & Complexity

6 Expected returns for commercial real estate 20% 15% 12%+ more speculative, one-off projects 10% 5% 9%-12% higher-risk, emerging urban market multi-family 6%-9% (2017 avg. = 7.3%*) low-risk, institutional-grade multi-family 5-6% and below unlikely to attract profit-seeking investment *PWC Real Estate Investor Survey, Q1 2017

7 Base Scenario 10% Affordability What might a typical multi-family development in Norwalk look like? With dozens of input assumptions based on history & regulations: Total Development Costs Gross Income Operating Expenses Net Operating Income (stabilized year) $29.5 million $3.0 million ($1.2 million) $1.8 million Net Present Value = $2.3 million Project IRR = 10.0%

8 Expected returns for commercial real estate 20% 15% 12%+ more speculative, one-off projects Base forecast 10% of units affordable For 80% AMI 10.0% IRR 10% 9%-12% higher-risk, emerging urban market multi-family 6%-9% (2017 avg. = 7.3%*) low-risk, institutional-grade multi-family 5% 5-6% and below unlikely to attract profit-seeking investment *PWC Real Estate Investor Survey, Q1 2017

9 Defining Affordability for Norwalk AFFORDABLE : A household making 80% or less of area median income spends no more than 30% of its pretax income on housing. For Norwalk, area median income is defined as the Connecticut-wide median income (SMI) Local market affordability, based on MSA data, is referred to as area median Income (AMI) For a CT household of State Median Income 80% SMI Max. affordable housing cost Max. affordable monthly rent 3 $82,440 $61,200 $18,360 $1,530 4 $91,600 $68,000 $20,400 $1,700

10 Defining Affordability for Norwalk % of CT SMI Maximum Monthly Affordable Housing Payment Household Size % $481 $550 $619 $688 $743 $798 $853 $910 50% $803 $918 $1,031 $1,146 $1,238 $1,330 $1,421 $1,513 80% $1,190 $1,360 $1,530 $1,700 $1,836 $1,973 $2,108 $2, % $1,603 $1,832 $2,061 $2,290 $2,473 $2,656 $2,840 $3,023

11 Defining Affordability for Norwalk Max. Monthly Affordable Housing Payment % of CT SMI Household Size % $481 $550 $619 $688 $743 50% $803 $918 $1,031 $1,146 $1,238 80% $1,190 $1,360 $1,530 $1,700 $1, % $1,603 $1,832 $2,061 $2,290 $2,473 Compare to standards based on NORWALK AMI: Max. Monthly Affordable Housing Payment % of Norwalk AMI Household Size % $737 $790 $948 $1,053 $1,138 50% $1,228 $1,316 $1,580 $1,755 $1,896 80% $1,965 $2,106 $2,528 $2,808 $3, % $2,456 $2,632 $3,160 $3,510 $3,793 Building for 80% of SMI is actually ~48% of Norwalk AMI. Source: CT Housing Finance Authority & HUD

12 Challenges in affordable housing Longer lease-up time (limited pool of qualified renters) Bureaucratic hoops (income verification) Often additional variable costs Political buy-in (aesthetics and demographics)

13 Rent Assumptions Product Unit Mix Avg. Unit Size (sf) $/SF Rent Monthly Rent Market 1BR/Studio 40% 750 $2.75 $2,063 Market 2BR 50% 1,000 $2.50 $2,500 Market 3BR 10% 1,250 $2.25 $2,813 Controlled 1BR 40% 750 $1.60 $1,200 Controlled 2BR 50% 1,000 $1.50 $1,500 Controlled 3BR 10% 1,250 $1.40 $1,750 Retail (NNN psf/yr) $25.00 Other Income (per unit/yr) $600

14 Test Scenario 20% Affordability at 80% of SMI What might the typical multi-family development in Norwalk look like if required to provide 20% affordability? Total Development Costs Gross Income Operating Expenses Net Operating Income (stabilized year) $29.5 million $2.8 million ($1.1 million) $1.7 million Net Present Value = $1.1 million Project IRR = 8.7%

15 Test Scenario 20% Affordability at 80% of SMI What might the typical multi-family development in Norwalk look like if required to provide 20% affordability? Existing Proposed 10% at 80% SMI 20% at 80% SMI Change Stabilized NOI $1,800,000 $1,700, % NPV $2,320,000 $1,060, % IRR 10.0% 8.7% -1.3%

16 Analysis: Expected Returns 20% 15% 12%+ more speculative, one-off projects Base forecast 10% of units affordable For 80% SMI Proposal forecast 20% of units affordable For 80% SMI 10.0% IRR 8.7% IRR 10% 5% 9%-12% higher-risk, emerging urban market multi-family 6%-9% (2017 avg. = 7.3%*) low-risk, institutional-grade multi-family 5-6% and below unlikely to attract profit-seeking investment

17 Key takeaways Norwalk multifamily development returns today: profitable, but no home runs 20% Affordability requirement drops expected returns into risky range Likely would require subsidy via tax credits (typically easiest & most influential) Opportunities for Town-owned land Inherent risks beyond scope of this model Absent subsidy, Norwalk should examine its housing goals against alternative affordability requirements 10% of units at 50% of SMI is more feasible, but perhaps less impactful Building for 50% of SMI is building for ~33% of Norwalk AMI.

18 Thank you.