HOUSING MARKET STUDY UPDATE

HOUSING MARKET STUDY UPDATE CITY OF LAWRENCE June 4, 2018 Presented by Heidi Aggeler, Managing Director Jen Garner, Senior Consultant 1999 Broadway, Suite 2200 Denver, Colorado 80202 (303) 321-2547 aggeler@bbcresearch.com

Findings recap AGENDA Guiding principles and measures of success Solutions Fund allocation 2

STUDY ELEMENTS Assessment of Lawrence Housing Needs Housing availability Housing affordability Unmet needs Assessment of Community Culture & Perceptions of Needs Resident surveys Employer survey Landlord survey Stakeholder focus groups Recommendations and Allocation Plan 3

Socioeconomic analysis Housing market analysis FINDINGS RECAP Housing needs analysis Community engagement 4

CURRENT HOUSING COSTS: LAWRENCE MEDIAN MONTHLY RENT = $850 Higher for students than non-student renter or seniors MEDIAN MONTHLY MORTGAGE (+INSURANCE/TAXES) All homeowners = $1,500 Seniors = $865 Median home price = $240,000 to $260,000 depending on source 5

CURRENT HOUSING COSTS: REGION GROSS RENT (CENSUS, 2016) MEDIAN LIST PRICE (ZILLOW, Q1 2018) Lawrence = $850 Topeka = $724 KCMO = $826 Manhattan = $882 Lawrence = $260,000 Topeka = $108,950 KCMO = $180,000 Manhattan = $215,000 6

HOMEOWNERSHIP AFFORDABILITY TODAY Households can afford to buy more today due to interest rate declines. However, a higher priced home means a larger downpayment. Household Income Affordably Priced Home $36,000 (50% MFI) $57,000 (80% MFI) $71,000 (100% MFI) $86,000 (120% MFI) 2001 $82,000 $150,000 $196,000 $240,000 2018 $110,000 $201,000 $262,000 $324,000 2019 $100,000 $180,000 $240,000 $290,000 Note: Interest rates assumed = 8.0% in 2001, 4.625% in 2018. 2019 assumes interest rate of 5.5%. Adjusted for changes in property taxes. 7

HOMEOWNERSHIP AFFORDABILITY TODAY Current choices for ownership by type and price (2018) HUD Income Category Income Maximum Affordable Home Price Maximum No. of Homes Listed/ Sold % Single Family Detached % Condos % Townhomes % Rural Very low income $35,600 $110,000 38 31% 37% 32% 0% Low income $57,000 $201,000 214 70% 0% 27% 3% Median income $71,250 $262,000 88 89% 1% 8% 2% Moderate income $85,500 $324,000 86 77% 0% 16% 7% High income $106,875 $416,000 78 92% 3% 4% 1% Highest income $107,000+ $416,000+ 95 82% 3% 0% 15% 8

HOMEOWNERSHIP AFFORDABILITY TODAY Cash transactions = 16% of sales in 2018 v. 20-30% nationally Homes for sale Cash Total Sold % Sold for Cash Less than $110,000 6 16 38% $110,000 - $201,000 12 71 17% $201,000 - $262,000 2 20 10% $262,000 - $324,000 0 19 0% $324,000+ 5 26 35% Condo 2 7 29% Single Family 19 117 16% Townhome 4 24 17% Rural 0 4 0% All Homes 25 152 16% 9

HOMEOWNERSHIP AFFORDABILITY TODAY Owner gaps: 72% of renters earn less than 80% of AMI. Units affordable: All homes = 41% Condos = 70% Townhomes = 71% Single family homes = 34% Projected to be 30% of inventory by 2028 Estimated 2,000 to 3,000 renters who earn $35,000-$75,000, are employed and want to buy v. 250 affordable units (sold and listed to date in 2018) Future affordability: By 2028, median single family home for sale will cost $375,000; townhomes $240,000; condos $128,000 10

WANT-TO-BE OWNERS AND WANT-TO MOVERS Want to own: 50% of non-student renters; 11% of student renters Incomes of $35,000 to $75,000, affording homes between $110,000 and $262,000 Aged 35-44, employed full (61%) or part time (10%), do not have children, and have small household sizes (2.2 persons/hh) Want to move Young adults & students v. Want to stay 45-54 year olds Families w/ children 11

PAST AND CURRENT RENTAL GAPS Renter Incomes Maximum Rent and Utilities Monthly Payment Renter Households 2000 2014 Rental Units % of Rental Units Gap Renter Households Rental Units % of Rental Units Gap Renter Households Change, 2000 to 2014 Rental Units Gap Less than $5,000 $125 1,757 351 0% $5,000-$9,999 $250 2,021 1,188 7% $10,000-$14,999 $375 2,012 3,035 18% $15,000-$19,999 $500 1,869 5,122 31% $20,000-$24,999 $625 1,853 3,038 18% $25,000-$34,999 $875 2,762 2,910 17% $35,000-$49,999 $1,250 2,482 847 5% $50,000-$74,999 $1,875 1,591 97 1% $75,000-$99,999 $2,500 454 13 0% $100,000+ $2,500+ 222 42 0% (1,407) (834) 1,023 3,253 1,185 148 (1,636) (1,494) (441) (180) 1,321-0% (1,321) (436) (351) 86 1,155 359 2% (796) (866) (829) 38 2,022 97 0% (1,926) 10 (2,938) (2,948) 1,944 715 4% (1,230) 75 (4,407) (4,482) 1,307 1,995 10% 688 (546) (1,044) (498) 3,675 6,809 35% 3,134 913 3,900 2,987 2,932 5,881 30% 2,949 450 5,034 4,584 3,138 2,552 13% (586) 1,547 2,455 908 1,443 692 4% (751) 989 679 (310) 1,054 609 3% (445) 832 567 (265) 17,023 16,640 100% 19,991 19,707 100% 4,653 4,788 12

RENTAL GAPS: WHY DID THE GAP INCREASE? Increase is largely due to a dramatic shift in the number of units priced at less than $500/mo (affordable to renters earning < $20,000/year Impact is partially offset by a decline in low income renters Renters earning < $20,000 $20,000 to $25,000 $25,000 to $35,000 % units 56% 18% 17% % renters 6% 10% 35% 13

WHO NEEDS RENTALS < $500/MO? Beneficiaries of public housing earn about $15,000/year on average. These residents can afford to pay $500/mo in rent and utilities 70% are female heads of household; 38% are seniors; 30% have a disability; 25% are single mothers Subsidized housing provides the majority of the units affordable to households earning < $20,000/year. Without subsidized housing, the rental gap would be 6,600 (v. 5,300) units 14

RECAP OF NEEDS FROM SURVEY AND FOCUS GROUPS Extremely low income residents are almost twice as likely as higher income residents to rate their housing condition as fair or poor (29% v. 16%). Nearly half receive financial support from family/friends to pay for housing costs 1 in 4 residents with disabilities live in housing that does not meet their accessibility needs. 1 in 3 are extremely low income. More than 1 in 10 live with family or friends due to a lack of affordable housing to rent. Affordable, accessible housing is extremely difficult to find Seniors who rent applied for public assistance (29%), avoided medical treatment (29%), cut back on medication (24%), or got food from a food bank (24%), in order to afford housing costs. About 1 in 10 seniors overall worry they won t be able to stay in their home due to financial issues, health issues, or rent increases 1 in 3 students receive financial support from family or others to pay housing costs and 1 in 3 sought additional employment, 13% used other debt/credit cards, 10% avoided medical treatment 15

RECAP OF NEEDS FROM SURVEY AND FOCUS GROUPS Displacement vulnerabilities. Families with children are more likely to experience displacement due to rent/housing cost increases or high utility costs Housing+supportive services are needed for persons with mental illnesses. Property owners have no incentive to rent to populations perceived as hard to house. Affordable, accessible housing is extremely difficult to find. Many seniors are over housed in less than ideal homes. Accessibility requirements in the Fair Housing Act are inadequate to meet needs of persons with disabilities Transitional housing is needed for domestic violence survivors and youth aging out of foster care 16

RECAP OF NEEDS FROM SURVEY AND FOCUS GROUPS Employer perceptions. It is difficult for employees to find homes to buy. Housing has been a recruiting challenge. Landlord perceptions. Vacant units fill quickly yet many feel that the market is being overbuilt (small landlords may feel threatened by larger scale builds) 33% increased rents in 2017; 36% plan 2018 increases, Median 2018 increase expected to be 1% - 5% Many would like to see 3-unrelated rule increased to 4-unrelated 17

SUMMARY FINDINGS Growth 2010 to 2020 likely to replicate 1990 to 2000 in numbers (14,000 new residents) Most predictable future demographic change is aging of young seniors and consistency of middle age families. Uncertainly in out-migration of young adults Rising prices have been most burdensome on renters, including low and moderate income renters who want to buy. Students have greater ability to adjust to rising rents due to family help and a market that is tailored to their needs. However, lower income students not choosing to live in luxury student housing are competing with non-students for affordable rentals Owners have seen incomes rise faster than renters. Number of low income renters have declined, suggesting that renters have experienced slight income increases or left the city Renters who want to buy are younger workers without families, needing homes priced between $100,000 and $250,000. Condos and townhomes offer affordable options but are less likely to offer long term equity gains (condo and townhome market functioning like a land trust) 18

SUMMARY FINDINGS Ownership market is more strongly influenced by cash purchases today than in 2001. 2018 has lower inventory and homes spend far fewer days on the market before being sold An estimated 2,000 to 3,000 renters would like to buy but have few units to choose from (250 units), especially considering units that are bought with cash (non-cash affordable = just 100 units) Rental market is affected by parental contribution to rents, frequent moves by students, macro economic growth Private market does a good job responding to students demands; is increasingly attractive to cash buyers and potential investors; and offers reasonable starter home options, although these are location-specific Market is weak in emerging trend products that accommodate special needs residents, younger workers, downsizers, larger families 19

THE RIGHT SUPPLY What is being built in Lawrence? Permits issued through April 2018: 0 multifamily, 4 duplexes, 46 single family Permits issued, 2013 through April 2018: 327 single family homes and duplexes; 1,102 multifamily units (multifamily units built over three years, averaging 360 units/year) Is naturally occurring affordable housing (NOAH) affordable to non-students? The vast majority of apartments < $500/mo listed through Craigslist between February and May are targeted to students (based on room rentals and advertised amenities). An estimated 15% is for non-students How is the rental market likely to shift? Rental increases in 2018 should average 3.5% Erosion of units in the $500-$625 range will continue. 2000-2016 loss rate averaged 5% of units per year 20

THE RIGHT SUPPLY How is the rental market likely to shift? (continued) Future units expected to be priced between $625 and $1,250 range City needs approximately 1,200 rental units priced < $500/mo to accommodate growth in low income renters by 2020 and reduce the rental gap by 15% Policymakers should not worry that adding affordable rentals will negatively affect private sector supply; vacancies are low enough to comfortable absorb new supply of affordable rentals What about ownership? Market is providing affordable condos and townhomes yet may be more suitable for investors, students. Demand for non-student oriented ownership products for smaller households, with community aspect, and accessibility features (small lot, patio homes) 21

NEEDS IN NUMBERS No. of renters who cannot afford their current rentals, all earning < $20,000 = 5,200 households These renters are seniors (2,000) many with disabilities (1,500) and single mothers (1,300) No. of families experiencing homelessness, at-risk of homelessness < 300 No. of students who are struggling with housing costs > 1,000 No. of persons with disabilities living with friends and family = 1,300 No. of households with disabilities with accessibility needs = 500 No. of renters who want to buy and are candidates for ownership = 3,000 22

RESIDENT SUPPORT FOR HOUSING TYPES Most needed housing Appropriate locations Receptive neighborhoods Appetite for density 23

TOP 3 MOST IMPORTANT HOUSING TYPES THAT SHOULD BE PRESENT IN LAWRENCE, BY RESPONDENT S ZIP CODE 66044 1) Housing affordable to residents on a fixed income 2) Housing affordable to residents working in public service 3) Starter homes for first-time homebuyers(tie) 3) Housing for middle class families (tie) 66046 1) Housing affordable to residents working in public service 2) Housing affordable to residents on a fixed income 3) Housing for low and modest income families 66047 1) Housing affordable to residents on a fixed income 2) Housing affordable to residents working in retail jobs 3) Starter homes for first-time homebuyers 66049 1) Housing affordable to residents working in retail jobs 2) Housing for low and modest income families 3) Housing for middle class families (tie) 3) Housing affordable to residents on a fixed income (tie) 24

APPROPRIATE LOCATIONS FOR HOUSING TYPES Housing Type Appropriate in my neighborhood Appropriate in other Lawrence neighborhood Not appropriate in Lawrence Don t know Medium single family homes (1,500-3,000 sqft) Townhomes with same setback, height as neighboring homes Duplex homes on same lot size as single family homes Small single family homes (<1,500 sq ft) Medium lots (6,000-10,000 sqft) ADU/granny flat Small lots (<5,000 sqft) Tiny homes (<500 sqft) Apartment buildings with 5+ stories by bus/major roads Small apartment building with <10 units Large single family homes (5,000 sqft+) Apartment buildings up to 5 stories by bus/major roads Large lots (10,000+ sq ft) 63% 34% 1% 2% 53% 33% 11% 3% 51% 39% 9% 2% 51% 40% 5% 4% 43% 29% 24% 4% 42% 39% 13% 6% 41% 40% 7% 12% 35% 44% 17% 5% 32% 52% 15% 2% 31% 49% 15% 5% 26% 55% 17% 3% 23% 63% 11% 3% 12% 41% 44% 4% 25

APPROPRIATE HOUSING IN MY NEIGHBORHOOD TOP 5 RESPONSES 66044 1) Townhomes with same setback, height as neighboring homes 2) Duplex homes on same lot size as single family homes 3) ADU/granny flat 4) Medium single family homes (1,500-3,000 sqft) 5) Small lots (<5,000 sqft) 66046 1) Medium single family homes (1,500-3,000 sqft) 2) Small single family homes (<1,500 sqft) 3) Medium lots (6,000-10,000 sqft) 4) Townhomes with same setback, height a neighboring homes 5) Apartment buildings with 5+ stories by bus/major roads 26

APPROPRIATE HOUSING IN MY NEIGHBORHOOD TOP 5 RESPONSES 66047 1) Duplex homes on same lot size as single family homes 2) Townhomes with same setback, height as neighboring homes 3) Small lots (<5,000 sqft) 4) Medium lots (6,000-10,000 sqft) 5) Medium single family homes (1,500-3,000 sqft) 66049 1) Medium single family homes (1,500-3,000 sqft) 2) Large single family homes (5,000 sqft+) 3) Townhomes with same setback, height as neighboring homes 4) Medium lots (6,000-10,000 sqft) 5) Small lots (<5,000 sqft) 27

APPETITE FOR DENSITY, BY ZIP CODE 12% 58% 50% 14% 86% 79% 54% 26% 30% 86% 63% 42% 36% 35% 51% Single Family Home Size Large single family homes (5,000 sqft+) Medium single family homes (1,500-3,000 sqft) Small single family homes (<1,500 sqft) 66044 66046 66047 66049 All residents 11% 16% 11% 37% 45% 56% 62% 20% 45% 63% 60% 48% 60% 57% 73% 12% 9% 43% 48% 41% 37% 53% 50% 35% 51% Lot Flexibility Large lots (10,000 sqft+) Medium lots (6,000-10,000 sqft) Small lots (<5,000 sqft) Townhomes with same setback, height as neighboring homes Duplex homes on same lot size as single family homes 66044 66046 66047 66049 All residents % responding yes, the housing type is appropriate in their neighborhood 28

APPETITE FOR DENSITY, BY ZIP CODE Apartment Buildings 60% 14% 14% 29% 32% 33% 25% 34% 46% 20% 21% 23% 21% 26% 31% 66044 66046 66047 66049 All residents Apartment buildings with 5+ stories by bus/major roads Apartment buildings up to 5 stories by bus/major roads Small apartment building with <10 units Emerging Products 59% 21% 31% 32% 42% 40% 24% 24% 31% 35% 66044 66046 66047 66049 All residents ADU/granny flat Tiny homes (<500 sqft) % responding yes, the housing type is appropriate in their neighborhood 29

GUIDING PRINCIPLES AND SUCCESS MEASURES 30

GUIDING PRINCIPLES FOR ADDRESSING NEEDS 1. The public sector has a role in addressing housing needs. The City of Lawrence desires its role to be reasonable and broad. The city s role should focus on facilitating new affordable development, incentivizing and partnering with the private sector, enacting reasonable regulations, and evaluating progress 2. There is no silver bullet. The housing market is dynamic and everchanging. Housing needs will always exist in some form. Housing programs and policies should allow flexibility adjust to unmet demand as the city changes 3. We can ask the private sector to help. Public sector investments and entitlements provide value to the private sector. It is appropriate to ask for affordable housing contributions in return 4. Housing investments should be focused on the areas where market failure exists 31

SUCCESS MEASURES What does success look like, from a housing perspective? Supply measures: Residents with disabilities can find housing that meets their accessibility needs in more than ½ of Lawrence neighborhoods Residents who have decent credit and are committed to owning a home in Lawrence can become homeowners Low income ($25,000-$35,000) renters can buy an attached home or land trust product Moderate income ($35,000-$57,000) renters can buy a detached single family home Renters with eviction histories can find rental units Renters with criminal histories can find rental units People who work in Lawrence can also live in Lawrence 32

SUCCESS MEASURES What does success look like, from a housing perspective? Economic measures: Income diversity is retained Housing costs are not a burden, allowing residents to invest in the local economy Residents can sell their homes and make a reasonable return (consistent with national or state average) Residents can sell their homes and make a healthy profit (consistent with high-demand college towns like Boulder, CO) Preservation measures: Homeowners won t need to leave their homes due to rising property taxes Renters won t need to leave their neighborhoods due to rising rents 33

SUCCESS MEASURES What does success look like, from a housing perspective? Condition measures: Housing and neighborhoods look maintained and costs of maintenance are not overly burdensome Residents can age in place by making low cost modifications to their homes Dispersion measures: Larger families can find affordable housing in more than ½ of Lawrence neighborhoods Students can live in all neighborhoods Student housing is mostly found in neighborhoods near the university 34

SOLUTIONS 35

SOLUTIONS EVALUATION WORKSHEET Solutions evaluation worksheet shows: Estimate of needs (from Needs slide) Housing types or programs to address needs Measure of effort Area for notes 36

BIG PICTURE: SHOULD THE CITY SET GOALS? Examples of how other cities set goals, determine outputs and outcomes: Goals: Subset, outcomes: No. of affordable units (Austin) % of housing stock that is affordable (Boulder, low and middle income goals) % of housing stock that is accessible Subset, outputs: Housing types to be built, target populations served, location of housing, units rehabilitated Reduction in homeless and renters on publicly subsidized wait lists Increase in options for workers to buy homes Increase in accessible and visitable units Increase in units affordable to families 37

NEED: AFFORDABLE RENTAL HOUSING Solution: Stabilize and reduce the rental gap Solution: Allow for emerging technology and products Set an affordable rental goal and monitor the rental gaps Build affordable rental developments, a mix of family housing (30%) and accessible housing (40%) Consider expanding tenant based rental assistance Examine compatibility of building code with emerging technology that reduces cost of building (3D printed homes, partial pre-fab walls, etc.) Grandfather historic multifamily units in single family homes that meet health and safety standards. Potential for coop housing? Partner with private landlords to maintain NOAH (e.g., provide incentives for landlords to participate in voucher programs through damage insurance fund, case/property management) 38

NEED: ACCESSIBLE HOUSING Solution: Add accessibility Build new visitable and accessible communities Consider visitability ordinance that provides incentives (density bonuses) for accessible housing Partner with landlords to maintain long term accessibility. Explore emerging technologies (KU?) Continue home rehabilitation programs; plan to increase in future 39

NEED: AFFORDABLE OWNERSHIP Solution: Facilitate development of affordable, attached homes to buy 1) Make land available for attached housing (e.g., public parking lot repurposing) 2) Understand KU s landholdings and potential to repurpose into NOAH 3) Ensure regulatory barriers are minimal (lot sizes, minimum densities, duplex/row homes allowed in residential zones) 4) Require affordable products of developers/landowners as part of annexations 5) Continue downpayment assistance, pair with new products 40

NEED: SHARED HOUSING COMMUNITIES Solution: Create shared housing Land trust model: The Lowry neighborhood in Denver repurposed land and soldier barracks used at an Air Force training facility into land trust homes. The land is owned by the trust and rented to buyers. Buyers are allowed to recoup the value of their improvements and a modest return upon sale of the unit Cooperative housing: Explore nonprofit acquisition models (purchase of aging apartment complexes, old homes as affordable rentals) and newly built subdivisions (Boulder Housing Cooperative, Wild Sage) 41

FUND ALLOCATION DISCUSSION 42

THE SUCCESS DASHBOARD! Short term Success Measure 1. Measure 2. Measure 3. Long term Success Measure 1. Measure 2. Measure 3. Addressing Other Obstacles 43