My Downtown Living Article in the Triangle Downtowner

Condos along Dawson Street

Last week, the latest edition of the Triangle Downtowner came out and my article about downtown is there for your reading pleasure. In it, I talk about how residential is really in its infancy in downtown Raleigh and how what we have today came from almost nothing.

In its entire history, downtown Raleigh never had the building stock to support the tens of thousands of urban residents needed for a critical mass. Oakwood, Boylan Heights and other surrounding neighborhoods of single-family homes were where the majority of close residents lived.

“Twenty years ago, Raleigh didn’t have any residential real estate in the city center” says Ann-Cabell Baum Andersen, owner-broker at The Glenwood Agency. “We’re just beginning the process of building out core but you can already feel the electricity on the streets.”

*Downtown Living, Vol. 9 Issue 6 Triangle Downtowner

Grab a paper copy of the latest at a kiosk around downtown Raleigh or read it on Issuu, here.

Comments

It was a terrific article and showed a good history of downtown living and did a great job showing the great things about living downtown. Well done.

My only regret is that the article kinda sugar-coated things and never mentioned any negatives. The biggest thing lacking in downtown living right now, IMO, is the affordability factor. Prices are rising faster than worker salaries. (The largest employer in dt Raleigh is state government, but I know hardly any state employees who make enough to live there!)
If you don’t qualify for subsidized “low income” housing, it’s extremely difficult to find a half-way decent apartment in or near downtown that’s less than a grand a month. The last time I had to move and was trying to find a way to stay downtown was the most stressful 4 weeks of my life, searching for a place. (Worse than college finals even.)
It’s a major downside to downtown living that Raleigh officials and business leaders seems to turn a blind eye at.

How would you propose to create such housing stock? The only way I know of to make houses ‘affordable’ (whatever that might mean) is supply and demand. As long as the ‘overpriced’ housing keeps filling up, the prices aren’t going down anytime soon. High rents are actually a good thing because it means downtown is a desirable place to live, though obviously the negative effect is that the downtown area is only home to wealthy people. I can’t see rents going anywhere but up as long as the demand stays high.

There are ways to separte the value of the land from buildings and slow down the price escalation of the land by putting it in a land trust. The land would then be rented to the owner of any improvements on the land. This could be particularly effective in lots owned by the state which could be strategically sold or held for development. The same could go for the city or non-profit agencies.

Then would you only rent to people in a certain income range? I’m assuming the goal would be to create mixed-income neighborhoods?

Making houses (housing) “affordable” usually means requiring the owners of said project (if the city is not 100% owner of it, in which case the whole project would be considered public housing), to allot a certain amount of units in their project to be set aside for rent at a lower rate usually correlating to the same percentage it is of the avg. median income (per household size), which usually sets the going “market rate” for the local area. Keep in mind that alot of DT rents are higher than the average “market rate”, so the rents would be substantially lower.

The requirement usually comes after the city has agreed (through city housing funds, grants, etc. or federal dollars in the form of CDBG funds or HUD NSP money) to “give” a certain project a monetary injection.

And just like RaleighRob mentioned, it doesn’t have to, but it could include “low income” housing, but, and the city would probably be the one setting the limitations or requirements (although HUD has their own), it could only mean that a developer set aside at a minimum 10% of their housing at below market rate, even if it is 120% AMI.

Arlington, VA requires builders to do this on all projects accepting public money (usually after the fact) and, if I’m not mistaken, even allows them wiggle room on other requirements like height restrictions if they allow for affordable housing. I thought at some point, they also “required” affordable housing, and if you were non-compliant, you paid a “penalty” which went into the pot of money that became available to developers that wanted to include affordable housing, on top of other funding available through other methods.

I know local developer/builder NRP Group usually goes after projects like this; in other cities at least. A project they did in San Antonio, Cevallos Lofts, had a quarter of their 252 units set aside for 50% AMI and 7 units were designated NSP units (120% AMI). Out of 37 million of their total costs, 6 million came to them as tax credits or grants. They were 90% leased within weeks of opening, so people had no aversion to living in a mixed-income building.

Ok, but do they means test the renters for the ‘average’ rate apartments? I’m assuming they do, or else the whole project would be meaningless, since rich folks could just get discounted apartments.

I like the idea of creating mixed-income apartments. Clustering people into areas based on income seems like a bad idea, but I think the developers are probably all trying to get in on the ‘luxury’ market (most of them market their apartments that way) and when that’s filled up, they might move down the income ladder. There are so few downtown apartments (for a city of our population) that medium and lower income housing probably isn’t much of a priority for developers yet.

Steve, to answer your question, typically there would be a restriction on who could live in the that building or certain units. Like you pointed out, that would make the land trust meaningless for the purpose of affordable housing. I prefer a mix instead of concentrating. Given options and some minimum requirements is also a good way to go, as Nehemiah mentioned.

Historically rent-controlled apartments, regardless of the methods used to keep them controlled, result in a disastrous living situation for residents. Supply and demand are the great forces behind economic growth and progress. When you have rent controlled apartments, landlords will be reluctant to build them because it will mean a lower return on investment. If they’re forced to build them, they will be less inclined to use their resources for maintenance and upkeep. Buildings of this nature almost always become rundown and unsightly, which is not something we want in a growing city center trying to attract people to its core. Beyond that, as you can see in many other cities that have attempted to make them work, the building designs tend to be uninspired and very reminiscent of communist Russia, China, etc. In other words, incredibly ugly.

Raleigh is not a big enough city yet to demand ridiculously high rents. As far as cities go, it’s center is an extremely affordable place to live. We talk about wanting a vibrant, cosmopolitan city, but those don’t exist unless land values are high enough and there’s an incentive for developers to build here. I for one don’t want to hear anything proposed that would reduce that incentive. We have enough things slowing our growth now (our city council, mainly), we don’t need anything else.

The rent-control might be a disincentive for some to build, but I believe that some of these “requirements” are meant to be phased out for the long term return on investment for the builder to pan out. However, since the economy was preventing development from happening, it probably is also the only way to make some projects turn dirt.

One thing is for sure, even if there is some minimal requirement, it is alot better than having public housing; which usually blights the area and adds nothing to the tax base in the form of property taxes.

You also talk about supply and demand; if the land and build prices are constantly outpacing the demand, then perhaps the only way to get a project moving dirt is to provide these incentives (in turn, requiring “affordable” units), even if it is for a short amount of time, the property taxes paid by the improvement on the land (even if there are tax credits involved), the tax base it provides by putting feet on the street and dollars into the neighborhood economy is all well worth it.

Also, just for clarification; rent-control does not only mean Section 8.
The AMI for the Raleigh-Cary MSA, for 1 person is ~$52,350, making 80% of AMI $42,600, and 120% of AMI $63,900.
Anything over 120% AMI is considered high-income, and 120% is the minimum requirement for any HUD money through the Neighborhood Stabilization Program.
Fair market rent (40th percentile) in the area for a 1 bedroom is $741, so if the formula used is 30% of AMI (per household) should go towards rent, then someone at 120% AMI “shouldn’t” be able to afford more than $1600 for a 1 bedroom, making a project that includes such units, “high-income” housing.

I just gave a couple of examples of how some places handle their affordable housing… I’m not suggesting any one way is right.
If a developer comes in and builds and is asking way over $1600/mo for a one bedroom and leases out in a few days… awesome. But if the demand is not there for every single building to be a luxury one, and the developer is a few dollars short of turning dirt and making the numbers work, they should have options and the city would benefit from keeping rents from running out control and from the development moving along, especially in areas where it matters most.

I think a plausible way to lower the rents downtown would be to change the city’s tax system. Introducing a municipal income tax and then significantly reducing the property tax rate would completely change the dynamics of demand in the city.

Under that system, a business would be taxed nearly the same amount no matter where it was in the city. Since the city’s taxes would be drawn more from where the actual money is, and less from where the high property values are, there would be a far greater incentive to locate downtown.

How would that impact apartments? Wouldn’t that put a huge burden on some businesses and basically eliminate the tax burden on say renters? Would you tax rent payment as a ‘sale’? It’s an intriguing idea but I’m not sure how it would work.

I also think supply and demand is the best tool, at least in the short term. I think one of the big price drivers in expensive cities is that they lack space, which obviously isn’t a problem in Raleigh. I think as long as the apartments keep getting filled up, it probably doesn’t make sense for anyone involved to look at rent controls. The only exception to this might be in East/Southeast Raleigh where I think there’s going to be a real estate boom in the next 5 years. The established residents will see their rents or taxes go up as real estate values improve and I’m not 100% opposed to grandfathering them into some kind of fixed rental, like they do in New York.

Renters would still pay taxes in the form of income taxes. Rent itself would be cheaper though. For most of the city, the amount it would be cheaper would be offset by the income tax. Only a few places would feel a difference and downtown is one of them. The suburbs are so vast relative to downtown (420,000 vs 30,000) that the increase they feel would be almost imperceptible.

If you’re talking about burden… Property taxes place a disproportionate burden on businesses downtown, which end up subsidizing the rest of the city. Shifting most of that to income taxes would spread that out throughout the whole city. It would put a stop to businesses moving to the edge of town–requiring more utilities to be built out to them, subsidized by the ones downtown.

More than anything else though this would be a boon to small and local businesses downtown, and it would significantly increase our chances of getting grocery stores and discount retailers to set up shop there.

Sorry I totally misread that as ‘sales tax’ for some reason.

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