Housing Affordability in Norwalk A study of alternative methods for - - PowerPoint PPT Presentation

Housing Affordability in Norwalk

A study of alternative methods for creating diverse housing options

December 2017

Curr rrent Housing Figures

• Review of multifamily housing constructed since 2011
• Approximately 4,721 housing units in study area* as of 2016 American Community Survey (-11% vs. 2012 ACS)

Multi-family since 2011 Rent/SF SF Studio $3.45 536 1BR $2.42 830 2BR $2.02 1,227 3BR $1.87 1,638 Multi-family Rents Rent/SF Rent/SF Since 2011 Before 2011 % +/- Studio $3.45 $3.15 9.6% 1BR $2.42 $2.50

• 3.1%

2BR $2.02 $1.77 14.0% 3BR $1.87 $1.88

• 0.3%

*South Norwalk and Downtown Norwalk Census Tracts – 440, 436, 437

• Rent premiums on new studios + 2BR

Recen ent p proj

• jec

ects & & rents

The Berkeley at Waypointe

1BR – 785 SF - $1,825 $2.32/SF 1BR – 897 SF - $1,285 $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

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.

Model Assumptions & Complexity

Expected d returns for commercial real estate

5% 10% 15% 20%

5-6% and below unlikely to attract profit-seeking investment 6%-9% (2017 avg. = 7.3%*) low-risk, institutional-grade multi-family 9%-12% higher-risk, emerging urban market multi-family 12%+ more speculative, one-off projects

*PWC Real Estate Investor Survey, Q1 2017

Ba Base Sc se Scen enario io – 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 $29.5 million Gross Income $3.0 million Operating Expenses ($1.2 million) Net Operating Income (stabilized year) $1.8 million

Net Present Value = $2.3 million

Project IRR = 10.0%

Expected d returns for commercial real estate

5% 10% 15% 20%

5-6% and below unlikely to attract profit-seeking investment 6%-9% (2017 avg. = 7.3%*) low-risk, institutional-grade multi-family 9%-12% higher-risk, emerging urban market multi-family 12%+ more speculative, one-off projects

*PWC Real Estate Investor Survey, Q1 2017

Base forecast

10% of units affordable For 80% AMI

10.0% IRR

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…

3

State Median Income

$82,440 $18,360

• Max. “affordable” housing cost
• Max. “affordable” monthly rent

$1,530

80% SMI

$61,200 4 $91,600 $20,400 $1,700 $68,000

Defining Affordability for Norwalk

Maximum Monthly Affordable Housing Payment

Household Size

1 2 3 4 5 6 7 8

% of CT SMI

30% $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 $2,244 100% $1,603 $1,832 $2,061 $2,290 $2,473 $2,656 $2,840 $3,023

Defining Affordability for Norwalk

• Max. Monthly Affordable Housing Payment

Household Size

1 2 3 4 5

% of CT SMI

30% $481 $550 $619 $688 $743 50% $803 $918 $1,031 $1,146 $1,238 80% $1,190 $1,360 $1,530 $1,700 $1,836 100% $1,603 $1,832 $2,061 $2,290 $2,473

Compare to standards based on NORWALK AMI:

• Max. Monthly Affordable Housing Payment

Household Size

1 2 3 4 5

% of Norwalk AMI

30% $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 $3,034

100% $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

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)

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

Tes est Sc Scenario io – 20% 20% Affordab ability ty at

t 80% o

• f

f SMI

What might the typical multi-family development in Norwalk look like if required to provide 20% affordability?

Total Development Costs $29.5 million Gross Income $2.8 million Operating Expenses ($1.1 million) Net Operating Income (stabilized year) $1.7 million

Net Present Value = $1.1 million

Project IRR = 8.7%

Tes est Sc Scenario io – 20% 20% Affordab ability ty at

t 80% o

• f

f SMI

What might the typical multi-family development in Norwalk look like if required to provide 20% affordability?

Existing Proposed Change

10% at 80% SMI 20% at 80% SMI

Stabilized NOI $1,800,000 $1,700,000

• 5.6%

NPV $2,320,000 $1,060,000

• 54.3%

IRR 10.0% 8.7%

• 1.3%

Analysis: Expect cted Retu turns

5% 10% 15% 20%

5-6% and below unlikely to attract profit-seeking investment 6%-9% (2017 avg. = 7.3%*) low-risk, institutional-grade multi-family 9%-12% higher-risk, emerging urban market multi-family 12%+ more speculative, one-off projects

Base forecast

10% of units affordable For 80% SMI

10.0% IRR

Proposal forecast

20% of units affordable For 80% SMI

8.7% IRR

Key take keaways

• 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.

Thank y you.