Market strains Habitat: Multifamily projects can take longer to fund
Source: Puget Sound Business Journal (Seattle) - July 1, 2005
by Jeanne Lang Jones
High housing costs in the Puget Sound area are forcing a major strategic change at Habitat for Humanity, the national nonprofit known for helping low-income families build and own their own homes.
Faced with unprecedented difficulty in acquiring land for free-standing houses, Habitat is increasingly turning to multifamily structures such as condominiums and townhouses to introduce financially strapped families to the American Dream.
The key drivers of the strategic shift are prices and competition. Habitat for Humanity affiliates for Seattle/South King County, East King County and Kitsap County say they are finding it nearly impossible to compete against commercial home builders for developable lots.
"We can hardly find suitable property in the price range we can afford," said Lori Oberlander, executive director for Habitat in Kitsap County. "We make offers, but we are constantly being outbid."
Dorothy Bullitt, executive director of the Seattle/South King County Habitat affiliate, echoes that complaint: "Our biggest bottleneck is the acquisition of land." Large developers, she said, can afford to pay much more for land because they can charge home buyers more.
Because land costs so much and prices continue rising, Habitat executives are finding they must do more with the property they are able to buy in the Puget Sound area. So rather than continuing to build single-family homes with their own separate lots, local Habitat affiliates increasingly are building townhomes, duplexes and even six-plexes to house their families.
Typically, Habitat affiliates try to keep home prices low enough that families' housing costs never exceed 30 percent of their income, said Tom Granger, executive director of Habitat for Humanity of East King County. Financing is provided through zero-interest mortgages with 20-year terms.
In Redmond, Habitat is selling its three-bedroom townhouses for $105,000 apiece. A family could expect to pay about $437 in monthly mortgage payments there.
That's well below the Eastside's average monthly rent of $953, as reported by Dupre+Scott Apartment Advisors for the month of April.
In Kitsap, Habitat is building its first-ever multifamily project, New Hope, on 2.7 acres it acquired in 2003. A combination of 18 attached townhouses, duplexes and triplexes is planned around a central community garden and playground. Oberlander said Kitsap Habitat was fortunate in securing the 2-acre parcel two years ago for $172,000. A similar parcel the group is now "eyeballing" is more than double that price at $350,000.
With the cost of acquiring and developing the New Hope site at $1.6 million, the city of Bremerton is kicking in about $600,000 to help fund utilities and streets. Oberlander estimates it will take another million dollars to build homes and is currently looking for sponsors.
Meanwhile, almost all of the 88 lots in the Seattle/South County Habitat's pipeline will be multifamily developments, Bullitt said. "We are trending to multifamily because of the price and scarcity of land," she said.
It certainly helps that the Seattle affiliate has strong support from the Seattle Housing Authority, Bullitt said. Habitat is purchasing affordable lots in three federally funded Hope Six mixed-income projects at High Point in West Seattle, Rainier Vista in Seattle's Rainier Valley and Greenbridge in the White Center neighborhood.
Seattle isn't the only city where this dynamic is at work. Hot residential markets are forcing similar changes in cities such as San Francisco and Denver.
According to Bullitt, Habitat families are particularly well-suited to mixed-income developments because they often have made the transition from homelessness or emergency housing to becoming stable renters and first-time homeowners.
But with federal funding for some low-income housing projects declining, Bullitt is mulling a new tactic. She hopes to persuade some condominium developers to allow Habitat to purchase their less desirable condo shells.
That might be difficult as some municipalities either don't allow sales of individual shells or require a separate permit, said Leslie Williams, president of Williams Marketing Inc. in Seattle. Then, too, there are potential insurance and liability issues with construction, particularly with volunteer workers.
But, said Williams, "I don't think any of these obstacles couldn't be overcome." Partnership in a condo conversion project might be an easier approach, she added.
The shift to multifamily properties doesn't come without challenges for Habitat families, however. For instance, many Habitat families are new U.S. immigrants -- about one in five on the Eastside -- and they're unaccustomed to the homeowners' associations that govern many multifamily dwellings.
"We have fairly new immigrant families working with families that have been here for generations," said Diane Gallegos, associate director of Habitat for Humanity of Seattle/South King County. "For a family from a country where women do not take a leadership role, it may be the first time the family sees women in the leadership role."
On the Eastside, Habitat depends heavily on support from ARCH, a coalition formed by 11 cities to support affordable housing. Much of the property obtained from ARCH (A Regional Coalition for Housing) is zoned for multifamily development. As a result, much of the Eastside Habitat affiliate's housing since 1996 has been in multifamily projects, Granger said.
Even so, because land costs are so high, the Eastside Habitat at times has had to keep the land in a separate land trust and sell housing units as condominiums. Granger estimates the houses would cost twice as much had they been sold along with their lots.
Soaring property prices have also cut back on donated properties because owners prefer an outright sale to a tax deduction.
The multifamily emphasis erects other hurdles as well, including longer financing and construction timelines and, in some cases, higher construction fees.
"It has slowed down our construction because we must wait for the funding to be in place," Granger said. "It takes longer to build, but at the end there are more houses available."
For instance, a recent multifamily project on Avondale Road in Redmond required Habitat to first raise nearly $600,000 in funding for seven homes, a far more challenging task than finding a single corporate sponsor for an $80,000 house, Granger said.
More complicated multifamily construction also requires more training for Habitat's unskilled volunteer workers. Moreover, it forces Habitat to rely more heavily on paid, skilled construction workers, although some donate or discount their labor.
Adding a third story, while it creates more space on a small footprint, requires sprinkler systems that can add $10,000 to the cost of a home. The difficulty of construction may also preclude participation by some volunteer groups.
"Our future depends on being creative, seizing opportunities and not having a rigid notion of how a Habitat house should look," Bullitt said.
Contact: jlj@bizjournals.com • 206-447-8505x118
by Jeanne Lang Jones
High housing costs in the Puget Sound area are forcing a major strategic change at Habitat for Humanity, the national nonprofit known for helping low-income families build and own their own homes.
Faced with unprecedented difficulty in acquiring land for free-standing houses, Habitat is increasingly turning to multifamily structures such as condominiums and townhouses to introduce financially strapped families to the American Dream.
The key drivers of the strategic shift are prices and competition. Habitat for Humanity affiliates for Seattle/South King County, East King County and Kitsap County say they are finding it nearly impossible to compete against commercial home builders for developable lots.
"We can hardly find suitable property in the price range we can afford," said Lori Oberlander, executive director for Habitat in Kitsap County. "We make offers, but we are constantly being outbid."
Dorothy Bullitt, executive director of the Seattle/South King County Habitat affiliate, echoes that complaint: "Our biggest bottleneck is the acquisition of land." Large developers, she said, can afford to pay much more for land because they can charge home buyers more.
Because land costs so much and prices continue rising, Habitat executives are finding they must do more with the property they are able to buy in the Puget Sound area. So rather than continuing to build single-family homes with their own separate lots, local Habitat affiliates increasingly are building townhomes, duplexes and even six-plexes to house their families.
Typically, Habitat affiliates try to keep home prices low enough that families' housing costs never exceed 30 percent of their income, said Tom Granger, executive director of Habitat for Humanity of East King County. Financing is provided through zero-interest mortgages with 20-year terms.
In Redmond, Habitat is selling its three-bedroom townhouses for $105,000 apiece. A family could expect to pay about $437 in monthly mortgage payments there.
That's well below the Eastside's average monthly rent of $953, as reported by Dupre+Scott Apartment Advisors for the month of April.
In Kitsap, Habitat is building its first-ever multifamily project, New Hope, on 2.7 acres it acquired in 2003. A combination of 18 attached townhouses, duplexes and triplexes is planned around a central community garden and playground. Oberlander said Kitsap Habitat was fortunate in securing the 2-acre parcel two years ago for $172,000. A similar parcel the group is now "eyeballing" is more than double that price at $350,000.
With the cost of acquiring and developing the New Hope site at $1.6 million, the city of Bremerton is kicking in about $600,000 to help fund utilities and streets. Oberlander estimates it will take another million dollars to build homes and is currently looking for sponsors.
Meanwhile, almost all of the 88 lots in the Seattle/South County Habitat's pipeline will be multifamily developments, Bullitt said. "We are trending to multifamily because of the price and scarcity of land," she said.
It certainly helps that the Seattle affiliate has strong support from the Seattle Housing Authority, Bullitt said. Habitat is purchasing affordable lots in three federally funded Hope Six mixed-income projects at High Point in West Seattle, Rainier Vista in Seattle's Rainier Valley and Greenbridge in the White Center neighborhood.
Seattle isn't the only city where this dynamic is at work. Hot residential markets are forcing similar changes in cities such as San Francisco and Denver.
According to Bullitt, Habitat families are particularly well-suited to mixed-income developments because they often have made the transition from homelessness or emergency housing to becoming stable renters and first-time homeowners.
But with federal funding for some low-income housing projects declining, Bullitt is mulling a new tactic. She hopes to persuade some condominium developers to allow Habitat to purchase their less desirable condo shells.
That might be difficult as some municipalities either don't allow sales of individual shells or require a separate permit, said Leslie Williams, president of Williams Marketing Inc. in Seattle. Then, too, there are potential insurance and liability issues with construction, particularly with volunteer workers.
But, said Williams, "I don't think any of these obstacles couldn't be overcome." Partnership in a condo conversion project might be an easier approach, she added.
The shift to multifamily properties doesn't come without challenges for Habitat families, however. For instance, many Habitat families are new U.S. immigrants -- about one in five on the Eastside -- and they're unaccustomed to the homeowners' associations that govern many multifamily dwellings.
"We have fairly new immigrant families working with families that have been here for generations," said Diane Gallegos, associate director of Habitat for Humanity of Seattle/South King County. "For a family from a country where women do not take a leadership role, it may be the first time the family sees women in the leadership role."
On the Eastside, Habitat depends heavily on support from ARCH, a coalition formed by 11 cities to support affordable housing. Much of the property obtained from ARCH (A Regional Coalition for Housing) is zoned for multifamily development. As a result, much of the Eastside Habitat affiliate's housing since 1996 has been in multifamily projects, Granger said.
Even so, because land costs are so high, the Eastside Habitat at times has had to keep the land in a separate land trust and sell housing units as condominiums. Granger estimates the houses would cost twice as much had they been sold along with their lots.
Soaring property prices have also cut back on donated properties because owners prefer an outright sale to a tax deduction.
The multifamily emphasis erects other hurdles as well, including longer financing and construction timelines and, in some cases, higher construction fees.
"It has slowed down our construction because we must wait for the funding to be in place," Granger said. "It takes longer to build, but at the end there are more houses available."
For instance, a recent multifamily project on Avondale Road in Redmond required Habitat to first raise nearly $600,000 in funding for seven homes, a far more challenging task than finding a single corporate sponsor for an $80,000 house, Granger said.
More complicated multifamily construction also requires more training for Habitat's unskilled volunteer workers. Moreover, it forces Habitat to rely more heavily on paid, skilled construction workers, although some donate or discount their labor.
Adding a third story, while it creates more space on a small footprint, requires sprinkler systems that can add $10,000 to the cost of a home. The difficulty of construction may also preclude participation by some volunteer groups.
"Our future depends on being creative, seizing opportunities and not having a rigid notion of how a Habitat house should look," Bullitt said.
Contact: jlj@bizjournals.com • 206-447-8505x118
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