That’s according to a panel of affordable housing experts who discussed the issue during a recent Wisconsin State Journal Business Roundtable discussion.
Participants were:
- Kathy Kamp, executive director, Wisconsin Partnership for Housing Development;
- Rob Dicke, executive director, Dane County Housing Authority;
- Matt Wachter, housing initiatives specialist, city of Madison;
- Steve Steinhoff, deputy director/director of community and regional development planning, Capital Area Regional Planning Commission; and
- Matt Meier, vice president of real estate, The Alexander Co.
First, how are “affordable housing” and the frequently used “low-income” defined?
“Housing is affordable if a family pays no more than 30 percent of income plus utilities,” Dicke said.
The U.S. Department of Housing and Urban Development defines low income as less than 80 percent of area median income and very low income as less than 50 percent of area median income.
Large numbers affected
In the city of Madison, about half of households are renters, and slightly more than half of those households are considered “housing cost burdened,” Wachter said, which means they are paying more than 30 percent of their incomes for housing. “That’s 25,000 renter households that are in housing that they cannot technically afford,” he said.
Dicke added that in Dane County, 65,000 households — including those in Madison — are considered cost-burdened, and 12,000 low-income households that pay more than half of income for housing are classified as extremely cost-burdened.
It is a problem that is getting worse, too, panelists said, citing:
- a national trend of rents rising and incomes not keeping up
- loss of existing affordable units coupled with new construction catering to the upper end of the market
- available affordable housing programs that are not keeping up with demand
Wachter added Madison has a growing population that is shifting more toward renting than owning, and that has increased demand for apartment units.
“The industry was virtually shut down (during the Great Recession) and so you’ve got a lack of supply and an increase in demand and that’s caused rents to go up,” Wachter said, noting the industry has started building more units, but it hasn’t been enough to keep up with demand and not enough to help catch up from the supply lost during the recession.
The rental market is very tight. Madison Gas and Electric keeps statistics on vacancy rates, Dicke said, and Madison was at 2.83 percent last quarter. Planners, he said, say a 5-7 percent vacancy rate is healthy for the market. “They may be renting higher-end units, but then the people that would normally be renting in that slot move down and move down and that puts a lot of pressure on the low-income tenants for the affordable housing, and that puts more people out of the market and increases homelessness,” Dicke said.
If everything stayed at the status quo, it would take more than 1,000 units to go from 2.8 to 5 percent. But Madison has 1,500 to 2,000 new households coming here every year. “The market can barely keep up with the new influx of people, let alone digging out of the hole we spent 2007 to 2012 digging,” Wachter said.
Also, Dicke said, the foreclosure crisis during the recession took a lot of people who were homeowners out of the market and into rental units, putting additional downward pressure on the market. In the past 10 years, Dane County went from a low of 477 foreclosures in 2005 to a high of 1,768 in 2010. Foreclosures have declined since, with 591 in 2014, according to statistics provided by Daniel Miller of Keller Williams Realty.
Another factor, Steinhoff noted, is the number of employees the fast-growing health care software developer Epic Systems has brought to the area. Epic is up to 8,000 or 9,000 at its Verona campus now, he said, and most of them are pushing the market by looking for rental property.
“People that would be looking to build a project that have the capacity to build a project, they’re going to say, ‘Ooh, this is a really great demographic and this is the one I want to go after,’” Steinhoff said. “It’s drawing the attention of the developers and the things that are getting built which, therefore, means other things aren’t getting built.”
Not all Epic employees want to live in higher-rent apartments, Steinhoff noted. Some, for example, like to save their money for traveling and stay in lower cost-rental units and catch a bus the company provides to and from Downtown Madison each day to Epic. That also eats up the supply of moderate- to low-cost housing, he said.
Kamp noted that many cities have large employers and developers often cater to that market. “The bottom line is most jobs that are created in communities are created as low-wage jobs, so those people also have to have a place to live. We pay attention to Epic. Maybe they are growing really quickly, but there are other populations at lower income levels that are growing just as quickly that maybe we’re not paying attention to.”
Solving the crunch
Panelists also discussed ways in which the affordable housing crunch could be alleviated.
Meier said one idea is to build smaller units, say 300 to 400 square feet. “We’re seeing a growing trends of what we call micro units. In a way, they are efficiencies, but they are decked out. They have Murphy beds. Every single space in the unit is efficiently used. Using less space more efficiently can bring down the cost of adding units,” he said. Also, he’s seeing a trend with small units in a development with common spaces for tenants.
Other ideas included tiny houses, such as those starting to be built in Madison, and granny flats or accessory development units that could be as simple as apartments over garages, separate buildings on lots on which housing is currently built or wings of existing houses with separate entrances.
The city has looked at all options and tried to reduce barriers in its zoning code, Wachter said. “At the end of the day, I don’t know if any of these things will take or stick, but we’re eliminating city barriers.”