Affordable housing was not on Roni Beer’s radar before her daughter entered school five years ago.

Beer, a registered nurse who lives in the Windsor Park neighborhood of Austin, Texas, noticed families were moving east because they could no longer afford to live in the area.

A couple of years ago, she said, nearby housing was torn down to make way for more expensive homes or condos, spurring protests in her community and catalyzing the discussion about the need for affordable housing.

“I think it’s directly affecting the kids that go to my daughter’s school,” Beer said. “We moved into the neighborhood because it was diverse, and it’s getting kind of gentrified here because they are tearing down the affordable apartments. We are losing a lot of Latino families because they can’t afford to live around here anymore.”

Beer says now affordable housing is a constant topic, especially as Austin passed Proposition A, a $250 million affordable housing bond, in the November 2018 election.

Chapel Hill to dedicate $10 million, effects remain unknown

Like Austin, Chapel Hill also had an affordable housing bond referendum on the ballot in 2018.

On Nov. 6, 2018 Chapel Hill voters overwhelmingly passed an affordable housing bond that designates $10 million to help Chapel Hill develop 400 new affordable housing units and preserve 300 existing affordable units over the next five years.

The bond was approved by 72 percent of voters.

From the date of the election, the town has seven years to issue the bond money.

Because it will take some time to fully implement, the effects of the bond on the housing market cannot yet be determined. However, looking at the impact of bonds in a similar, already existing market can provide a prediction of what Chapel Hill may see.

For Chapel Hill, that comparable market is Austin.

Comparable markets

While no two markets are the same, like Chapel Hill, Austin hosts a university — the University of Texas at Austin. The presence of a university has contributed a lack of available inventory in both locations.

Both markets are tightening as home prices increase, a result of strong job growth and rising wages. Residents of both places must consider moving to outside areas for lower prices on homes.

“In the city of Austin, it is virtually impossible to find any existing inventory below $350,000, and most of the new home inventory that is being added is much higher than that,” said Vaike O’Grady, Metrostudy’s Austin regional director. “So, if you look to the suburbs, in the secondary rings it’s $100,000 below that, and the third-tier cities are another $100,000 below that. So, it really changes the farther out you go from the city.”

But Proposition A is not the only bond referendum Austin has seen in recent years. In 2006, voters approved $55 million in bonds to support affordable housing. In 2013, a $65 million affordable housing bond was passed.

Beer says after seeing affordable housing projects come to fruition in neighboring areas such as Mueller, she’s glad Proposition A was approved. One of these projects, Mueller’s Aldrich 51, was funded with $2 million from the 2013 affordable housing bonds.

“If anything, it’s benefitted us,” she said. “We are friends with some people that live in affordable housing through my daughter’s school. They get to live near here and they get to continue going to school in the neighborhood, so it’s a benefit. I want my daughter to grow up being comfortable with people of different economic, social and religious backgrounds. Austin is a mostly white population, but I want her to be friends with a variety of people.”

With new bond money, Beer believes that affordable housing will be built either in her direct neighborhood or very close to where she lives. While many homeowners fear nearby affordable housing will affect the property value of their homes, Beer says, to some degree, she doesn’t care if her property value falls as a result.

“I don’t need my property value to be tripled. It’s great, because if I sell, I could make a lot of money. But, that’s not what’s most important to me. I would be ok with it, as long as it didn’t drop immensely and didn’t bring in unsafe inhabitants.”

She also doesn’t mind the tax increase that comes with funding the bond, a hike that she has seen after the other referendums were approved.

“My taxes have gone up since I moved here, definitely. But it’s ok. Fortunately, I have a good job so I can afford it.”

To Beer, the need for affordable housing is understandable, because if she had not bought her home in 2000, she likely would not be able to live where she currently does.

“I was fortunate to buy early, 18 years ago when things were more affordable,” she said. “I see how much homes are in the neighborhood and what my home is now appraised for, and I would not be able to afford to buy now. People should not be prevented from living where they want to live. You should consider other families that are not as fortunate as you, and with the opportunities you have at your access, share that with others who maybe couldn’t afford it.”

“I’m not more special than anyone else.”

According to the City of Austin Affordable Housing Directory, there are currently 8,318 units completed of income-restricted affordable housing funded or incentivized by the Austin Housing Finance Corporation or the City.

However, because all bonds for affordable housing that were approved in 2006 have been issued with funds fully committed, looking at the effects of the 2006 referendum is the fullest indicator of what will happen to the Chapel Hill market.

In all, according to Austin’s Affordable Housing Inventory, there are a total of 20,068 affordable units available, with 7,776 units available to move into at an affordable rate since the end of 2006.

Breaking that down, a 2012 study by Civic Economics revealed the 2006 referendum specifically resulted in the production of 3,055 new or rehabilitated housing units, of which 2,242 are affordable to households earning below local median income.

In a market that had 16,058 housing starts just last year according to Metrostudy data, 3,055 units over several years is relatively small.

“If you look at the degree of the Austin market as a whole, which sells about 30,000 homes a year, that’s not a large amount of added inventory,” said O’Grady. “Every affordable unit is one more than there would have been before, but in the scheme of things it’s still not a lot.”

In addition, in spite of the 2006 referendum and the subsequent referendum in 2013, home prices in Austin have increased significantly. As the market is becoming more unaffordable as a whole, this indicates that affordable housing bonds have done little to change the trajectory of the market.

Though there are a multitude of factors that make housing more expensive over time, such as inflation, Austin has seen a significant increase in housing prices since 2006.

The median home price in October 2018, based on the Austin Board of Realtors data was $308,355. In October 2006, however, the median price was $175,000. This, adjusted for inflation in today’s terms based on the Consumer Price Index for All Urban Consumers for shelter in the South, is about $232,144.

The percent change adjusted for inflation amounts to an increase of 32.83 percent.

“Since 2006, it’s been a pretty strong increase,” said O’Grady. “While it’s basically been single digits, it’s not unusual to see price increases of 8 percent year-over-year since that time period. A $250,000 house 18 months ago could now be a $350,000 house.”

“When you look at what’s happened in Austin since the dip in the market with the recession, home prices have escalated pretty rapidly. So, what that says to me is that the affordable housing bonds that have been passed have not been effective in impacting the market overall. It’s just a drop in the bucket in terms of what Austin needs for more affordable housing.”

However, the economic impact of the referendum is still noteworthy. The Civic Economics report reveals less than $50 million of the bond was expended, but it leveraged to obtain an additional $177 million in development expenditures, obtaining total expenditure in Austin of $226 million. The 2006 bonds resulted in 2,579 construction or permanent jobs with an estimated program economic impact of $384 million.

In addition, the report was not able to place dollar values to additional household savings such as for transportation and other services that come from living in a safe, clean and well-located place. The report indicated that more bond money equates to more economic benefit, providing the recommendation that more money be designated towards affordable housing bonds in the future.

Looking at the results from the 2006 bond, one can conclude that there was not a lot of change to the market as a whole as median prices is still rising and the number of units built are small in the scheme of things. Still, the bond had a greater-than-proportional economic impact on Austin and allowed more individuals to afford to live in Austin.

These results affirm that the affordable housing bond in Chapel Hill will not fix all of the town’s affordability problems, but will make the lives and the quality of life better for a significant number of residents.

“This is not going to solve the problem,” said Amanda Hoyle, regional director at Metrostudy’s Raleigh office. “There is no one solution to solving affordability issue in any community. It’s a start, a drop in the bucket, to get thing moving in that direction.”

With Chapel Hill planning to create 400 new units, a fraction of the overall market, this sentiment is shared by Pam Hemminger, Chapel Hill’s mayor. Based on data from the Chapel Hill Affordable Housing website, there are 1,068 total affordable housing units currently.

“Just doing a handful of affordable housing units each year is not going to move the needle much,” she said. “But this gives us the opportunity to think big and to think how we can make a real difference.”

The Chapel Hill market

Home price in Chapel Hill continues to increase, in line with other markets across the country. This combined with the competition in the rental market with students at UNC-Chapel Hill exacerbates the issue.

The median home price in Chapel Hill in October 2018, according to Trulia’s real estate data for Chapel Hill is $375,000. This is slightly higher than the Orange County market, which the Triangle MLS October 2018 update puts at $317,250.

“The Triangle MLS is showing that the Orange County sale price is about $320,000,” said Hoyle. “When you take that into effect with the interest rates, if you are trying to buy a home that’s $325,000 and you put 5 percent down and you’re going to get a typical 30-year fixed rate mortgage, your monthly payment, if your mortgage rate is about 4 percent, is going to be about $2,200 a month.”

“This means that in order to even qualify for that mortgage, your household income needs to be around $93,000 to even just qualify for that. So, taking that into effect when looking at some of the lower income housing, it’s priced people out of the market.”

Hoyle says the consensus is that it’s impossible to build housing for the lower income bracket unless builders are receiving some kind of subsidy, either from the government or a private investor.

Rep. David Price, who represents the Fourth District, affirmed this belief. Price, who is going to be the chairman of the Housing Appropriations Subcommittee, says he believes that affordable housing these days is often created by the virtue of partnerships.

“In Chapel Hill and everywhere, we need to develop housing options for people, and not just let the prices go up and up and pressures to move for modest income people to move farther out go unchecked,” Price said. “We need to get ahold of this— local leaders, local officials in Chapel Hill have realized that, and I think of myself as their partner.”

Still, with rising interest rates — especially as the Federal Reserve is on track for another hike in mid-December — construction of homes and mortgages will only become costlier.

“If interest rates continue to rise, I want to be hopeful they will be able to reach the goals they want with the money they set aside,” said Hoyle. “But, if the costs of labor and costs of construction continues to go up, it’s going to be harder to be able to meet those goals.”

“Even if this is an affordable housing type situation, there is still going to be a lot of times, if this is a for-sale product, there’s a mortgage that’s involved. Overall, mortgage rates have risen across the county and costs of construction. I would point mostly to the cost of construction and labor that will probably take a bigger bite out of the $10 million fund.”

However, the advantage of a bond referendum is that the city council will probably be able to qualify for a lower interest rate bond. So, in the long run, the government will pay less for the funds.

Still, the bond money likely won’t be enough to change affordability in the market as a whole.

“I think it’s a drop in the bucket,” said Hoyle. “It’s a start. It’s only 400 homes, and a lot more of that money is going to focus on the rental type because you have more options and can reach a larger audience with that amount of money. So, looking at my data, again, in Orange County there have been about 418 total new home starts in the last 12 months. So, we are talking about one year’s worth of housing created, but it’s going to be spaced out. It’s not a lot of new housing, but it’s a start and will help at least alleviate some of that issue.”

A one-cent tax

After retiring in Chapel Hill 15 years ago, resident Stephen Rich agrees that there is an issue with home affordability. He believes something needs to be done to fix the enormous cost many residents experience living here.

Rich, who worked for Coca-Cola Co. in various finance positions before his retirement, was a student at UNC-CH. He says the cost of living here has increased significantly since he attended school in Chapel Hill.

“From the taxes, the home costs and even the tuition, it’s all faced an insurmountable increase,” he said. “It didn’t cost even a fraction of what it does now to have lived here back then. Everything is more expensive.

However, he also believes that residents already face a significant tax burden and worries that a tax increase will make Chapel Hill an even more expensive place to live.

“I am all for making it easier for people to live here,” Rich said. “I just worry that less people who are on the cusp can afford all these taxes. We have a lot of taxes here, and I know it keeps increasing. I’m all for more affordability, but I hope not at too much of the expense of the taxpayers. I know, from my time here, we already pay an incredible amount.”

Payment of the bond will be through a tax raise in one penny per $100 valuation of the property.

Hoyle says this is not too much of a burden for taxpayers in the scheme of things, but the danger is this tax may not disappear after the bond comes to fruition.

“On the negative side, it’s an additional tax and taxes typically don’t go away. Most of the time you have these types of bond referendums, the tax doesn’t always stop. They find ways to expand these programs further and further.”

Still, Price says, this is a cost that Chapel Hill residents should be willing to shoulder.

“I would ask them— what kind of community do we want to have and what is it going to take to get there? I don’t think that simply letting the housing market run its course is going to get us there,” he said. ” If the people who object have a better idea, we should listen to it, but I think this housing bond is a well-designed proposal and got an overwhelming vote. That tells me that people in the community, for the most part, understand this is a very promising device for encouraging the diverse housing construction that we want to have.”

“Creating affordability takes a huge subsidy and that often comes from the taxpayers. But, housing is a human right. It’s right up there with education and health care, and so it’s a tradeoff Chapel Hill voters proved they were willing to make when they approved the bond.”