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Consultant outlines complications in creating more Norwalk affordable housing

An illustration prepared by RKG Associates. Click the photo to reach the city website’s download page for the PowerPoint presentation.

Updated, 2:27 p.m.: Disclosure added at bottom of story. Public comment is accepted until 5 pm. Email [email protected]

NORWALK, Conn. – The challenge in creating family affordable housing lies in the construction costs to the developer, a consultant said.

Craig Seymour, speaking to a joint meeting of the Planning and Zoning Commissions on Dec. 18, described the profitability to investors as a major factor in whether new housing would be built, in reference to attempts to increase “affordable” housing in Norwalk. While Redevelopment Agency Executive Director Tim Sheehan acknowledged a local desire to increase the number of three-bedroom units, those units are less than financially feasible, Seymour said.

Seymour, president of RKG Associates, was tasked by the Redevelopment Agency to study the feasibility of increasing the affordable housing requirements in the South Norwalk Transit Oriented Development (TOD). RKG looked at changing the current zoning requirement of 10 percent workforce housing in a building with 20 or more units to 20 percent workforce housing in a building with 12 or more units, within the boundaries of the proposed SoNo Station Design District (SSDD), but this was more a discussion point than a firm proposal, Planning and Zoning Director Steven Kleppin said.

Seymour presented information in a PowerPoint presentation; Planning Commission Chairwoman Frances DiMeglio provided the PowerPoint to NancyOnNorwalk on Sunday. It is available to the public here.

State law mandates a 10 percent “affordable” housing in a community, with developers allowed to do whatever they want, with no regard to Zoning regulations, if a community doesn’t meet that standard. Seymour explained that “affordable” is based on 80 percent of the state median income, but in Norwalk a more accurate measure would be area median income.

South Norwalk has a high percentage of “defacto” affordable housing, because the rents are low, Kleppin said. While some worry about gentrification pushing existing residents out, Kleppin explained that even if the Zoning regulations aren’t updated this could happen anyway as existing units are replaced.

There are 152 defacto affordable apartments in the TOD Zone, units that were built before 1960, according to a memo Kleppin wrote to the Commissions on Dec. 13.

The regulations are being studied with an eye toward the national trend of millennials and empty nesters looking to live near train stations, Kleppin said on Dec. 18.

“The idea here is to build up an urban core, create an urban place, where at some point we ideally get more people walking and driving,” he said.

Norwalk Fair Housing Officer Margaret Suib in June 2016 criticized the developing TOD plan as being discriminatory against families, by incentivizing small apartments. She called that a fair housing violation.

“The Fair Housing Act protects people from discrimination when they are renting, buying, or securing financing for any housing,” the U.S. Department of Housing and Urban Development states on its website. “The prohibitions specifically cover discrimination because of race, color, national origin, religion, sex, disability and the presence of children.”

A density bonus is in the proposal to encourage three bedroom housing, Sheehan said on Dec. 18.

Kleppin’s Dec. 13 memo show an increase to 87 units per acre from a maximum 54 units per acre (in the Industrial 1 Zone). The memo shows that the size of the units would decrease to a minimum 500 square feet; in the Industrial 1 Zone the requirement is 1,000 square feet with a 10 percent affordable requirement or 800 square feet with a 30 percent requirement.

Rents for apartments are measured in dollars per square foot, Seymour said on Dec. 18. On average, since 2011, that’s $3.45 a square foot for a 536-square foot studio apartment and $1.87 a square foot for a three-bedroom apartment.

Seymour’s research showed that the rents on one-bedroom apartments have dropped since 2011, from $2.50 a square foot to $2.42 a square foot. Two bedroom apartments have spiked 14 percent, from $1.77 to $2.02 a square foot, while the three bedroom units show a .3 percent drop of one penny a square foot.

RKG imagined a hypothetical apartment building for its study, with 100 units in a four-story construction because that’s what’s being built in Norwalk, for a reason – anything more than six stories must be built with steel and that’s much more expensive and therefore isn’t seen in suburban communities, he said.

Typically, builders use steel or concrete for the first two floors and then everything over that is “stick construction,” or wood, he said.

While RKG postulated 40 percent one bedroom apartments, 50 percent two bedroom and 10 percent three bedrooms in its buildings, local developers said they’re not doing that, according to Seymour.

“The three bedrooms rent at only a marginally higher level than the two bedrooms and the costs are much larger because you have development costs go into it,” he said, adding that there’s less demand for three bedroom units because the renters in SoNo tend to be young professionals or empty nesters.

“Very few people need the three bedrooms other than families,” he said.

“There are an awful lot of things that go into building an apartment complex,” he explained. “They include not only the hard construction costs, the materials, the labor, but also includes the soft costs, and that is the permitting fees, any mitigation of the site that has to be made. There is the land cost itself.”

Even with that, it’s fluid as developers vary in their methods and advantages, he said.

“Every developer has their own criteria, their own way of building and their own set of metrics that they use in order to decide whether or not to invest the millions of dollars it takes for a project like this,” Seymour said.

Investors are looking for a 9 to 12 percent rate of return on urban market apartment buildings, he said, explaining that Avalon is a very large developer that attracts high quality pension funds who are happy with a 6 percent rate because it’s been a consistent performer.

Class A skyrises in Boston get 7 or 8 percent, but, “Here in Norwalk, there’s a little more risk involved because it’s a more volatile market…. 8 to 10 percent returns are considered very good. Returns that are lower than that become considered risk averse, and people won’t put their money in that.”

The booming stock market makes finding investors more challenging, as a 15 percent return is possible within a year, he said.

Kleppin’s memo outlines how complicated the situation is and mentions possible subsidies to developers, including a Nov. 20 letter from RKG to Sheehan:

“It is up to the City to assign value to the creation of new housing, both affordable and market-rate, depending on its goals.  Subsidies can unlock a greater number of affordable units while not cutting off the supply of new market rate units. The creation of both housing types will of course have compound effects on the rest of the City’s economy and tax rolls.

“If a project or initiative clearly requires public subsidy to become feasible, property taxes are often where support can most easily be provided and create the  most ‘bang  for  the buck.’ In our hypothetical example, a subsidy  in  the  form  of  a  20%  property  tax  break may push a 20%  affordable project with an 8.7% IRR {internal rate of return} to  a 10%+ IRR.  At the cost of around $80,000 a year for 10 years, a project with 20%  affordable  units  may  become  feasible where it would have struggled to become  a  reality  on its own. It is important  to remember that while this may look like a  net forfeiture  of  $80,000  a  year, without  it  the  City  may have missed  out  on  the  other  $400,000  in direct  property  tax  generated.  The subsidy may unlock new affordable units, market units, and  the  corresponding  direct  tax  receipts, as well as indirect  tax  benefits  that come from more residents  living  and shopping  in SoNo –  perhaps a  worthwhile investment.”

 

The writer of this story benefits from the affordable housing requirements, renting an apartment at a reduced rate.

10 comments

M. Murray January 2, 2018 at 6:51 am

It would make sense to keep affordable housing to as close to 10 percent as possible to keep property values high and the cost of public services lower. One and two bedroom units make Moreno sense as there are likely to be fewer children living in them and therefore less of a demand on schools for taxpayer funded services.

Al Bore January 2, 2018 at 9:30 am

Lets talk about affordable taxes in Norwalk as they go up and property values go down or at best stay the same each year. Norwalk has plenty of tax payer subsidized affordable housing, in fact I would bet Norwalk is the fairfield county poster child for affordable housing. Let some of the neighboring towns do their fair share, Norwalk has enough and I can’t afford to do any more. Lets try to bring our property values up that have stayed stagnant for years as people like me pay more in taxes and then loose money on their homes value each year. Let’s take care of what we have and give our children a quality education, less crime, less traffic congestion, and give our residents quality of life in Norwalk that will raise property values, instead of over crowding Norwalk more than it already is. It is a shame that our city government does not understand what is real important to it’s tax paying residents. THINK before you build for once, we can’t handle what we already have so stop and think. I know that is asking a lot of our current administration to think first.

McKeen Shanogg January 2, 2018 at 9:43 am

Can someone explain how “whatever they want” comes into the equation? “State law mandates a 10 percent “affordable” housing in a community, with developers allowed to do whatever they want, with no regard to Zoning regulations, if a community doesn’t meet that standard.” This appears to mean that it would be to every developer’s advantage if every community had less than 10% affordable housing.
I’ve read the state law that is linked, but I don’t see where it explains “whatever they want.”

Adolph Neaderland January 2, 2018 at 10:47 am

Appears to me Al Bore is on the right track.

I did not see any reference to a 10% )or more) affordable housing reference in Mr. Kleppin’s report of the several thousand new residential units on West Ave, or the new housing units being built on Glover Ave.

Why is the issue of affordable housing so selective?

Additionally, why aren’t the rules governing longevity of “stay” in affordable units “on the table”?

It’s my understanding that we have family’s in such units for several generations. Is that the purpose of affordable housing?

carol January 2, 2018 at 12:16 pm

take care of your tax payers first,we cannot afford more subsidies that we end up paying for. enough is enough.

Donna Smirniotopoulos January 2, 2018 at 1:31 pm

The link below lists exempt and non-exempt municipalities and dates to 2008. I don’t know if there is a more recent list, but in 2008, Norwalk made it to the exempt list with over 11% affordable units. Theoretically, the more vulnerable municipalities would be on the non-exempt list (Westport and Weston for example with very low percentages of affordable units). But the cost of land probably keeps developers away. There is also an appeals process should a municipality find itself in the non-exempt category. The Westport P&Z attempted to address CGS 8-30 years ago by suggesting to re-zone portions of the Post Road to allow greater housing density and increase the percent of affordable units. The mantra of “if we don’t do this, the developers can do whatever they want” was thrown around then also. Norwalk does not seem to be in imminent danger of developers doing whatever they want to satisfy the State’s affordable housing threshold.

Pay attention to the municipalities at the top of the “exempt” list and ask yourselves if this is what you want Norwalk to look like.

http://www.ct.gov/doh/lib/doh/2008_affordable_housing_appeals_list.pdf

Non Partisan January 3, 2018 at 7:32 am

One can also argue that an increase in the overall percentage of affordable housing is a violation of the fair housing act.

To the extent that my taxes are indirectly used for these subsidies and my taxes are making home ownership unaffordable to me. This violates my access to fair housing.

Bill Nightingale, Jr January 3, 2018 at 1:04 pm

Another report promoting affordable housing by the Affordable Housing Industrial Complex

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