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September 2006 — Vol. 84, No. 7 Closing Connecticut’s housing affordability gapA shortage of affordable housing threatens to hamper workforce and business growth here. But leaders in all sectors are working to develop solutions. Related articles:
By Noreen S. KirkFreelance writer in Andover Chris and Dianna Belliveau of Andover have an infant daughter, good jobs and bright futures. He’s an insurance underwriter. She’s a teacher. Both are Connecticut natives. Both have family in the state. Young, educated and with their peak career years still ahead of them, they represent the type of workers Connecticut needs to fuel its economic future. But the Belliveaus are leaving Connecticut for South Carolina, where they expect to live well on less money. “With the money we save, we’ll send our daughter to college,” Dianna says. The chief reason for the move? The high cost of housing in Connecticut. Robert McMakin Jr. is president and CEO of Sysco Food Service of Connecticut LLC, one of several Sysco companies nationwide. McMakin’s Rocky Hill–based company employs more than 500 people. The company offers training, good benefits and competitive wages. Yet McMakin routinely loses good employees because they decide to transfer to other Sysco companies, typically in the Carolinas and Florida. And he has trouble getting workers from other states to relocate to Connecticut. “For every one that moves to Connecticut, I lose four or five,” he says. The chief reason for McMakin’s workforce problems? The high cost of housing in Connecticut. Connecticut is hemorrhaging young workers. Between 1990 and 2004, the state lost a higher percentage of 20- to 34-year-olds than any other state. One of the major reasons they leave? The high cost of housing in Connecticut. The Belliveaus’ departure, Bob McMakin’s experience and Connecticut’s demographic shift all have their roots in the state’s shortage of affordable housing. It’s an issue that has far-reaching consequences for families and businesses and threatens the state’s economic future. “This is both an economic and societal issue,” says CBIA President and CEO John Rathgeber. “Housing affordability is vital if the state is to solve its job creation problem. We must begin to do something now to reverse these trends.” State, business and nonprofit leaders have, in fact, begun looking for solutions. Growing affordability gapConnecticut’s housing costs have long exceeded those of many other locations, but the problem has worsened in recent years. Donald Klepper-Smith, chief economist and director of research with New Haven–based DataCore Partners LLC, is a business economist who has studied Connecticut’s economy for decades. But after conducting a recent affordable-housing study for the nonprofit housing advocacy group Partnership for Strong Communities, even Klepper-Smith says, “The scope of the problem surprised me.” The study found that, while wages in Connecticut rose a healthy 18.5% from 2000 to 2004, housing costs soared 63.6% — nearly three and a half times the rise in wages. This “affordability gap” puts housing further out of the reach of more and more state residents. While southwestern Connecticut felt the housing crunch first, the problem is now statewide. A study conducted by the Partnership for Strong Communities found that in 157 of Connecticut’s 169 towns, families earning the median income for those municipalities cannot qualify for a mortgage to buy the median-sales-price home in their towns. DataCore Partners estimates that 257,000 Connecticut households — nearly one in every five — are in need of affordable housing. That is, they spend more than 30% of their income on housing and earn less than 80% of median income. Not only a problem of the poorHousing affordability is no longer a problem of low-income people exclusively, notes David Fink, policy director with the Partnership for Strong Communities. “The huge increase in housing costs in the last five years has made affordability a major issue for middle-income workers,” says Fink. He notes that, with the median sales price of a Connecticut home at more than $300,000, a family must earn roughly $100,000 to qualify for a mortgage. “You’re talking about people with college degrees and good jobs who still can’t afford a home here,” Fink notes. Middle-income workers burdened by high housing costs have strong incentives to leave the state. “People paying 40% or 50% of their income for housing will have little left for food, clothing, transportation, health care, entertainment or other needs, and it can reasonably be assumed that many will choose to leave Connecticut, accelerating the population declines that already threaten the state,” says Klepper-Smith. As those workers leave, the state itself will take a hit in terms of lost tax revenue. DataCore estimates that if 10% to 15% of those burdened by high housing costs leave the state, Connecticut will lose between $29 million and $133 million in sales and income tax revenue annually. “This is a big economic-growth problem for the state,” says Fink. “Businesses aren’t going to come here, stay here or expand here if they can’t find the workers they need or if the labor pool has shrunk so much that they have to pay premium wages. They may as well go someplace with a larger labor pool.” The affordability problem affects rental housing as much as home ownership. Sixteen of the 20 occupations projected to grow the fastest in Connecticut over the next decade do not pay wages that affordably cover rental costs. Robert Kennedy Jr., executive vice president of the Connecticut Association of Realtors, comes face-to-face with the affordability issue every day. “The question we hear throughout the state is: ‘Where are my children going to live?’ More and more, it is extremely difficult for first-time buyers to afford homes in the communities they’ve grown up in.” How we got hereThe factors that have made housing so expensive in Connecticut are complex. For one thing, too few housing units are being built in Connecticut, and those that are being built aren’t the type that’s most needed. Between 2000 and 2004, Connecticut was 48th among the states in construction of housing units per capita. “We’re not building enough supply,” says Fink. “We’re building a lot of [age] 55-and-over housing and lots of four- to five-bedroom ‘McMansions,’ when what we really need are affordable rental units and starter homes.” Municipalities, he adds, often hesitate to approve construction of starter homes and rental units because they believe they bring in children and drive up school and other costs without generating enough property tax revenue to offset the added expense. Big, expensive homes are more desirable because their higher value means higher property tax revenues. Contributing to the problem is that developers often must pay such high prices for land, partly because of minimum-lot-size requirements, that they have to build large, expensive houses in order to make a profit. The type of housing stock that results is not affordable for a vast number of workers. Although low mortgage rates in recent years made monthly payments more affordable, rates are rising again. “That will squeeze many younger or less-affluent buyers out of the market,” says Peter Gioia, CBIA vice president and economist. Another factor hampering the development of affordable housing is the not-in-my-backyard phenomenon. For many people, “affordable housing” conjures up images of the “projects” of the 1960s. In reality, housing advocates say, today’s affordable-housing developments are attractive places that combine market-rate housing with subsidized housing to create livable communities that are economically and socially diverse. Taking actionInformed people across Connecticut recognize that steps must be taken to address the worker housing problem. CBIA plans to conduct a major survey on affordable housing early next year, according to Gioia. “We will survey members, home builders, municipal officials and others,” he says. “We want to find out what barriers exist to providing affordable or reasonably priced worker housing around the state.” CBIA’s Rathgeber, meanwhile, serves as vice chair of a new endeavor called HOMEConnecticut. An initiative of the Partnership for Strong Communities, HOMEConnecticut brings together leaders in business, banking, academia, land use, housing and government. It plans to conduct research, raise awareness, and advocate for policies and practices that result in more affordable housing. Rathgeber says HOMEConnecticut is exploring a range of options for addressing the issue. In announcing the initiative, HOMEConnecticut steering committee chair William Cibes said the organization was working on a four-part plan to:
“Addressing this will take initiatives in the private sector as well as changes in public policy at both the state and local levels,” Rathgeber says. “At the state level, there need to be programs that encourage these developments. At the local level, we should support municipalities so they have the tools and knowledge of best practices needed to allow for development that is sensitive to the interests and character of their communities.” Because municipalities develop and enforce zoning regulations and approve developments, they are in a unique position to encourage affordable-housing development. Stamford, for example, has long required developers to make 10% to 12% of the units they build affordable. “We’re very attuned to affordable housing because it is, at its heart, a labor force issue,” says Michael Freimuth, Stamford’s director of economic development. “We have very low unemployment. We need a labor force that is close to work and [housing] in a price range that doesn’t artificially inflate wages and salaries.” State starts Housing Trust FundLast year, the state took an important step in financing affordable housing when it established the Housing Trust Fund. The five-year, $100 million fund will be used to help create and preserve housing for low- and moderate-income working families by providing “gap” financing in the form of grants and loans. The idea originated with State Treasurer Denise Nappier, who says she proposed it because, “In a state with one of the highest housing costs in the country, we can’t afford to turn our backs on this issue without adversely affecting the quality of life for our families or the ability to create new jobs, attract and retain workers, and generate increased revenue.” Gov. M. Jodi Rell championed the idea, and the General Assembly enacted legislation creating the fund. The Department of Economic and Community Development (DECD) is administering it. Eligible recipients include nonprofit and for-profit housing developers, municipalities, local housing authorities, the Connecticut Housing Finance Authority, community development finance institutions and community development corporations. Monies may be used in a variety of ways, including for acquisition, rehabilitation, new construction, down-payment assistance, loans and grants. In June the first $10 million from the fund was invested in seven affordable housing programs around the state. Another $4.1 million is being awarded to eight other projects “that will create or preserve 123 units of housing and leverage $23.7 million in private investment,” the governor announced in August. And the DECD expects to award additional funds in September. The communities to benefit so far are Bridgeport, Bristol, New Haven, Hartford, Stamford, Wethersfield, Colchester and New Britain. Gov. Rell has also established an affordable-housing working group made up of representatives from all state agencies involved in housing. The group will make recommendations to the governor on what the state can do to promote affordable housing. Meanwhile, it is working with Chris Barnes, director of project development with the University of Connecticut’s Department of Public Policy, to identify all state housing programs; determine best-practice models; and seek opportunities to streamline programs, eliminate duplication, and improve efficiency and coordination. Private-sector initiativeA program recently conducted by TD Banknorth and the TD Banknorth Chari-table Foundation shows how the private sector might promote affordable housing. The company’s Housing for Everyone Grant Competition invited proposals from nonprofit organizations for practical, innovative projects that would either increase availability of affordable housing or increase opportunities for households to obtain such housing. Projects had to target low-, very low- or moderate-income individuals and families. The competition, which was conducted in all New England states where
the bank does business, resulted in awards totaling $675,000. Six Connecticut
nonprofits received a total of $100,000. The company will offer the program
in Fairfield County and the Middle Atlantic States late this summer and
will award a total of $225,000 to winners.
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