Housing Task Force ReportMEMORANDUM
TO:
FROM:
July 1, 2003
The Honorable Mayor and City Council Members
Michael C. Van Milligen, City Manager
SUBJECT: Up-date to Affordable Housing Task Fome Report
City staff is currently in discussions with several developers who have expressed
interest in building affordable housing and utilizing the incentives recommended in the
report of the Affordable Housing Task Force, delivered in work session to the Council in
December 2001.
Housing and Community Development Department Director David Harris is providing an
up-date to reflect current real estate market conditions and recommending revisions for
implementation of the Task Force Report.
Interest rates have significantly changed since the Task Force report was issued. Low
financing rates have dramatically impacted affordability, allowing a moderate-income
family to purchase a more expensive home. However, the gap in price between what
that family can afford and the house currently being built in Dubuque's market has
remained relatively constant.
The rate assumed in the 2001 report was 7.25% on a 30-year mortgage. For this
update report, the interest rate used is 5.25%.
The $10/hour wage rate targeted in the 2001 report has been increased by annual 3%
adjustments, resulting in a $10.61 wage for the target family earner. For a two-earner
household, this is a $44,136 annual income.
The $25,000 maximum lot price listed in the 2001 report has also been adjusted for
inflation, resulting in an up-dated price of $26,500.
Using all the other assumptions from the 2001 Task Force report, in today's market a
Dubuque family earning $44,000 can afford a home priced at $134,000.
Analysis provided by the Building Services Department shows that the average permit
cost for a new single-family home in Dubuque in 2002 was $125,000. Adding an
average lot cost of $35,000 brings the new home sale price to $160,000. The
"affordability gap" - between $134,000 and $160,000 - is $26,000 for the target
household.
In the two years since the Affordable Housing Task Force Report was issued, there
have been many discussions with developers considering new subdivisions. The
following are recommendations for implementation of the Task Force Report:
The Task Force Report recommended that the buyer's income and the sale pdce
of the home be restricted. As a practical matter, enforcement of these
restrictions is problematic. Developers have expressed a concern that these
restrictions would result in difficulties in planning, financing and marketing their
subdivisions. As an alternative, the following conditions are proposed for
developers wishing to build affordable new single-family homes and to take
advantage of the incentives recommended in the Report.
The operative principle is that the goal of building housing affordable to working
families can be achieved by limiting the size of lots and homes - relying on a
"market" model - rather than by mandating income limits and sale prices. The
standards recommended are:
a. Maximum size of the affordable single-family home lot is 6,500 square feet
with street frontage of 50-75 feet.
b. Maximum size of finished space in the home is 1,200 square feet.
A surcharge of $25/square foot is levied if this size is exceeded.
80% of the homes in the subdivision must meet standards for affordability.
This proposal reflects land development variables and allows for as many
as 20% of the lots in a subdivision to be larger than for "affordable"
standards.
The rationale for these figures is as follows:
· The current adjusted maximum lot pdce, as stated, is $26,500.
· The maximum home price target is $134,000.
· This leaves $107,500 as the target price for the new home.
· At $90/square foot, a 1,200 square foot home costs $108,000.
As affordability is markedly influenced by prevailing interest rates, staff will
annually review these standards and propose revisions, as needed, to reflect rate
variations.
A development agreement will be signed with the subdivision developer,
specifying these standards and requiring repayment of any City subsidies if
conditions are not met. Conditions of the agreement will attach to the lot at sale,
requiring the home builder's acceptance and compliance.
Subsequent improvements to the home, done either by the initial buyer or after
resale, will not be regulated by this agreement.
Eligibility for use of the City's revolving loan funds for sanitary sewer and water
system installation will be prioritized for developers agreeing to produce
affordable housing.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Mi~:hael C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
David Harris, Housing and Community Development Department Director
25 June 03
CITY OF DUBUQUE, IOWA
MEMORANDUM
To: Mike Var{xl~illigen, City Manager
From: David'~rris, Housing and Community Development Department
Re: Up-date to Affordable Housing Task Force Report
We are currently in discussions with several developers who have expressed
interest in building affordable housing and utilizing the incentives recommended
in the report of the Affordable Housing Task Force, delivered in worksession to
the Council in December 2001. This memorandum provides an up-date to reflect
current real estate market conditions and to recommend revisions to the 2001
report.
Operatin,q Principles and Assumptions
The City Council's directive to the Affordable Housing Task force was to research
and recommend ways to produce new single-family housing that is "affordable" to
a moderate-income household.
A "moderate-income household," at the time of the Task Force report, was
defined as earning $40 780, household size 4 persons, with two earners,
wages at $10/hour. This number was chosen as the target wage we
wanted employers being recruited to the City's newly annexed office and
tech parks to offer to their workers.
"Affordable" housing is defined as costing no more the 30% of gross
income for PITI: principal, interest, taxes and homeowner and mortgage
insurance.
3. Typical financing for this scenario assumed a 7.25% interest rate, 30-year
term and 5% downpayment.
The Task Fome assumed a "modest" new home, affordable to a family at
this income, would cost $90/square foot to build and be no more than
1100 square feet in area.
This home would include a 2-car attached garage, unfinished basement
with a lot pdced at $30 000.
5. At $129 000, this home was not affordable.to the target family earning
$40 780. To be affordable, that home could sell for no more than
$118 000, leaving an $11 000 "affordability gap.~
Compared with the average sale price of a new home in Dubuque's
market in 2000 - at $146 000 - that gap in affordability was $28 000.
Recommended Incentives to Reduce Development Costs
The Task Fome report recommended the following incentives to developers to
reduce costs, in order to lower lot prices.
1. Public street pavement width reduced to 27 feet, right-of-way
width reduced to 42 feet. Parking restricted to one side only.
2. Water main and sanitary sewer connection fees and/or assessments to
be waived.
3. Lot prices capped at $25 000, increases adjusted annually to Consumer
Price Index.
4. Lot frontage minimum reduced to 50 feet; maximum width 75 feet.
Homes in affordable developments built larger than 1250 square feet to
have a $10/square foot surcharge assessed, to be used to capitalize an
affordable housing revolving loan fund.
7. PVC pipe to be allowed for water and sanitary sewer installations.
8. City Enterprise Funds to be used for O-interest, 5-year loans for
installation of water and sanitary sewer and stormwater systems.
8. Engineering Division to evaluate feasibility and cost effectiveness of
alternative street construction standards, to reduce costs.
9. 2000 International Residential Code to be adopted for use by Building
Services Department in permitting new construction.
Up-Date
Interest rates have significantly changed since the Task Force report was issued.
Low financing rates have dramatically impacted affordability, allowing a
moderate-income family to purchase a more expensive home. However, the gap
in price between what that family can afford and the house currently being built in
Dubuque's market has remained relatively constant.
The rate assumed in the 2001 report was 7.25% on a 30-year mortgage. For this
update report, the interest rate used is 5.25%.
The $1 O/hour wage rate targeted in the 2001 report has been increased by
annual 3% adjustments, resulting in a $10.61 wage for our target family earner.
For a two-earner household, this is a $44 136 annual income.
The $25 000 maximum lot pdce listed in the 2001 report has also been adjusted
for inflation, resulting in an up-dated price of $26 500.
Using all the other assumptions from the 2001 Task Force report, we calculate
that in today's market a Dubuque family earning $44 000 can afford a home
priced at $134 000.
Analysis provided by the Building Services Department shows that the average
permit cost for a new single-family home in Dubuque in 2002 was $125 000.
Adding an average lot cost of $35 000 brings the new home sale price to
$160 000. The "affordability gap" - between $134 000 and $160 000 - is
$26 000 for our target household.
Incidentally, the median sale price for a MLS-listed home in Dubuque County, in
2000, was $93 500. Figures provided by the Board of Realtors for this report
indicate that the median pdce in 2002 increased to $105 000.
Recommended revisions for implementation of Task Force proposals for
development of new affordable housing
In the two years since the Affordable Housing Task Force Report was issued, we
have had many discussions with developers considering new subdivisions. The
following recommendations have been generated by staff from the Housing,
Planning, Water and Engineering Departments in response as a means of
establishing standards for implementation of the Task Force Report
recommendations.
The Task Force Report recommended that the buyer's income and the
sale price of the home be restricted. As a practical matter, enforcement of
these restrictions is problematic. Developers have expressed to us a
concern that these restrictions would result in difficulties in planning,
financing and marketing their subdivisions. As an alternative, the following
conditions are proposed for developers wishing to build affordable new
single-family homes and to take advantage of the incentives
recommended in the Report.
The operative principle is that we can achieve our goal of building housing
affordable to working families by limiting the size of lots and homes -
relying on a ~market~ model - rather than by mandating income limits
and sale pdces.
80% of the homes in the subdivision must meet standards for
affordability. This proposal reflects land development variables and
allows for as many as 20% of the lots in a subdivision to be larger
than for "affordable" standards.
b. Maximum size of the affordable single-family home lot is 6500
square feet; street frontage 50-75 feet.
c. Maximum size of finished space in the home is 1200 square feet.
A surcharge of $25/square foot is levied if this size is exceeded.
The rationale for these figures is explained as follows:
a. The current adjusted maximum lot price, as stated, is $26 500.
b. The maximum home price our target household can afford is
$134 000.
c. This leaves $107 500 as the target pdce for the new home.
d. At $90/square foot, a 1200 square foot home costs $108 000.
As affordability is markedly influence by prevailing interest rates, staff will
annually review these standards and propose revisions, as needed, to
reflect rate variations.
2. A development agreement will be signed with the subdivision developer,
speci~ing these standards and requiring repayment of any City subsidies
if conditions are not mat. Conditions of the agreement will attach to the lot
at sale, requiring the home builder's acceptance and compliance.
Subsequent improvements to the home, done either by the initial buyer or
after resale, will not be regulated by this agreement.
3. Eligibility for use of the City's revolving loan funds for sanitary sewer and
water system installation will be prioritized for developers agreeing to
produce affordable housing.