Today marks two months after what would have been our annual community update for Housing Next on June 4th. In February, we had planned to provide a fair amount of good news about the state of the housing market in West Michigan and Ottawa County. We had more than 2,000 new units in the construction pipeline then and were moving quickly toward our goal of 7,500 units by 2023. Then, in March, many things changed.
This post will offer an overview of the state of the housing market today - as we think we know it, as well as the progress made so far. Additional posts are coming to outline the big work that is still on the horizon.
Project Updates
Some construction is still moving forward, though more slowly than anticipated. Right now, we anticipate that at least half of the new homes and apartments we were planning on in Ottawa County as of February will still be under construction by the end of this calendar year. However, several projects have stalled due to uncertainty in the financial markets. An interesting wrinkle of the response to COVID-19 on a national level may be the adjustment to the credit basis of the 4% Low Income Housing Tax Credit - a program designed to support the local workforce, primarily those earning between $23,000 and $58,000 per year in Ottawa County.
Without getting overly wonky, the housing tax credit is an investment vehicle to leverage private capital for building affordable housing. Investors receive the benefit of receiving a federal tax credit for their investment in housing as well as receiving the cash flow from operations of the housing units, and potentially owning a real estate asset at the end of the affordable compliance period. Honestly, tax credit funded affordable housing doesn't generate much cash flow, but the other two benefits can make these projects worthwhile.
For more than 15 years, the 4% tax credit valuation has fluctuated with federal interest rates. Now that interest rates are at an all-time low, so too is the value of the tax credit. In other words, low interest rates create a disincentive for investment in affordable housing - just as it is most needed. Current interest rates have the 4% credit valued as low as 3.08%, nearly a 25% drop from its intended value when the tax credit program was created.
The positive news is that there is a bi-partisan bill in the House of Representatives calling for the stabilization of the 4% tax credit at a true 4%. If passed, this legislation would be a very big boost to several projects currently planned in West Michigan. We currently have close to 500 housing units planned in the Holland area, and roughly 120 units planned in the Grand Haven area. However, without the stabilization of the tax credit rates, these projects may not move forward. A reassuring sign in today's era of divided politics, this bill has already received a sign-on from 44 Republicans and 59 Democrats in the House. The tax credit tends to attract bi-partisan support because it uses private capital investment to support a public interest priority, and it does not require a direct cash subsidy from the government.
Regardless of the outcome for the 4% tax credit program, we do have new residential project partnerships in varying stages of development or pre-development in Grand Haven, Holland, Holland Township, Hudsonville, Grand Haven Township, Spring Lake and Coopersville.
Community Zoning Updates
On a local level, communities across Ottawa County are making critical updates to their zoning codes to support a greater diversity of housing choices to meet demand.
Grand Haven Charter Township was one of the first communities to provide zoning updates to support housing choice. Their Missing Middle overlay zone is a highly innovative mechanism for West Michigan and allows for a variety of building types in traditional, low-mid density neighborhoods. Township staff were also careful to allow for innovation in both design and construction practices in an effort to support modular and panelized construction where it makes sense.
The City of Holland has nearly finished a comprehensive zoning overhaul which is being referred to locally as the UDO (Unified Development Ordinance). The City has looked at every element of their existing zoning ordinance along with all other development related policies to craft a single over-arching document to support growth that is in line with the community's vision. The City's work is highly commendable and too broad to list everything here. However, most helpful to our efforts is that the City has increased the variety of housing options that are available and streamlined the development process in an effort to make housing simpler to build and with fewer restrictions or added time constraints. In addition, the new UDO has codified neighborhood building standards in a way that emphasizes the importance of balancing how new buildings fit into the existing pattern of development while reducing the restrictions on the use of the building. The public input process is still ongoing, but we have high hopes for a very housing-friendly outcome and commend City staff, the Planning Commission, and their lead consultant, McKenna Associates, on an outstanding effort so far.
The City of Grand Haven is also undertaking a major rewrite of their local zoning ordinance and focusing on opportunities to support incremental growth while preserving the small town vibe and coastal charm of the City. Grand Haven staff, Planning Commission and their consultant team, Williams & Works, have also been focused on creating more opportunities for housing choice and have done an excellent job of engaging the community and a broad group of stakeholders to inform the process and the outcome.
The City of Hudsonville has also adopted a comprehensive form-based code for their downtown and is working on a major update to the zoning for the remainder of the community. The adopted form-based code allows for a much greater variety of housing options at a variety of price points to be located near downtown, and this code - along with extraordinary efforts by city staff - has attracted a significant amount of development interest.
In addition to the above, the Village of Spring Lake and Holland Charter Township have also made incremental updates to their zoning ordinances to improve opportunities for housing choice and to simplify the development process.
Good progress is being made across the County in this way. Local regulatory reform does not entirely solve for all housing supply or housing affordability. However, it is a critical step in the right direction. Any time local minimum standards can become more adaptable to the current housing market, the private sector is able to solve for a greater share of the housing shortage. Yet, additional work is needed in other areas if we are to truly solve for housing affordability. Furthermore, we have begun to hear from local municipalities that they would like to see greater collaboration across city/village/township boundaries so that there is a better understanding of where other housing projects are taking place, to what degree each community is contributing to solutions, and where interventions are successful how local communities can learn from one another.
Ottawa County Housing Commission
In late 2019, the Ottawa County Board of Commissioners made the important decision to re-establish the Ottawa County Housing Commission and appointed a five-member commission. This body is in the process of drafting its inaugural strategic plan and has been collecting input from local communities and community housing partners alike. The Housing Commission seeks to understand where the barriers to housing affordability are most significant and utilize available tools to help reduce those barriers and foster collaboration, data management, and knowledge sharing across the County.
COVID-19 & Disruptions to the Housing Ecosystem
One of the fundamental drivers of the housing shortage over the last 15 years has been stagnant wage growth. While the cost of construction and median rent has grown by more than 60% over the last several decades, the average wage across the U.S. has barely moved since 1970. In Michigan, more than 60% of the workforce earned less than $20 per hour prior to the pandemic.
New housing construction has fallen behind household growth for nearly two decades, primarily because lenders and investors understand that a relatively small share of families seeking housing can actually afford the cost of new construction. Where local regulatory barriers make housing more expensive we have doubled down on this problem, but the wage disparity is the root.
Unfortunately, COVID-19 and the necessary economic slowdown that has resulted from attempts to avoid overwhelming the healthcare system will likely exacerbate the pre-pandemic dearth of financing for new housing construction. More households now have less income. This does not bode well for financing new housing in the short-term except for those wealthier households who have been able to continue working from home.
Mid-point Analysis
Housing Next is now at the mid-point of the intended 5-year pilot phase. When we began this initiative, our goal was to clearly define the barriers to housing and generate consensus and action around solutions. Major successes have included the widespread use of the 2018 Housing Needs Assessment to galvanize support for more housing at all price points, multi-jurisdictional efforts to reduce regulatory barriers to housing production at the local level, and more than a dozen partnerships with for-profit and non-profit developers working to get new housing built at all price points. More work is still needed.
We have helped to push forward roughly 1/3 of the overall housing supply needed by 2023 in Ottawa County. However, only one of the projects we currently have in the development pipeline will support households earning less than 40% of the county-wide median income. This means we do not yet have scalable solutions for residents and workers earning less than $12/hr or for families in which the primary wage earner is unable to work full-time due to a disability, child-care obligations or parental care obligations.
We also do not yet have effective solutions to preserve the housing that is affordable today if market pressures continue to push prices upward. We're working on some tools but may need state legislative support in the next session to get across the finish line.
However, there have been some truly brilliant successes - even in the midst of a pandemic - and where credit is due to our non-profit community partners. Good Samaritan Ministries, Jubilee Ministries and Lakeshore Habitat for Humanity have all gained extraordinary ground over the last three years by expanding services and increasing their housing production. Each of these organizations has found innovative ways to solve for the barriers in the system and to solve housing needs for more families than ever before.
Both the City of Grand Haven and the City of Holland have made publicly-owned property available to community partners for mixed-income developments and continue to explore their full suite of potential economic development incentives to support more housing.
Ottawa County has stepped in as a major resource and central repository for county-wide data and best practice reports. Their role as a convener, a vehicle for collaboration, and host for information and knowledge sharing is a major addition to the housing ecosystem and we're very excited about the leadership role the Ottawa County Housing Commission has taken so far.
I will be writing more in the coming months about the areas where much more work is needed and the ways in which we will be looking for help from the community at-large.
For now, we're grateful to the Community Foundation of Holland/Zeeland and the Grand Haven Area Community Foundation for their continued financial support and to the Greater Ottawa County United Way for hosting this initiative and providing technical and administrative support at every step. Of course, our leadership council (Lakeshore Advantage, the Michigan West Coast Chamber, the Chamber of Grand Haven, Spring Lake & Ferrysburg, the Lakeshore Non-Profit Alliance, and the Ottawa County Administrator's office). I continue to be blown away by the collaborative, solution-oriented nature of this community and the willingness of organizational partners to roll up their sleeves and get to work. There is still a lot of work to be done, but no better team with which to do it.