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Housing Nexus StudyPinellas County and the Cities of

Clearwater, Largo and St. Petersburg

Prepared by

Bay Area Economics

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Presentation Overview

Housing Trends

Housing Needs

Inclusionary Housing

Nexus Analysis

Linkage Fees

Questions

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Housing Trends

Median home sale prices increased 118 percent from 2000 to 2006 Driven by falling mortgage interest rates, rapid escalation in

land building material costs, and constraints on new development

Median household incomes increased only 16 percent Supply of existing affordable housing reduced

Conversion of more than 4,400 apartments to condominiums Redevelopment of mobile home parks

New construction has concentrated on beachfront condominiums and larger single-family homes

Housing turnover inhibited by Save Our Homes real estate tax legislation

Massive increases in property insurance rates

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Housing Affordability

HUD defines affordability as paying 30 percent or less of household income for gross housing costs (including utilities, insurance and taxes)

Housing affordability depends on household income, often measured as a percent of area median income (AMI)

One-third of county households paid more than 30 percent of their income for housing in 2005 – even higher now

Eighteen percent of county households paid more than half of their income for housing in 2005

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Housing Needs

Among single-family houses sold last year in Pinellas County

Median price of $199,900

Only 26 percent of county households can afford that price

With rising development costs, newly built houses and condos are much more expensive

Among apartments in larger rental complexes

Median rent of $960 for a two-bedroom unit

Only 52 percent of county households can afford that rent

Wages are not rising as rapidly as house prices, rents or insurance rates.

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Economic Implications

Employee recruitment and retention problems Businesses that depend on lower-wage employees –

tourism, retail, services Teachers, nurses, firefighters and other public servants Even businesses with good-paying jobs competing with

companies in other areas with lower housing costs

Business recruitment and retention High transportation costs and long commutes for

employees seeking more affordable housing in nearby counties

Overcrowding when multiple wage-earners are needed to pay the rent or mortgage

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Housing Programs

Housing Trust Fund Community Land Trust Incentives for voluntary inclusion of workforce

housing units Bonus density – more units allowed on the same

parcel of land Expedited processing – saving time in development

approvals Impact and review fee waivers – County forgiving or

paying fees on new development Zoning regulation modifications – relaxing some of

the development requirements under the zoning code

Reduced parking requirements – reducing the number of parking spaces required to be built with new developments

Contribution of publicly-owned land

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Inclusionary Housing

Requires that new housing developments include a minimum number of housing units guaranteed to be affordable for the long term

Key mandated elements include:

The percent of affordable units

The level of affordability provided (i.e., rents/prices set to be affordable to households at what income levels)

Threshold number of units that triggers this mandate

Whether units must be built on-site as part of the new development, or whether they can be built elsewhere in less expensive locations

How many years of affordability

How affordability is maintained in homeownership options

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Inclusionary Housing

Legislation typically provides incentives designed to reduce/offset the financial burden to the developer

Developers are motivated to generate profits; lenders and investors require a return on their dollars

Housing that doesn’t meet at least the minimum required financial return (“hurdle rate”) doesn’t get built

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Inclusionary Housing Feasibility

BAE tested the potential returns from developing

Single-family detached houses

Townhouses

Low- and high-rise condominiums

Low- and high-rise apartments

Current market conditions coupled with high construction and land costs do not support construction of new market-rate apartments or low-rise condominiums away from the beaches (with or without workforce housing)

These conditions change periodically with shifts in demand and economic conditions

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Inclusionary Housing Feasibility

Compared returns with and without affordable housing – 20 percent of units affordable to households making 50, 80 and 100 percent of the area median income

Tested the effects of alternative incentives

Bonus density – 50 percent additional units in exchange for 20 percent affordability

Reduced-price or free land

Impact fees paid by the County

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Inclusionary Housing Feasibility Results

Base With 20% 50% Bonus, County PaysAssumptions/Unit Type For-Sale Affordable 20% Affordable Impact Fees

Target Rate of Return as a Percent of Costs 20.0% 20.0% 20.0% 20.0%

Single-Family Houses

Projected Rate of Return 22.83% 4.43% 13.67% 5.03%

Townhouses

Projected Rate of Return 21.76% 4.55% 12.60% 5.28%

High-Rise Condominiums

Projected Rate of Return 20.81% 0.51% 5.97% 0.92%

Returns Under Alternative Inclusionary Zoning Policies

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Inclusionary Housing Feasibility Results

Workforce housing units require per-unit prices that are $245,000 to $375,000 below market prices

Fifty-percent bonus densities begin to fill that gap but are not enough alone

Bonus density is only attractive if assured without additional development approval delays

Land write-downs through direct subsidy or a community land trust are effective incentives

Fee waivers and expedited approvals can help as well

Compensating developers for including 20 percent affordable units will require a blend of all the incentives available from the County

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Nexus Analysis

Nexus analysis documents the link between

new development

creation of new jobs

attraction of new residents to fill those jobs

new residents’ need for affordable housing

cost of providing affordable housing

Estimated the associated subsidy needs generated by new office, industrial, retail, hotel and residential development

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Linkage Fees Justified by Nexus Analysis

Maximum Average Hard Maximum FeeAllowable Fee Construction as Percent of

Land Use per Sq. Ft. Cost per Sq. Ft. Hard Cost

Office $106.01 $84 126%Industrial $59.76 $45 133%Retail $81.75 $58 141%Full-Service Hotel $50.53 $82 62%Limited-Service Hotel $13.57 $84 16%

Maximum Typical Maximum FeeAllowable Fee Development as Percent of

Land Use per Unit Costs per Unit Unit Costs

Ownership Housing $19,560 $303,000 6.5%

Rental Housing $5,985 $239,000 2.5%

Justifiable fees far exceed what the market could bear

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Recommended Linkage Fees

Recommended RecommendedFee as Percent Fee per

Land Use of Unit Costs Unit

Ownership Housing 4% $12,100Rental Housing 2% $4,800

Recommended RecommendedFee as Percent Fee per

Land Use of Hard Cost Sq. Ft.

Office 3% $2.50Industrial 3% $1.40Retail 5% $2.90Full-Service Hotel 3% $2.50Limited-Service Hotel 2% $1.70

Residential linkage fees would apply to developments not subject to inclusionary housing requirements

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Potential New Workforce Units

If development pace from 2002 to 2006 continued, an inclusionary housing requirement of 20 percent workforce units would generate 500 to 600 units annually

However, the county’s dwindling supply of land for development will greatly constrain that production rate into the future

Redevelopment will offer some opportunities, but its scale and pace are difficult to predict

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Potential Linkage Fee Revenues

Commercial development from 2002 to 2006 averaged 664,000 square feet annually

Applying the recommended linkage fees to these activity levels would generate up to $1.5 million in annual revenues for workforce housing

Potential revenues need to be balanced against the impact of the fee on the local economy and the county’s ability to attract and retain businesses