Another Hare Brained Idea
The
purpose of the CARE 66 is to end homelessness by providing homes that people
can afford to rent or buy.
I
am going to try to walk through some of the big picture thinking that we go
through in the development of affordable housing.
What does affordability mean?
Affordability
generally means that no more than 30% of a family’s income is spent on
rent/mortgage, utilities and repairs.
For
a family of four making less than $25,000 per year that would mean that they
would pay about $7500 a year or $625 per month, for rent/mortgage, utilities,
and repairs. Think about that.
This
family would have a monthly income of $2083 before taxes. After deductions for taxes (17%) they would
have $1729 to spend on groceries, transportation, rent/mortgage, utilities and
repairs, shoes, clothes and other necessities of life.
Assume
that utilities are $100 per month for gas, electricity, water, sewer, and
garbage collection. And that repairs are about $50 a month. That means their rent/mortgage should be
$475.
If
this family has a girl, a boy and two parents, they should have a three-bedroom
house with 1.75 bathrooms. It would be
possible to build a house with 800 square feet to accommodate this family. The cost of building such a zoning-compliant
house would be ideally around $135 per square foot plus the cost of land and
taxes.
There
is no garage and space is tight.
Total
cost would be around $140,000.
A
30-year mortgage at 5% would be $676 including taxes and insurance after a 10%
down payment of $14,000. Think about
that. A family of four living in poverty
having savings of $14,000 to spend on housing.
Extremely unlikely.
The
question is: could a developer build and sell a house for $140,000 and make a
profit? Or even cover the costs of the house?
If they were renting from an
affordable housing provider in Gallup.
They would be required to pay at least $500 for rent and to pay their
own utilities.
Using the numbers above this means
that the developer would not be able to cover development costs or operating
costs for the apartment from day one.
So how do we house families living in
poverty?
So what does this mean for people
who have an income that is less than poverty?
How
do they afford a home?
Can
they buy a home or could they rent something?
What
could they rent on an income of less than $12,000 per year? For $237 per month?
Plus utilities.
What we have here is a housing
crisis. And what is the solution to this
problem? A little more money into
underfunded housing assistance programs that are overwhelmed with desperate
families seeking homes?
They
can’t afford the security of a decent home.
Poverty is not good for health and education outcomes and there is not
much hope for improved incomes. As the
generational poverty in this area proves.
The problem in Gallup?
About 25% of the population in
Gallup live in poverty. That means more
than 1600 families live in poverty. A
majority of these families are Native American in this town.
Housing them at the ideal cost of
$140,000 per unit would cost about $225 million. No wonder nobody wants to do anything about
this. The problem is huge.
Overwhelming. More than ten times the
city budget. The real cost of a housing
unit is between $175,000 and $200,000.
I haven’t even got around to talking
about operating costs, maintenance, rent collection, repairs, upgrades,
insurance, taxes, personnel, and support services. For a rental unit these costs are about $6800
per unit per year. 1600 units will cost
about $10.8 million per year to operate.
The solution for Gallup
There are resources out there. Very few grants. But a creative patching together of state,
city and county money, tribal money and other affordable housing funding
mechanisms, like tax credits could bring this money into town over a period of
time.
What do we need to make this
work?
1.
Political
will. As a community we are better at
tearing down other people’s hard work than working towards a common goal.
2.
Commitment
to housing all our citizens regardless of administration or political leadership
changes at City Hall.
3.
A
willingness to learn and implement housing ideas that are not your uncle’s 1950s
ideal suburban dream. In other words,
repopulate downtown. Build dense
housing. Create communities. Find
alternatives to parking. We need places i.e.
homes for people to live not parking lots for cars. In other words, we need to change our zoning
code.
Let’s start with 500
units of apartments or condos
If
we build 500 units of affordable housing that serves families with a wide
spectrum of incomes in the next five years in the downtown, we will need an
investment of more than $105 million.
That’s a lot of money.
The
operating costs for 500 units would be about $4 million per year plus debt service,
assuming debt service to be about 25% of the development costs.
We
could do 500 units if we had a guarantee for 10 years of operating costs.
Because.
It’s
the operating costs that make or break the sustainability of an affordable
housing project. Once capital costs have
been incurred they are sunk costs that look good on a balance sheet. And since the weakness of affordable housing
is its lack of cash flow because of low rents because of low incomes, a check
for operating costs would provide the missing link to sustainability and prosperity
in this town.
I
am not going to turn down a check for development costs. But a guarantee of operating costs means that
I can do a $10 to $12 million every year.
More
importantly, a guarantee of operating costs means that rents can be reduced to
much less than 30% of a family’s income.
This has the benefit of increasing a families spending, increasing
stability, improving health and education outcomes, reduction in the use of
police and emergency rooms.
The
other big beneficiary is the city. A
$105 million of investment in the downtown will improve our housing stock, get
rid of eyesore buildings, and make the downtown the center of this community
once again. This investment will also
attract private investors to develop non-affordable housing in the area. The impact on retail and restaurants in the
downtown will be significant.
Second,
McKinley County and the City of Gallup will both share about $10 million in gross
receipt taxes from construction.
Third,
more than 100 jobs will be created just by the construction.
To Summarize
Affordable
housing development has many components.
Two key cost areas are design/construction and operations. Resources for design/construction would be
more easily accessible if were a guarantee for operational costs with which pay
the loans, maintain and repair the project, collect rents and ensure that
housing goes to those who need it.
The advantage to apartments is that there
is reduced cost for land and it is possible to build a much higher density than
suburban development. Building
apartments are more cost efficient than single-family homes.
In
general, affordable housing improves property values in an area and housing
low-income families puts more money into the local economy, while reducing the
crime and improving health and wellbeing.
A
ten-year $4million guarantee for annual operating costs and debt service would
enable us to raise most of the money needed to develop 500 apartments.
Mixed
income developments prevent the concentration of poor families in an area, and
contribute to the revitalization and prosperity of the downtown.
So
who’s in?
Send
a check to CARE 66 at PO Box 4298, Gallup, NM 87305
