Developers weary of affordable housing in Chapel Hill

Despite the town’s best efforts, hopeful developers still face challenges when trying to build and manage affordable housing complexes.

The town of Chapel Hill hosted the first of four workshops on affordable housing at Town Hall Tuesday night. The workshop featured four speakers who detailed the process and challenges of building affordable housing in the town.

“We put these sessions together to talk about affordable housing in a different way,” said Loryn Clark, executive director of housing and community for Chapel Hill.

Mark Moshier, a principal at Legacy Real Property Group, said that there is a difference between how a developer can approach affordable housing projects versus housing projects that are sold at market value.

Before an investor puts money into a project, they must weigh the risks and associated costs with the expected cash flow that will emerge when the project is finished, said David Hartzell, a professor of finance at UNC.

For property developments, the expected cash flow comes from rent paid by tenants.

“The worth of a project is based on how much income a project can make,” Moshier said. “The higher the income on the project, the higher the value of the project.”

For housing projects sold at market value, developers can negotiate the price of rent to make sure that the cash flow from tenants will cover the cost of construction, maintenance and risk.

“As soon as we have affordable housing, we have stifled our net operating income,” Moshier said.

To account for that reduced cash flow from the tenant, an affordable housing project must be less expensive to make. Projects that are required to have a high amount of affordable housing units are not attractive to investors because there is very little profit, he said.

“A 100 percent affordable housing project is really hard to make any kind of return to the equity source without having incentives to reduce the project costs,” Moshier said.

By North Carolina law, Chapel Hill has the power to regulate certain aspects of a development, like the size and location of buildings. But the town cannot compel a developer to include affordable housing unless it subsidizes part of the project, said Tyler Mulligan, associate professor of public law and government at UNC.

He said this kind of subsidy is most effective when there is high population growth, a high demand for housing and ample land on which to develop.

Dwight Bassett, the economic development officer for Chapel Hill, said the town is limited by its lack of available land and limited population growth for the 15 to 45 age group during the past 20 years.

Mulligan said an affordable housing subsidy cannot completely solve housing issues.

“Even when you have a set-aside program, it is unlikely that that program will solve the affordable housing needs of the community,” Mulligan said.

“If the goal is to provide more inclusionary zoning, affordable housing is the start, but it is not the end of the conversation.”

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