Chapel Hill is for rent

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by Mark Zimmerman via The News & Observer 

Why apartments? The fourth building at East 54. Most of Obey Creek. The Edge. The Alexan on Elliott Road. Amity Station. American Legion. The housing approved or proposed for all these developments will be rented, not owned.

As a college town, apartments have long been a large percentage of Chapel Hill’s housing stock. Currently, 51.4 percent of housing units are not occupied by owners. But the recent trend to focus almost exclusively on rental development will meaningfully increase that share.

Before the recession, Chapel Hill’s major new developments centered on selling instead of renting. From Southern Village and Meadowmont to the first three phases of East 54, Greenbridge and 140 West Franklin, single-family homes, townhouses and condominiums dominated our landscape.

What changed? Both national and local trends caused the shift.

Nationally, the great recession changed people’s housing habits and financiers’ lending patterns. People who lost their homes couldn’t buy another. Millennials didn’t have the jobs or income to purchase a home, and many were leary of the investment after seeing what happened to their parents’ generation. They were forced to rent, but many did so gladly.

Meanwhile lenders faced new federal loan restrictions. The hangover from empty half-finished condo buildings lingers to this day. (140 West Franklin was one of only a handful of large condo projects nationally to be built after the recession hit. It was largely self-funded by the developer.)

Combining those trends led to concentrating on multi-family apartment complexes. Post-recession rental demand was up, and developers and financiers answered it. Apartment construction has been the strongest sector of commercial development for several years.

Areas like Chapel Hill are particularly attractive to this investment for several reasons. First, our supply of housing has been artificially constricted by policy for decades, so pent-up demand allows for premium-priced (i.e. luxury) projects. That’s fortunate for investors because of the cost of scarce, developable land and additional expenses incurred in our special-use permitting process. New construction must be high end to be financially successful here.

Low supply and high demand also drives up the price of housing in Chapel Hill. The average price of a house in our school district is 33.9 percent more than in Wake County and 75.6 percent more than in Durham. That leaves some who would could afford to buy a home elsewhere unable to qualify here. They have no choice but to rent, adding to the apartment demand.

The national trend to apartments is beginning to soften, but demand in submarkets like Chapel Hill will continue to fuel it here. It is our “new normal”; our future growth path, like it or not.

The shift to apartments isn’t necessarily a bad thing. Smaller, luxury apartments don’t attract many families with children, meaning they don’t require as many government services as some traditional detached housing does. More apartments are also needed to house the employees of businesses we are trying to attract. New businesses won’t move here unless their workers can move here also.

Due to our high costs, today’s new apartments will be luxury priced. But that’s a temporary issue because they will become tomorrow’s more affordable ones. As apartments age, they become relatively less expensive. When we largely stopped building apartments for at least a decade, we created a gap in our pricing. We now have new expensive units and very old low-end units. The middle class is left out because we didn’t keep building. The current Town Council is about to repeat that mistake if it refuses to continue approving new projects. Our pipeline barely keeps pace with historic low growth.

There’s not much from a policy standpoint that can change this trend to becoming more of a rental community. Instead, we should take advantage of it. Areas like Ephesus-Fordham, where we have already committed to more dense commercial development, need a lot more residential units within walking distance to change from a suburban-like strip mall to becoming a second town center. Apartments are a great solution.

For once let’s stop fighting the market and use it to help achieve our strategic goals instead.

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