Affordable housing is getting harder to build in Charlotte. What's the solution?

SECU The Rise on Clanton.
Thursday, March 23, 2023
Danielle Chemtob, Axios Charlotte

Editor’s Note: This article is a part of a series of guest contributors considering the question, “What small tweak or large shift would you make in 2023 that would catalyze sustainable growth and ensure equitable wellbeing in our region?” 

Charlotte spends millions a year to subsidize the construction of affordable housing. But the cost to do so is skyrocketing, which poses the question: what is the best way to use finite taxpayer dollars to get the most affordable housing?

Last year, developers of nearly 900 affordable units who had previously received public money told Charlotte City Council they needed an additional $32 million to complete their projects. That’s more than the $23 million they had already received from the Housing Trust Fund, the $50 million bond voters approve every two years.

City Council allocated around $20 million in additional funding to all but three of the projects in late November. 

But that was a stopgap. The city’s limited amount of money will continue to go less far.

Plus, the Housing Trust Fund has only created a fraction of the units necessary to meet the needs of the poorest residents. 

Early last year, prior to the latest bond’s approval, I found in an analysis for Axios that less than a quarter of units built since mid-2018 were for the lowest-income earners. That amounted to around 1,200 units.

But there are nearly 32,800 households at or below 30% of the area median income, according to Mecklenburg County’s State of Housing Instability & Homelessness Report released last month. 

“I think the biggest challenge that we're facing is that the tools we've relied upon for addressing affordable housing are no longer really working in this economy,” says Liz Clasen-Kelly, CEO of homeless service provider Roof Above.

So what can we do when the tools we have are no longer enough? There’s no one solution to the crisis, but here are a few, some which exist in Charlotte but could be expanded, and some that are not being done here.

Other sources of funding

For starters, we just need more money. A lot more. 

I reported for Axios last year that the cost to make a meaningful dent in the city’s affordable housing problem is likely in the billions. 

  • That’s a lot more than our $50 million bond, and a big chunk of our $3.24 billion budget.
  • “In many places where they are putting money into affordable housing, it likely … has not kept pace with the significant increase that we've seen in costs recently,” said Andrew Aurand, vice president for research at the National Low Income Housing Coalition.

Bonds aren’t the only way to raise money, though. And our current housing bond is limited, because it can only be used for capital costs, not something like vouchers.

Revenue sources in other cities for affordable housing include: real estate transfer taxes, hotel/motel taxes and short term rental fees, impact fees and property taxes, according to a 2016 study from nonprofit Community Change. 

There haven’t been conversations within Mecklenburg County about dedicated taxes or real estate transaction fees for affordable housing, county spokesman Alex Burnett says.

Rental Assistance

The largest form of rental assistance is the federal Housing Choice Voucher, more commonly known as Section 8. But it has a years-long waiting list in many places, and those who do receive them face difficulties finding an apartment to rent.

Some state and local governments provide their own forms of rental assistance, though they tend to be for a more narrow group of people, Aurand says.

Chicago, for instance, funds a rental subsidy that goes to landlords who agree to rent units to those earning 30% or less of the median income. 

There are already local versions of vouchers that could be expanded with more resources.

Mecklenburg County spends about $5 million per year to provide rental assistance to nearly 600 households that are experiencing homelessness, according to Karen Pelletier, director of housing innovation and stabilization services with Mecklenburg County Community Support Services. 

  • They provide the money to service providers like Salvation Army and Roof Above. The subsidy covers a market rate unit, and if a household works they pay up to 30% of their income toward the rent, she says. The county also provides a social worker.
  • “Anytime that we have an opportunity to expand on that, I think, we’ve got data to show that it works,” she says.

But there’s a major roadblock: many landlords don’t accept vouchers.

The city of Charlotte and Mecklenburg County recently prohibited landlords who receive public money from discriminating against households based on their source of income, such as a Section 8 voucher. 

But those rules don’t apply to most apartments that are privately-financed. The city has said regulating all landlords would require changing state law. 

It’s important to note that Charlotte is limited in what it can do to address the housing crisis compared to other cities. North Carolina is what’s known as a Dillon’s Rule state, which means local governments can only exercise authority expressly given to them by the state.

Many states require developers to set aside a certain share of units as affordable, in what is known as inclusionary zoning. But the legality of that in North Carolina is murky.

Nonetheless, Charlotte has found some workarounds. 

For example, the city recently started a program that would use the money a land owner pays in property taxes to fund rental subsidies at that property for people at 30% of the area median income. 

It applies to owners of naturally occurring affordable housing developments, which are older apartment complexes where rents are lower. The city has helped fund the renovation of such properties to prevent them from being purchased by investors who make them unaffordable.

Mark Ethridge, operating partner with the privately-funded Housing Impact Fund, hopes that subsidy can be expanded to market rate development too, which comprises the vast majority of construction in Charlotte.

“If you look at even just capturing a very small proportion of what the market builds on a yearly basis, you could practically double the impact of affordable housing,” he said.

Hotel conversions

As COVID-19 reshaped the need for real estate like hotels and offices, some cities and nonprofits have turned to revamping those spaces to meet housing needs.

Hotels and motels struggled in the wake of COVID-19, and that meant they were cheaper for those organizations to purchase. In California, officials have helped convert sites across the state, mostly hotels, into over 5,900 units for low-income renters and people experiencing homelessness. 

In Charlotte, Roof Above transformed an 88-unit former Quality Inn on Clanton Road into permanent housing for people experiencing chronic homelessness, now called SECU The Rise on Clanton. 

Mecklenburg County is using $13.6 million in American Rescue Plan Act funding to renovate an 80-unit hotel into housing for residents 55 and older experiencing homelessness.

  • Pelletier says the first residents will start moving in this summer. 

Trying not to lose ground

Preserving naturally occurring affordable housing can’t be the only solution to the crisis, because it doesn’t actually create new units. But it does prevent our deficit from growing further.

  • Charlotte lost 36,000 low-cost rental units between 2015 and 2020, per data shared during a committee meeting of A Home for All, a strategy leaders in the area are working on to address homelessness. 

Plus, Ethridge says unlike new construction, the cost of purchasing naturally occurring affordable housing complexes has declined by about 20%. Because of higher interest rates, there’s less cash flow for owners after paying the mortgage. 

On the one hand, that’s an opportunity for affordable developers to acquire those properties. The first round of the Housing Impact Fund rehabbed just over 800 apartments, and has raised over $40 million so far in its second round.

But he says there are far fewer housing communities that remain affordable than there were five or six years ago. 

The data are clear: we can’t build new units fast enough to solve the affordable housing crisis anytime soon. We need a combination of strategies, from vouchers to adaptive reuse, to make a meaningful dent in our lifetimes.