Why is affordable housing so difficult?

Why is affordable housing so difficult?

Affordable housing is an issue we hear about frequently — not just in Eagle River, but across Wisconsin and the country. Employers need workers, families need places to live, and many people who work in our community find that the cost of housing can be difficult to manage.

So a reasonable question is: What is the city doing about affordable housing?

The answer is more complicated than it may seem.

The City of Eagle River previously had an Affordable Housing Committee that spent considerable time discussing workforce and affordable housing. The committee ultimately stopped meeting about a year or so ago because, despite the interest and effort, we could not identify a workable solution that would make new affordable housing financially feasible given the current cost of construction.

That is one of the biggest challenges.

The city does not build housing. Housing construction is generally undertaken by private developers, who have to make projects financially viable. Land, labor, materials, financing, insurance, utilities and other construction costs all contribute to the final cost of a housing project.

At the same time, the city cannot simply require a private developer to build housing and charge a particular rent. Wisconsin law specifically limits what local governments can do in this area.

Wisconsin Statute § 66.1015 prohibits cities, villages, towns and counties from regulating the amount of rent or fees charged for residential rental dwelling units. The law also prohibits municipalities from imposing inclusionary zoning requirements that require a certain number or percentage of housing units to be offered at rents affordable to households below a specified income level.

In other words, the city cannot simply tell a private developer what rent to charge. The developer has to be willing to take on the financial risk of the project, and the economics have to work.

This is one of the reasons workforce and affordable housing is such a difficult issue. The need may be obvious, but the city has limited authority to require affordability and limited financial tools to make the numbers work for a private developer.

One potential tool available to municipalities is Tax Incremental Financing, or TIF. Depending on the circumstances and type of project, a Tax Incremental District (TID) can sometimes provide financial assistance or help make development costs more manageable. However, the City of Eagle River does not currently have an active TID in an expenditure period that could be used as an incentive for this type of housing development.

Without that type of financial incentive, the city has fewer tools available to help close the gap between what it costs to build housing and what households can reasonably afford to pay.

That does not mean the city has no role in housing.

The city can plan for housing, review zoning regulations, make sure appropriate areas are available for residential development, work with developers and property owners, and look for opportunities to help facilitate responsible housing projects. There is an important difference between creating an environment where housing can be developed and actually building and financing the housing.

We are seeing housing development in Eagle River. Pine Haven recently added 84 rental units, and additional developers have expressed interest in adding more apartments and condominium units. Increasing the overall housing supply is important because it provides more options for residents and can help address housing needs across the community.

But affordable and workforce housing remains a particularly difficult challenge. The city cannot solve it simply by passing an ordinance or telling a developer to lower the rent. The underlying economics have to work, and state law limits the city’s ability to regulate rents or require private developments to provide housing at specified affordable rates.

Perhaps the most important thing to understand is that wanting more affordable housing and being able to make affordable housing financially feasible are two very different things.

The city will continue to look for opportunities to support housing development and work with developers, property owners and community partners. We may not have an easy answer to the affordable housing challenge today, but that does not mean we should stop looking for opportunities to make progress.

Housing is an important part of a healthy community. Our job is to understand the challenges, work within the tools available to us, and take advantage of opportunities when they arise. When a project makes sense for our community and the numbers can work, we want to be in a position to help make it happen.

Thank you for the support and encouragement I’ve received since beginning this column. My goal is to provide clear, accurate information about the city and help residents better understand the decisions, projects and issues that affect our community. 

If there is a topic you would like to see addressed in a future column, I welcome your suggestions. Please email me at rcginner@eagleriverwi.gov. I want to make sure this column continues to address the questions and topics that are most useful to Eagle River residents.