When Destinee Paez and her husband moved back to the Triangle from Seattle four months ago, they did so in part because they assumed housing would be much more affordable in the Raleigh area.
But when the couple began looking for homes priced between $130,000 and $150,000 in their desired location – near Falls of Neuse Road and Interstate 540 in North Raleigh – they found few options.
While the average price of the homes sold in the Triangle has risen 11 percent in the past four years to $254,000, the number of available homes priced under $200,000 has been cut in half to just 463 in the past two years, according to Triangle Multiple Listing Services data.
“We thought everything would be more affordable. We thought we were going to be able to find a home in the area we really, really were searching for,” said Paez, 24. “The houses here are expensive. They’re nothing compared to when we left three years ago.”
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The couple’s house-hunting experience highlights one of the byproducts of the Triangle’s economic recovery, which is drawing billions of investment dollars into the local real estate market.
All that money is increasing the cost of land – and housing – both for renters and homebuyers. It’s also raising concerns about whether lower income residents will soon be unable to live near where they work, receive health care and have access to reliable public transportation.
Already pockets of the Triangle are seeing their inventory of affordable housing sharply reduced as land is targeted for redevelopment. Near downtown Raleigh, investors are scooping up older rental communities and demolishing or renovating them to make way for higher-priced units.
In the single-family market, builders are constructing fewer traditional starter homes as their land and development costs rise. Over the past 12 months, 500 fewer new homes were listed for sale under $200,000 in the Triangle than during the previous 12-month period, according to Metrostudy, a research firm that tracks Triangle housing trends.
Meanwhile, developers are building thousands of new apartment units with the expectation that they will be able to charge rents that in some cases are double what was once considered affordable.
“The problem is you need money to buy land, and anything that is in close proximity to the city essentially becomes very difficult to acquire,” said Lew Schulman, president and CEO of Builders of Hope, a Raleigh nonprofit that refurbishes homes for low-income families.
Urban sites at premium prices
Concerns about rising land values and housing affordability are neither new nor unique to the Triangle. What is startling is just how soon after the housing bust certain parts of the real estate market here have come roaring back.
Part of this is a result of the global investment climate. With interest rates at near-record lows, investors have been funneling more and more money into real estate in an attempt to get better returns.
“Real estate is the only thing that money is being poured into at the moment,” Schulman said.
In the wake of the recession, the Triangle has become an attractive place to park that money. The region’s diverse economy, growing population and educated workforce has made investors eager to make major bets here, particularly in and around downtown Raleigh and Durham.
“Everybody’s about the highest and best use for the land,” said Gail Keeter, director of development for the Raleigh Housing Authority, which manages about 1,400 affordable housing units. “You want to increase density because there’s no more land, and (you have to look at) what is the highest and best use for a piece of property.”
Keeter said a real estate broker recently approached her about potentially redeveloping the authority’s 14-story Glenwood Towers senior housing property, which sits on a prime 2-acre site in Glenwood South.
With people now willing to pay a premium to live near the Triangle’s emerging urban centers, any well-located property that isn’t appealing to that demographic has become a target for redevelopment.
“We were very surprised to see the interest in our property,” said Carl “Kip” Young of Kip-Dell Homes, which over the past 18 months has sold three of its aging rental communities just northeast of downtown Raleigh.
Those communities – Brookview Apartments, Clover Apartments and Oakwood Apartments – were home to 184 affordable housing units. Young said his family-owned company hadn’t planned to sell, but the aggressiveness of the offers made them reconsider.
Built in the 1940s, Brookview charged average monthly rents of just $510 – well below the $953 a month that was the average for a 2-bedroom apartment in the Triangle in September. While Young knew selling would uproot his longtime tenants, he said it was becoming increasingly difficult to maintain the property at the existing rental rates.
“At that rate, when you’re trying to pay your taxes and insurance and trying to maintain the building, it begins to get very, very difficult,” Young said. “At the same time, if we go in and put in vinyl siding and all this kind of stuff and then charge $750, they’re out of a home anyway.”
Brookview is now slated to be demolished and replaced with about 60 homes that will average 2,500 square feet and be marketed to more affluent buyers.
Young views the evolution of downtown as a positive development for the city, but he acknowledges that there’s more to a successful city than a vibrant downtown.
“Obviously, a city has to have a place for everybody to live that makes that city work,” Young said. “We like renting to the people we rent to because they’re the people that keep the city of Raleigh clean, educated and not on fire, all those things.”
No incentives for developers
Raleigh currently has no programs in place that are designed to protect existing affordable housing units, or to encourage developers to include such units in new projects. The city’s recently adopted strategic plan addresses the need to create such tools in order to ensure a diversity of housing stock throughout the city, particularly on future transit corridors.
“We talk about the preservation of existing housing stock being just as important, of course, as the creation of new affordable housing,” said Larry Jarvis, director of the city’s Housing and Neighborhoods Department.
Jarvis said he expects to propose several such programs to the City Council in July, with the expectation that some would be in place by the end of the year. He said the goal is to enable nonprofits and possibly for-profit developers to acquire older properties that have “good bones” but are in danger of being converted to higher-end units because of their location.
Given the current level of investor interest in downtown Raleigh and other parts of the city, the longer officials wait to adopt such tools, the less there will be to protect. Just in the past three weeks, the Historic Boylan Apartments and two federally subsidized housing complexes just northeast of downtown, Raleigh North and Millbank Court, have been sold.
The new owners haven’t announced their plans for the properties. The average monthly rent for the 55 apartments in Historic Boylan is just under $800. At Raleigh North and Millbank Court, which have a six- to 12-month waiting period for one of their 230 units, a 2-bedroom apartment rents for between $648 and $678.
That affordable housing hasn’t been a top priority for city officials in recent years isn’t surprising to Schulman of Builders of Hope. He said as local governments have emerged from the recession, they have been primarily concerned with raising revenue by broadening the tax base.
The federal government, which acquired huge portfolios of distressed real estate when it took over the mortgage giants Fannie Mae and Freddie Mac, has also been focused on getting back the money spent bailing out those entities.
“We really lost a huge opportunity when there was a resetting of market values because the federal government was more interested in recouping revenue than essentially promoting affordable housing,” Schulman said.
One reason that the inventory of homes under $200,000 has dropped so significantly in the Triangle is that an entire new industry has emerged focused solely on renting out such homes. American Homes 4 Rent, one of the largest such companies, owns hundreds of single-family homes in the Triangle, and just last week, the company’s CEO said it planned to raise rents in the second and third quarters of this year.
Schulman said companies such as American Homes 4 Rent are able to push rents in part because many of their tenants are unable to qualify for mortgages.
“The people in that price point can’t get loans,” he said. “The market that can qualify is a market that does not encourage affordable housing.”
As for the Paez family, they lost out on five possible homes before finally putting a house in the Berkshire Downs subdivision in North Raleigh under contract for $148,000. Destinee Paez said she briefly considered looking in Youngsville in Franklin County, but her husband wasn’t interest in living that far from the city.
But others may not have a choice. The Paez’s real estate agent, Leah Kruger with Allen Tate, is working with a client who is looking to relocate to the Triangle from Maryland. She’s looking to buy a house priced between $150,000 and $170,000 and is able to pay all cash.
“She wants to be somewhere in Wake Forest, but we’re actually going to have to go out to Youngsville to get what she wants,” Kruger said. “There’s nothing in Wake Forest that’s going to fit her criteria. … And once she gets (to Youngsville), I don’t know if that’s going to be acceptable to her.”