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MaineHousing Director Dan Brennan, left, and Director of Development Mark Wiesendanger, announced this week that the housing authority is reviving it's pre-recession Affordable Subdivision Program for developers as a way to provide more moderately priced housing for first-time home buyers.
AUGUSTA — MaineHousing has revived a pre-recession program designed to spur developers to build affordable single-family homes.
The state's housing authority announced this week that it's bringing back the Affordable Subdivision Program, which provides incentives to developers, as a way to bridge the gap between what people can afford and what homes are available. The program was originally launched about 15 years ago, but was ended when the recession halted most construction activity.
"Ideally, what we're looking to do is create more housing that people can afford," Dan Brennan, MaineHousing director, told Mainebiz.
The program provides $20,000 forgivable loans per unit to developers of moderately priced single-family housing, with a $100,000 minimum — a developer must build at least five affordable homes — and a $450,000 cap.
Brennan said the point is not to have "sprawling developments," but smaller ones that fit the community.
There is a $2,500 per unit bonus for units built in "high opportunity areas" — those with access to education, health care and jobs, said Mark Wiesendanger, MaineHousing director of development, who is overseeing the program.
The program was gaining traction when MaineHousing initially launched it, and about two dozen homes were built using it.
Brennan said the time is right to bring it back.
"Real estate prices and home prices have outpaced salary increases," he said. "Affordability is the biggest problem we have in the state." HUD defines "affordable" as housing, including utilities, that costs no more than 30% of the home owner's income.
Brennan said since the housing market picked up after the recession, larger, more expensive homes are being built, but the amount of moderately priced homes built aren't keeping pace. "I think there needs to be more balance," he said.
It can take up for a year to get a program like this rolling, Brennan said. It has to catch on, and development of new projects also takes time.
Brennan said about two dozen homes were built under the former program before the recession ended it.
One of those developments is Cony Village, on Cony Road in Augusta. The project, built by Kennebec Valley Community Action Program and Bread of Life Ministries, now includes 17 energy-efficient houses.
He said the recession that hit shortly after the project was started and posed some setbacks, but didn't ground the development. "They have persevered," Brennan said. He said MaineHousing has worked with the developers over the years.
Other projects that took advantage of the program are Calvins Way, in Sanford; Topsham Crossing, in Topsham; Birch Ridge, in Hollis; and Demerest Subdivision, in Portland.
At the time, there was a lot of developer interest in the program. While things have changed as far as development, construction and housing since 2007, Brennan and Wiesendanger believe there will be similar interest this time around.
"The factors that led to the crash weren't really part of the affordable housing world," Brennan said.
In its previous iteration, the program offered a $15,000 forgivable loan. Brennan said there's $1 million available for the program, and the $20,000 loan figure will be monitored, and possibly adjusted.
"We'll get a sense of it," he said.
Home buyer affordability issues have a lot of angles, Brennan said.
"People want to stay in their community, but in a smaller home, and can't find one," he said. "Young families who are renting my have a kid in the school system, and they want to stay in that school system, but can't find a home."
Barriers to building moderately priced homes range from the cost effectiveness of a subdivision given minimum lot sizes, the cost of construction and more.
The fact those homes aren't available to people with whom MaineHousing works led to the program's revival.
Brennan said the target home buyer for the program are those who take advantage of MaineHousing's First House Loan program. The program has income limits based on the median income level of the area where they live. While those who would buy homes subsidized by the subdivision program don't have to get a MaineHousing loan, the income maximums would still apply.
The current caps on what developers can sell the homes under the program for are:
Cumberland, Sagadahoc and York counties, $260,000.
Androscoggin, Hancock, Kennebec, Knox, Lincoln and Waldo counties, $220,000;
Aroostook, Franklin, Oxford, Penobscot, Piscataquis, Somerset and Washington counties, $200,000.
Wiesendanger said those numbers may be adjusted.
Median home prices, according to the most recent Maine Association of Realtors report, range from $319,900 in Cumberland County to $99,900 in Aroostook County.
"Affordability is a problem statewide," Brennan said. But the issues are different in different parts of the state, he said — lack of inventory and skyrocketing prices int the more populous southern counties, and aging stock that aren't a good investment and issues to do with remoteness and other rural factors in other places.
The "high opportunity areas," as defined by MaineHousing, that would spark the $2,500 bonus, are based primarily on population and access to employment, education and health care, and more specifically proximity to major employers, colleges and universities, hospitals and availability of public transportation and geographic diversity.
While the loan amount isn't high, given the overall cost of a subdivision, Wiesendanger said the program can be that needed piece of financing to spur development of moderately priced homes.
According to the National Association of Builders' most recent figures, for 2017, it costs an average of $148.95 per square foot to build a new home in Maine. It would be a little less for a subdivision, most experts say, because of efficiency of scale with more than one house.
To be eligible for the subdivision program, the house or condo must be a new (never previously occupied) owner-occupied single-family home or condominium that is eligible for financing under MaineHousing’s First Home Loan Program. Mobile homes are not eligible, because they're regulated separately by the federal Department of Housing and Urban Development.
The loans can be for land acquisition reimbursement, site development soft costs including construction loan interest and on-site infrastructure, roads, sidewalks, and landscaping. It doesn't cover things like overhead, staffing, and other general operating costs.
The subdivision must be in a locally designated growth area of a municipality, as identified in a comprehensive plan, consistent with Maine’s growth management program requirements. If the community doesn't have a comprehensive plan, the subdivision must be in an area that has a public sewer system with the capacity for the project, an area identified as a census-designated place in the latest U.S. Census, or a compact area of an urban compact municipality.
The loan is forgiven if all the units in the subdivision under the program are sold within three years, if not, the loan, with interest, must be repaid.
Developers participating in the program won't be able to access additional subsidy from MaineHousing, but home buyers may receive subsidy for down payment and closing costs.
It's the only program MaineHousing has that offers incentives to single-family home developers — much of the authority's work is aimed at getting people with low to moderate incomes into homes.
But both Brennan and Wiesendanger said the program for developers will ultimately help MaineHousing's clients.
Brennan said the program may be tweaked, but the only way to know how it will work is to offer it.
"The most effective way to get a product out is to put it on the street and see if it works," he said.
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