This is the first installment in our series spotlighting different ways communities across North Carolina are tackling their housing needs.
We heard about Morganton’s Housing Stimulus Program that offers forgivable loans to developers for water, sewer, and streets infrastructure. We think this idea smartly uses city funds to incentivize housing development.
The idea
The city previously had incentivized the development of large subdivisions through forgivable loans to developers for infrastructure needs. As the city’s housing needs changed from subdivisions to denser downtown housing, the city revived and tweaked the program to address current needs.
Since FY 2023, the city has annually allocated funds for its Housing Stimulus Program which can be used for water, sewer, and streets. In FY 24-25, the city allocated to the program $400,000 for water and sewer infrastructure and $150,000 for public streets. This program is available for the development of owner-occupied single-family housing. The program is not available for units that will be rented; however, the city has expanded the definition of single-family in this case to include multifamily properties where the individual owns their piece (think a row of townhomes or a duplex).
The city’s program allows developers of qualifying projects to apply for a 0% interest loan of up to $5,000 per residential unit for both water and sewer infrastructure and up to 50% of costs or $75,000 for public street development. Payments under the stimulus program cannot exceed the actual amounts spent by the developer for those purposes. For example, if a developer plans to build 10 townhomes, then it could apply for a loan of up to $50,000 for water infrastructure funding and $50,000 in sewer infrastructure funding, as long as its cost to construct and install water and sewer infrastructure was more than $50,000.
If the developer’s application is approved by the city council, then the city enters into a development agreement, spelling out all the terms and conditions of the loan and grant. The city then advances the funds to the developer and takes a deed of trust on the units (which the city is willing to subordinate to financing liens). As each unit sells the developer pays back 50% of the amount advanced for that unit and the city forgives the other half. The city requires that the units sell within 7 years, or the entire amount advanced becomes due.
Why we like it
We think Morganton’s approach is notable because:
- They’ve set up a program that is predictable for developers.
- Creating a housing stimulus program funded year by year helps insulate the program from annual budget negotiations. This allows developers to plan projects that can utilize the available program funding rather than having to guess if the city is willing to chip in.
- They’ve adapted a previously successful program to meet a new need.
- This approach helps prove the concept to elected officials and didn’t require the city to start from scratch.
- They tackle one aspect of housing affordability – development costs – rather than trying to solve the entire problem.
- Providing cashflow to developers upfront, rather than offering a rebate later, helps developers cover costs while the units are built and before they are sold. Forgiving half of the loan after the unit sells may be especially impactful for developers interested in building “missing middle” housing where the margins may be smaller.
We also like that the repaid loan funds can be funneled back into the program in future years to help sustain this initiative over the long term.
This approach works well for this city, and it might work well for yours. If it doesn’t, we still think this example illustrates the benefits of:
- thinking creatively about any old or existing incentive programs you might have and whether they can be adapted for housing.
- identifying one barrier to housing development in your community and working toward solutions on that specific issue, rather than trying to tackle every roadblock.
Let us know if you’re interested in discussing this idea further or if you’d like our help in setting up this kind of program or something similar.
Next month we plan to highlight a community sponsoring a rent-to-own program which is providing low-income residents with an accessible entry into home ownership.
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