McLean wants Boise developers to build less-costly housing. Why her incentives may fail
As part of her strategy to get housing built at different prices, Boise Mayor Lauren McLean wants to make a deal with developers. She would allow them to build taller and denser apartments outside of downtown in exchange for their promise to offer some of their units at below-market rates.
But some developers say the incentives would not be enough.
“These things in Boise aren’t going to move the needle on a project,” said Casey Lynch, CEO of Roundhouse, which is building the Cartee, a high-end apartment building at 323 Broad St. downtown.
McLean’s proposed incentives are the second initiative city leaders have explored in the past three years that would entice developers to build more living units at lower prices than the local market will support.
In 2018, as part of the city’s Grow Our Housing plan, former Mayor David Bieter proposed cash incentives for developers. They were intended to promote “workforce housing,” units reserved for people who make no more than 80% of the area median income — $39,400 for a single person and $56,250 for a family of four.
But a report commissioned by the city in 2019 found that even incentives of nearly $5,000 per unit couldn’t persuade developers place rent controls on their units.
McLean has steered the council toward a different incentive structure. Rather than offering cash incentives, she suggests that the city give developers bonuses in density or height, or require fewer parking spaces, in return for offering some units that would rent to those making 80% to 100% of the area median income.
The details aren’t yet nailed down, but McLean hopes the incentives would help Boise hit its goal of building 300 affordable rental units a year citywide.
“We need a complete housing portfolio,” McLean said in an interview with the Statesman.
Whether the incentive works, developers say, will come down to simple math. A for-profit developer won’t buy into any incentive that doesn’t allow them to keep making a profit.
“It’s hard to incentivize a developer enough for them to change their business model,” said Shellan Rodriguez, a development consultant who previously worked for Boise’s urban renewal agency, the Capital City Development Corp. She supports the city’s push for incentives, but said developers could be reluctant.
Parking, density bonuses may not work in Boise
“The return on investment has to still be the same,” said David Wali, executive vice president of Gardner Co. His company is building a 236-unit apartment building that will wrap around a six-story parking garage with 356 spaces Greenbelt and Boise State University. “The question is: What is the cost per unit?”
Consider a two-bedroom, suburban-style apartment with its own surface parking spot.
At market rate, the apartment might go for $1,400 a month, Lynch said. If the developer were restricted to renting only to those making 80% of the median income or below, it would go for $1,200 a month, a $200 difference. The rent-restricted unit would be worth $50,000 less to a developer than a market-rate one.
Incentives like reducing the parking requirements and density bonuses — while they may work in other places — are “largely ineffective” in Boise, said Lynch.
Take parking. In theory, reducing the number of required parking spaces makes building cheaper. Surface parking lots can cost $10,000 per space, and parking garages can cost $35,000 a space. If Lynch hadn’t built the parking lot in the Fowler downtown, he said, he would have saved $3 million.
“But people still drive cars in Boise,” Lynch said. “It makes it hard to lease a unit to somebody if you don’t provide sufficient parking.”
Any incentive tied to parking minimums would need to come with a greater investment in public transportation, he said.
The ability to build denser and taller does help to cut the cost per unit — but only marginally, Lynch said. Land costs in Boise make up 4% to 10% of a project like the Cartee’s final cost. Most of the cost is in construction.
Building more densely, Wali adds, can increase construction costs. To build 50 apartment units per acre rather than 25, a developer may need to include costly add-ons like an elevator in the building, structured parking instead of surface, and use expensive steel framing rather than wood.
And there’s the possibility of backlash.
“Whenever we go for higher density, then who’s the first to complain?” Wali said. “Every neighbor in the area.”
The next to complain might be the renters themselves.
Workforce versus market-rate apartments
“Workforce” housing rates don’t look much different than market-rate. The Ash+River Townhomes just south of downtown Boise were required to lease units to people making 80% to 120% of the area median income for seven years. That was a condition of the developer’s purchase of the land from the Capital City Development Corp., Boise’s urban-renewal agency. A 510-square-foot one-bedroom apartment now rents for $1,385 a month.
But as demand pushes rents up, the gap between market-rate units and workforce units will widen, said Dean Papé, partner at deChase Miksis, which built the townhouses.
“There’s more and more demand coming into this market that can pay a higher rate,” he said in a phone interview. “The people that can’t afford those market-rate products will get pushed farther and farther out of the core.”
Papé, and developers like him, support initiatives to build more “missing middle” housing, which provides options for those who don’t make enough to qualify for subsidized housing but can’t afford market-rate homes.
“If it’s mixed into every project, that is even better,” Papé said. “If we can build a project that has workforce, market-rate and low-income, that’s what makes a real community.”
Scott Beecham, director of design and development and indieDwell, a Boise company that makes homes from recycled shipping containers, agrees.
“The city taking the first step is a great win,” he said.
Boise, he said, could also consider reducing impact fees for developers of projects along transit corridors as another incentive.
“Anything the city can do that would increase supply in the right areas, we’re all for,” he said.
No rent restrictions, no ‘inclusionary zoning’
The state forbids Boise from requiring developers to include rent-restricted units in their projects — so-called inclusionary zoning, which is used in other states to ensure that affordable units are built.
“Incentives work best when you have a carrot and a stick,” Rodriguez said by phone. “In Idaho, we don’t have a stick.”
In Phoenix, Arizona — where the state also pre-empts cities from creating such regulations — city leaders are also coming up with creative ways to encourage developers to include rent-restricted units.
Three years ago, the Phoenix City Council told developers: if you want public funds to help offset public infrastructure, we expect you to reserve 10% percent of the units for workforce housing.
The requirement isn’t enforceable by law, said Christine Mackay, the director of Phoenix’s community and economic development department. But the city has been successful in getting developers to agree to it.
“We’re excited to be able to ensure that people who work in a specific market, that they’re not priced out of the market,” Mackay told the Statesman by phone.
Acting as a bully pulpit, the council puts pressure on developers to comply voluntarily. This year alone, two developments offering workforce-priced housing units are being readied for consideration by the City Council, a city spokesman said.
Federal tax credits subsidize low-income housing
“Even if there’s housing for the middle, there will still be people who need some kind of subsidy,” said Zoe Ann Olson, director of the Intermountain Fair Housing Council, a nonprofit advocate for the enforcement of fair housing laws.
Boise officials are not blind to that need. But a workforce housing incentive would allow the city to start providing some affordability without having to rely on federal funding, said AnaMarie Guiles, Boise’s director of housing and community development.
City incentives would come — ideally — with less red tape, which might make developers more willing to consider building units below market rate. But they wouldn’t rent as cheaply as units built with federal aid.
“The deeper the affordability, usually you’re going after some type of federal source,” Guiles said in an interview.
Federally subsidized units — which typically rent out to those making below 60% of the area median income — are built through the federal low-income tax credit program. The program lowers the amount a developer must invest of his own capital, resulting in lower debt payments and allowing the developer to accept lower rents.
The program has helped finance the 134-unit Adare Manor on Fairview Avenue between 24th and 25th Streets and the 12th and River Senior Housing at 514 S. 12th St.
But those units have become harder to build in Boise as the costs of land and construction rise, and the federal subsidies remain the same. The Idaho Housing and Finance Association, a quasi-governmental agency that allocates the federal credits through a competitive process, is limited in how many tax credits the federal government allows it to give out.
This year, the association allocated $4.8 million in tax credits to eight projects that will build 296 new affordable units around Idaho. Of those units, just 78 will be in the Treasure Valley. Both are in Boise.
In 2019, the association had $4.3 million to give, which went to eight projects, of which only one was in Boise — the 26-unit Valor Pointe apartments for homeless veterans.
Creating more affordably-priced housing, McLean said, won’t happen in a single policy. That’s why the city is also considering a land trust and updating its zoning code.
“There’s no one silver bullet to housing affordability,” she said.
