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Sam Hight only had to pay the town of Madison $1 for a prime parcel of land.
That allowed Hight and his partners to build an 18-unit affordable housing complex that opened last year. But it would not have happened without a state subsidy, even though the developers had essentially the lowest-cost construction plan for a project of this size.
“I’ve been trying to figure out a way to provide market rate housing using conventional financing, but with multi-unit buildings and interest rates and the cost of construction materials, it really didn’t pan out at all,” said Hight, who runs his family’s car dealerships in Skowhegan.
Hight’s experience is shared by others working on market-rate housing in low-income parts of Maine. It also shows a hole in the state’s strategy. Lofty housing goals rely on rural communities dramatically upping production. But developers cannot keep units affordable without subsidies, meaning very little affordable housing will come naturally.
The Madison project cost $5 million, with $3 million in the form of a 45-year loan from a rural housing program run by MaineHousing. While the real cost was around $280,000 per unit, the subsidy dropped that to just over $110,000, enough to meet a requirement of keeping the apartments affordable to those making no more than 80 percent of the area median income.
Hight and his partners used modular homes from KBS, Inc. of South Paris. They did not have to build roads or pay to hook up to utilities. The developers are set to begin construction on a similar 18-unit modular housing project in the western Maine town of Rumford this spring. The median household income there is nearly $40,000, according to Census data.
“We’re doing the cheapest kind of construction we can do,” Kara Wilbur, a developer with modular builder Dooryard who is partnering with Hight, said.
In Rumford, they bought the land for $12,000. That discount from its $46,000 valuation is one of a series of changes that the western Maine mill town Rumford has made recently to woo affordable housing developers.
Low-to-no-cost land is often a necessity to pencil out projects, said developer Kevin Bunker, principal at Portland-based Developers Collaborative, whose company has taken advantage of these sorts of deals in communities including Bangor, Portland and Augusta. It often helps projects score higher in MaineHousing applications for subsidies.
But it is no panacea. For one, George O’Keefe, Rumford’s town manager, said he is wary of giving land away because he wants to preserve property values. Construction costs and interest rates are also so high that it does not generally make much of a dent in price, Bunker said.
“If you think of land as maybe 10 percent of a total project and construction as maybe 80 percent, you can imagine even as land approaches $0 per unit, it doesn’t go as far as, say, a 20 percent reduction in construction,” Bunker said.
The program that Hight and Wilbur are using in their projects has no permanent source of funding from the state. Lawmakers are examining that this year. House Speaker Ryan Fecteau, D-Biddeford, has submitted a bill that would ask Maine voters to approve a $300 million housing bond including $25 million for the rural rental program.
That substantial amount of money does not go far in addressing needs across the state, Hight noted. In the long run, policymakers need removing code restrictions on housing and regulatory barriers at the municipal level. If not, developers will need to wait for interest rates to ease.
“We want to figure out a sustainable model, so we don’t have to rely on subsidy for multi-unit housing,” Hight said.
