Housing
This section of the BDN aims to help readers understand Maine’s housing crisis, the volatile real estate market and the public policy behind them. Read more Housing coverage here.
Bangor needs 700 more housing units for people earning less than $35,000 annually, but is building those homes even possible?
The Bangor Housing Study, commissioned by city leaders and released in February, determined that the region’s shortage of affordable housing leads many low-income renters to pay more than they can afford.
We asked three Maine housing developers how they would choose to create those 700 units if they had unlimited money and resources with no restrictions. Then, we asked those same people to pick apart their ideas and explain why they’re not possible today.
All three developers struggled to imagine a hypothetical world in which those apartments could even be created, and were unable to provide specifics for their plans, such as locations.
And while they all agreed on roughly the same idea, each of the developers focused heavily on the barriers to development — primarily cost —- and struggled to imagine a world in which they didn’t exist.
Here’s what they said.
A variety of developments
The vision: If Kevin Bunker, founder and principal of Developers Collaborative in Portland, needed to build 700 units in Bangor, he would spread them out in smaller developments throughout the city.
This could be best achieved by multiple developers working together to bring different types of housing to Bangor. This means some developments could offer smaller apartments for a single person while others could hold townhouses or condos for families or seniors.
Confining all units to one towering building anywhere in Bangor would be “poor planning,” because of the diverse needs and desires of those who most need affordable housing, according to Bunker.
“The market is varied, so you need a variety of builders, ideas and product types,” Bunker said. “That goes against the idea of one massive development.”
Why it doesn’t work: Land availability and zoning aren’t hindering the creation of housing, as there’s plenty of available space around the state, Bunker said. Additionally, many metropolitan areas are adjusting their zoning policies to allow housing to be created in more places.
The real issue, according to Bunker, is a developer’s ability to make money from creating housing that someone making $35,000 could afford.
“If I could make a return by building those 700 units, they would’ve already been built by someone else,” Bunker said.
Most housing and financial advisors recommend a person spends no more than 30 percent of their annual income on housing. If someone is earning $35,000 annually, that means they can spend only $10,500 – or $875 each month — on rent.
Rent that low is difficult if not impossible to achieve, Bunker said, because housing costs must be high enough to create a profit for the developer.
Each month, Bunker said his company, which also manages properties, pays $600 to $700 to cover the utility and maintenance expenses for one housing unit. This means the rent for each unit has to be higher than that to pay off debt he incurred to build those properties.
Bangor hired Bunker’s company to build 75 housing units on Grandview Avenue that’s affordable for people who make 80 to 120 percent of the area median income. That income bracket is often called “the missing middle,” because they earn too much to qualify for subsidized housing but don’t make enough to afford a market rate home.
The city gave away the 10-acre lot the development land for free and chipped in $2 million in federal pandemic relief money to help fund the project. That money paid for bringing utilities and road infrastructure to the undeveloped site.
“That helps, but it’s still hard to make the numbers work,” Bunker said. “If you need $2 million and free land to make housing for working folks and you can only barely make the numbers work, that’s telling.”
Low, wide buildings throughout the city
The vision: Numerous lower, wider buildings would be the best option for building hundreds of new housing units in Bangor without restrictions, according to John Finegan, associate broker at the Boulos Company in Portland.
Lower buildings are cheaper to build and match the general appearance of Bangor, as the city doesn’t have many buildings taller than a few stories, he said.
Building one large development in downtown Bangor would be costly, gives people only one option for housing and would likely receive strong pushback from the public, Finegan said.
“If you only have one-bedroom units in a 20-story high-rise and living in a high-rise isn’t what people want, you only have one product to offer,” he said. “If you smack a super tall building in the middle of downtown Bangor, it’ll look ridiculous from a skyline perspective.”
Finegan said imagining creating hundreds of units without restrictions “made my brain short-circuit” because developers are always “solving for scarcity” and working backwards from things working against them. This could be limited land availability, a tight budget or even public opposition.
Why it doesn’t work: In recent months and years, labor and construction costs have risen to a point where building housing someone making a modest wage or on a fixed income can afford is impossible without government subsidies.
Today, each square foot of a cheaper housing unit costs a developer roughly $290 per square foot to build, not including the price of purchasing the land or other work on the site, according to Finegan.
Five years ago before the pandemic, a housing unit cost about $200 per square foot to create, meaning construction costs have risen by roughly 50 percent in the last five years.
However, Finegan believes the economy will eventually stabilize when wages increase enough to compensate for the rising costs of everything, making it easier to build and afford housing.
“Even though COVID was five years ago, it takes a long time for these economic disruptions to ripple out before everything hits equilibrium again,” Finegan said. “Inflation has impacted everything, and it starts at the top of the supply chain and trickles down.”
50-unit buildings with diverse tenants
The vision: Jack Soey, who founded Portland-based Domus Dwellings, believes a rash of new housing should be scattered through Bangor to avoid bringing unnatural density to one area of the city.
Additionally, those housing developments, which could hold roughly 45 to 50 units each, should welcome tenants of various ages and income levels, as that’s what makes an area healthy, diverse and exciting to live in.
“People living and working all over a city is what creates vibrancy,” Solely said. “You don’t want to have a massive concentration of housing in one area.”
Why it doesn’t work: What’s holding developers back from building housing that people making $35,000 or less can afford is the high cost of construction materials and labor. When those prices rise, it drives up what units have to be sold or rented for in order to turn a profit.
Because of this, Solely said there’s no possible way to create units that could be rented at a price that people earning $35,000 or less could afford.
“The premise doesn’t even work,” Soley said.
It costs roughly $240,000 to build a unit in Maine now because of high building, land and labor costs, according to Soley. If a developer creates housing at that price and rents it to people who make less than the area median income, that guarantees the developer loses money.
Someone making $35,000 falls just below 50 percent of the area median income for Bangor, which the Department of Housing and Urban Development sets annually.
State, federal and local subsidies help developers create affordable housing, Soley said, but those come with requirements and restrictions. To further complicate matters, subsidies only go so far, Solely said.
“You would have to build something for roughly $100,000 per unit and need another $100,000 per unit in subsidies to make that work,” Solely said. “You can’t build units for people making under $35,000 without a huge amount of subsidies, and there aren’t enough subsidies to pay for more than half of the cost of a unit.”
