By Charles L. Westmoreland
Cost & Effect: Developing in Juneau
Editor’s note: This is the second in a three-part series. The first part focused on a study conducted by the Juneau Economic Development Council on affordable housing in Juneau. Part two gives the perspective of what Realtors and developers have seen, and what they believe can help solve the lack of affordable housing. Part three will appear in the June issue of Southeast Living. All stories can be read online at www.seakliving.com.
“I’m sorry but the homes are too expensive to buy. Do you know of anything I can lease?”
This was the sentiment of an e-mail that Errol Champion, a Realtor with Race Realty, received recently from a Coast Guard family relocating to Juneau. It wasn’t the first of its kind, nor is it likely to be the last one he receives With limited development — only about 40 new building permits have been approved each of the last four years — and little available land to purchase, the term affordable Juneau housing has become an oxymoron of sorts, with the repercussion felt by newcomers and long-term residents alike. According to the Juneau Economic Development Council, the city needs more than 340 new units comprised of single family, multiple family and rental units.
Champion, a Realtor since 2005 and former Juneau Assembly and Planning Commission member, and Mike Race, a lifelong Alaskan and owner of Coldwell Banker Race Realty, believe the lack of affordable housing in Juneau comes down to one main factor: the price of land and cost to develop it. “In order to build moderately priced homes you have to be able to buy moderately priced land,” Race said. “
Added Champion: “But the cost of developing land is so overwhelming.” The largest land owner in town is the City and Borough of Juneau, and since receiving nearly 20,000 acres at statehood only a fraction has been released into public hands. And when it has been sold or auctioned off parcels sometimes cost as much as $100,000. And that was just the land minus any infrastructure such as sidewalks, sewer and water lines or power lines in place. “In Juneau land is assessed too high before it’s even developed,” Champion said. Race said the result has been that some builders spend years developing land and putting in the necessary infrastructure, spending hundreds of thousands of dollars before a single house is even built. Not only is that not good for a market that needs more housing, he said, but it also means the city is collecting property tax on undeveloped land instead of land with homes built on it. “The city should release land at a low enough cost that individuals can buy and develop it,” he said. “Then they will have some skin in the fight. And if you make land less expensive for private residents you can increase the tax base as the land grows in value.” He also suggested that the city assist with developing infrastructure for subdivisions and not placing it all on the developer.
“It used to be that a developer made money by developing land,” Race said. “Not anymore.” Champion agreed and said he knows very few developers in town who would be willing to take on an entire subdivision. Alan Wilson is one developer who has stayed informed of Juneau’s affordable housing situation. Aside from being a developer and owner of Alaska Renovators, Inc., he also is one of the original members of Juneau’s Affordable Housing Commission, currently serving as its Chair. Wilson also says that land and development costs have mas made it difficult to develop land and build homes in Juneau, but that over-regulation is also an expensive hurdle. “You have permits and regulations through the (Environmental Protection Agency), Army Corps of Engineers, and if you are developing more than an acre you have to deal with clean water issues,” he said. “It all gets very expensive. “In reality, nationwide developers are working on about a 10 percent margin. On a $500,000 house, they’ll make 10 percent of that. And it isn’t much when you consider you may not be able to sell the house for the full amount. If you have to drop the price of the house then there really is no profit.” And that’s if everything goes smoothly. Some developers put everything they have into a development in hopes a payday arrives. “What most developers do, because there is a lack of funding sources, is put everything they own personally into a project,” he said. “And there’s no guarantee they will get the money back. It’s not as profitable as the perception out there.” Scott Ciambor, the affordable housing coordinator for JEDC, said it costs most developers about $300,000 to build a single family home in Juneau. Wilson agrees with that data. Upon joining the Affordable Housing Commission Wilson thought the city had a “workforce housing problem” among potential first-time homebuyer seeking a home in the $180,000 to $250,000 range. “I thought we could crack that nut with no problem,” he admitted. “I thought this commission would last a few years and we would solve the problem. But it’s a much bigger problem than we anticipated, and it affects everybody in all markets. “Wilson, Race and Champion all believe high-density housing, such and condos and duplexes, are needed to fill the gap in $180,000 to $250,000 price range. Wilson said another solution is to build smaller homes. “People want the house their parents have, a large three or four bedroom home with a media room and all the extras. Basically the ‘McMansion’ that mom and dad have,” he said. “But a nice two bedroom, one bath with a carport would be a nice a starter home. That would get people into a house.” He also said those knew to Juneau should temper their expectations. “We’re hearing about miners moving here from the Lower 48 and they are looking for an acre with a four bedroom house on it for $150,000 and that just isn’t going to happen,” he said. Selling land for less and collecting a higher tax base once its developed and a home built is one way the city could lend aid, he said. He too believes that having assistance from the city when it comes to developing infrastructure would aid builders, as wood cheap, or possibly even free, gravel from the city’s gravel pit. Wilson said he’s seen progress since the commission was formed in 2007. “I think there’s been a lot of progress,” he said. “We’ve identified that the problem has gotten bigger and the Assembly is starting to see that. They have stepped up to the plate by allotting money into the Affordable Housing Fund. It’s not bricks and mortar kind of stuff but it does send a message. We will never be at lower 48 prices but it can get better.”