ITHACA, NY -- Over the past few months, we’ve covered the affordable housing projects in the works and the challenges that come with creating them. But one thing that hasn’t been touched on is the disparity between for-sale housing and rental units in Ithaca.
Simply put, there are far fewer for-sale houses being built than rental units, despite city goals expressing a desire for more owner-occupied units.
There are currently 12,465 total housing units in the City of Ithaca; 9,811 units are rentals and 2,654 are owner-occupied, meaning rental units make up nearly 80% of all units within the city.
According to the Planning Board’s annual report in 2020, out of the 1,966 housing units built from 2006 to 2020, only 63 units were for-sale units (the rest being rentals). Out of the 786 units approved to be built in 2020, only two were for-sale housing. And for the 801 housing units pending construction in 2021, only four will be for-sale. It should be noted, these statistics refer to the total of all for-sale units, not just those designated for affordable housing.
These numbers are even more startling when compared with the 2016 Tompkins County housing strategy, which announced plans to create 380 for-sale units a year, for a total of 3,800 new owner-occupied units by 2025.
On paper, the county wants to create hundreds of for-sale housing units a year. Yet, in reality, Ithaca isn’t even hitting double-digits. Still, there is a potential solution in the form of community land trusts (CLT).
Why Owner-Occupied Matters
Before getting into all the challenges with creating for-sale housing, it is important to consider whether having more owner-occupied units even matters. In a city facing an immense housing shortage, it stands to reason that it should focus on creating more housing, regardless of type. Right now, Ithaca doesn’t necessarily have the luxury to be picky.
While this is true, one could also argue that a healthy mix of housing types will lead to greater flexibility in the housing market. Having a larger variety of housing means the city can better fit the community’s diverse needs. As JoAnn Cornish, planning director for the city, puts it, “I think the healthiest communities have a variety of options and a variety of means to pay and such.”
Additionally, owner-occupied units are also often used as a means of creating financial stability, as Lynn Truame, senior real estate developer for Ithaca Neighborhood Housing Services (INHS), explains:
“That’s one of the chief ways families build wealth and hand it down generationally,” she said. “It would be healthier, I think, for communities to have more owner-occupancy for that reason, if nothing else.”
So, while for-sale housing may not be the most pressing matter when it comes to the housing shortage, there are plenty of benefits to adding more of it.
The Rental Market Dominates
One of the more obvious reasons for the lack of for-sale housing is the emphasis on building rental units in Ithaca for students.
Ithaca is a college town, first and foremost. The mere act of being situated between two large college campuses, both with large off-campus populations, creates a demand for a large amount of student rental housing. Indeed, nearly 50% of the rental housing units built between 2006-20 were made solely for student housing, according to that same planning board report.
While having a large student housing market isn’t inherently bad, the desire to fill this market can take away from the creation of owner-occupied units. Student housing is a far more lucrative opportunity for developers and landlords, especially compared with affordable for-sale housing. As a result, many developers prefer to build student housing over for-sale units. This helps explain why so few new for-sale houses are being built.
This trend has continued in recent years, as more student housing is approved and begins to enter the market. This can be seen in projects like Cornell’s North Campus Residential expansion and the Student Agencies building in Collegetown.
There is some hope on the city’s part that as students move into these new projects, older units will become available for community members, though this will not necessarily equate to more for-sale housing, as these units will more than likely remain rentals.
Still, Mayor Svante Myrick said he sees filling the rental market as a stepping-stone to owner-occupancy.
“The single best way to make housing more affordable is to build more of it, but the best way to create more owner-occupied housing would be to satisfy the rental housing market, so long as we're in the position where we are now where there are more people who want to rent here than there are rental units,” he said.
There is a Desire For Ownership
Even though there are fewer for-sale houses being built, the demand for this type of housing is stronger than ever. The pandemic is a primary culprit as more people leave large cities for towns like Ithaca, but the demand has been steadily growing even in years prior. Bryan Warren of Warren Real Estate grew up in Ithaca and has spent over 20 years selling homes in the area. Right now, he said the for-sale market is the most competitive he has ever seen. He attributes much of it to the shrinking pool of available for-sale housing.
“This is a pretty significant appreciation period where we are seeing an excess of multiple offers, sometimes up to 10 offers, on certain houses this spring, and it’s really pushing the prices up,” he said.
Between 2010 and 2020, the Tompkins County average selling price for for-sale homes rose over $75,000 from $214,389 to $291,804, according to statistics from the Ithaca Board of Realtors. In 2010, approximately 648 homes were sold in Tompkins County. In contrast, 734 homes were sold in 2019 and 710 in 2020. These two trends illustrate an increasing demand for housing in Ithaca and how this demand drives up prices.
While higher housing problems are undeniably bad for prospective homebuyers, Warren said the lack of for-sale housing hurts realtors as well.
“It is negatively affecting our business as a brokerage because we just do not have the inventory to sell,” he said. “We are feeling the effects of it.”
Carol Bushberg, another long-time Ithaca realtor, said she has also noticed a shift
“I’ve been in real estate for 35 years and have never seen a market like this,” she said.“There is inadequate opportunity for both the local population and for a population that’s identified the Ithaca market as where they’d like to move to.”
One of the biggest drawbacks of creating for-sale housing is the costs involved with it. Although a rental and a for-sale home may have similar construction costs, the cash flow from the properties are completely different.
As Leslie Ackerman, community housing trust manager of INHS, explains, “The rental income is an ongoing stream, whereas when you’re selling a house, you get the income once you sell the house and that's as much as you get. It's just much harder for a for-sale project because the streams of income are limited. It's a much simpler equation but it's a bigger gap with fewer opportunities to fill it.”
When it comes to creating affordable for-sale housing, the problem is even more pronounced. Because affordable houses are sold at prices below the standard market rate, developers recoup little, if any, of their investment when they sell the house.
“If it costs you $250,000 to build a house that you're going to sell for $150,0000, you’ve got a $100,000 gap, and that's a challenge when there is even more competition for the grants, funding sources and other subsidies that are available to us,” Ackerman explained. “The cost of construction, whether it's new or rehab, gets you up into a number that is substantially more than the below market housing price that we're going for to make the house affordable to a low to moderate income buyer.”
Now, most affordable project developers aren’t in the game for the money, but the lack of funds can make financing a project even more difficult and serve as a further deterrent from building for-sale housing.
As Ackerman alluded to, affordable housing developers typically fill financing gaps with federal and state grant money, but these already competitive application processes tend to favor affordable rental housing over affordable for-sale housing.
Myrick put it plainly. “We’d like to see more owner-occupied options but there are challenges,” he said. “It’s tough to get these incentives to line up financially. Building single family housing is expensive.”
Taking all these factors into account, it’s no wonder so few for-sale houses are being built. The good news is, there is a potential solution, and as usual, when it comes to affordable housing, all roads lead back to INHS.
In Ithaca, INHS is the only affordable developer that ventures into for-sale housing. This is all made possible by its Community Housing Trust (CHT) program, which was established in 2009.
The trust works like this: The homebuyer buys the house, but INHS owns the land. The homeowner in turn gets a 99-year lease on the land under the house and pays a monthly land rent fee (typically around $60).
Since a homebuyer only has to pay for the house and not the land, this greatly reduces the purchase price of the home, making it possible for people with lower incomes to become homeowners. Most houses under the trust also receive a reduced assessment, which can result in substantially lower property taxes.
One of the most promising features of the trust is that homeowners can only profit a certain amount from their home when it is sold. While this might sound odd at first, limiting the price the home can be resold at actually prevents the home from rising too much in value. This in turn ensures that the home will remain permanently affordable when it is sold in the future.
“The housing trust structure helps maintain affordability in the long-term,” Ackerman said. “...The community benefits in the longer term by having more permanently affordable housing rather than just benefiting one household at a time.”
The system seems to be effective. According to Community Wealth, 79% of CLT residents are first-time homebuyers and 82% of CLT residents have an income that is less than 50% of the area’s median income. Overall, this type of housing is getting placed in the right hands.
INHS has built 59 affordable for-sale homes in the 11 years since the CHT program started. This month, INHS finished up 4 affordable townhouses on South Cayuga Street and South Titus Street (All houses are currently under contract.) Also underway are four townhouses that are part of the Founder’s Way project, which is set to start construction in May and be completed by the fall of 2022.
Community housing trusts (more commonly referred to as Community Land Trusts or CLTs) are not unique to INHS, nor a new concept. The idea has its roots in the late ’60s with organizers from the Civil Rights movement, helping African American farmers in the rural south gain access to farmland and secure land rights.
CLTs have been growing in popularity as of late, and it is currently estimated that there are between 225 and 300 CLTs nationwide.
Still, though CLTs do provide some workarounds, most are still plagued with familiar issues like a lack of funding. Additionally, most CLT’s rely on non-profit or mission-driven organizations like INHS to get off the ground in the first place. Overall, it’s still hard to get many developers interested in this sector or concept as there is little financial reward involved.
CLTs likely won’t be the savior of the affordable housing crisis, and they can’t be the sole factor in bringing more for-sale to Ithaca. But as Cornish puts it, there are other things that can be done to foster home ownership.
“It can start at a much more fundamental level, which is to find programs that can encourage wealth building among minority communities …” Cornish said. “If we can help people to find gainful employment, higher pay wages and increased minimum wage and all these things that you need to do in order to be able to afford a mortgage, those are the kinds of things that the city can do in helping people buy homes.”