"As the newest downtown developments open their doors to residents, they have given rise to new enthusiasm for the revitalization of Lexington's downtown core. However, in light of the lessons regarding housing affordability shared during the recent Commerce Lexington leadership trip to Boulder, Colo., the downtown regeneration has also caused some in the business community to reflect on the growing number of households rapidly being priced out of the local housing market.
It is by no means a strictly local phenomenon, and it isn't just the advent of upscale living in the downtown area that has raised concerns. Last year's decision not to expand the urban services boundary and interest rates that are slowly rising from the historic lows of recent years have been expected to add some pressure to the cost of housing locally. The biggest threat, however, even in light of a potential softening of the housing market, has been Lexington's near-stagnant income growth in recent years, which has widened a gap in housing affordability, similar to that seen across the country.
While home prices have skyrocketed in many metropolitan areas since 2000, Lexington's housing costs, with a median home price of $147,400 in the first quarter of 2007 according to the National Association of Realtors, have consistently ranked below the national averages. Both nationally and locally, however, the cost of housing is increasing more than three times faster than the size of the average paycheck. Statistics indicate that home costs increased 57 percent across the U.S. between 2000 and 2005, while home costs in Lexington between 1999 and 2005 rose only 24 percent. During the same time periods, however, while personal income grew 16 percent nationally, income in Lexington increased by only seven percent, to a 2005 median household income of $42,442.
The effect of this affordability gap is that more low- and moderate-income employees are driven further from the communities they serve, according to Kathryn St. John, communications director for the national nonprofit group Homes for Working Families.
"Although in many communities there's been a recent downward trend in home prices, home ownership still remains out of reach for millions of working families," St. John said. "In the long term, it can undermine the economic security of the community, because you can't attract new businesses if employees can't find affordable housing."
But according to Phil Holoubek, developer of Main and Rose, that line of thinking depends on the businesses one is hoping to attract.
"In order to start to increase that income growth, we have to attract knowledge-based companies," Holoubek said. "But in order to attract those knowledge-based companies, you first have to attract knowledge-based professionals."
Those young professionals want the kind of 24-hour downtown mix of housing, retail and entertainment that Holoubek and other developers are working to build.
"You can't look at that as a chicken-or-egg situation," said Bill Lear, developer of City Court and Center Court, of the need to attract higher-wage businesses or create the downtown that will attract higher-wage employees. "You have to look at that as something you have to build at the same time. Otherwise you'll say, 'Well, we can't attract the folks until we get the jobs,' and then you say, 'We can't build the businesses until we've got the employees,' and so you're frozen. What you really have to do is create the environment and the jobs at the same time."
Although the price for a piece of the new downtown residential developments generally runs higher than the local median home price, their costs relative to suburban housing alternatives are better than those experienced in most other cities, where living downtown is typically twice as expensive, Holoubek said. Downtown housing prices in Lexington run roughly $225 per square foot, while suburban residential developments cost closer to $150 per square foot, Holoubek said.
"We have delivered a lot of units within the range of affordability, they're just not very big," Lear said. "Two-thirds of the units that we brought on at City Courts were less than $130,000, which by anybody's definition is in the affordability range. They're just not big. They're in the 600-800 square foot range." Downtown development brings with it many financial challenges not seen in the suburbs, Lear pointed out, including the cost of securing parking and costs and delays involved in land assembly when numerous tracts, some of which may not be on the market, must be negotiated over time for one project.
Unit prices at Holoubek's Main and Rose development started at $149,000. Currently, MLS listings for Main and Rose show the least-expensive units starting at $166,900 for a 778-square-foot, one-bedroom condo. Units currently on the market at the 500s on Main range in price from roughly $220,000 to $520,000, and the cost for a unit in the newly developed Artek Lofts starts in the $170,000s.
"I think people in Lexington don't realize how lucky we have it," especially compared to other cities in which downtown living is virtually unreachable for all but the highest income brackets, said Jim McKeighen, a Realtor with Turf Town Properties who has specialized in downtown real estate for 20 years. McKeighen is also handling sales for the Artek Lofts property.
While new construction downtown has been expensive, McKeighen pointed out that a recent search of the MLS listings for the 40507 and 40508 zip codes downtown showed 151 properties for sale for less than $200,000.
"There is a vast inventory of very affordable housing downtown," said McKeighen. "Granted, a lot of them need work. I think the fact that new construction is so pricey will make developers and investors look twice at some of the older housing stock and renovate."
While Lexington's downtown prices are considerably lower than most cities, including Boulder, where residential housing runs $900 per square foot, it's still too much for many to handle in an increasingly retail-oriented economy. With Hamburg Pavilion recently identified as the county's largest new "employer" and more than 40 percent of the city's non-agricultural employment based in the traditionally low-paying service industry, the question remains — where will these workers live?
The need for adequate workforce housing is gaining more attention on a national scale in recent years, according to Grant Phelps, executive director of Lexington Habitat for Humanity. For those that Habitat serves, typically households that earn 30 to 60 percent of the local median income, the need is overwhelming and the costs are rising.
"On a local basis, our land costs alone have gone up 360 percent in the past five years," said Phelps. The neighborhoods where Habitat purchases are primarily in the downtown 40507 and 40508 zip codes.
Habitat's best estimates indicate there are roughly 33,000 families in Fayette County families that fall in their income bracket, 3,300 of which would be eligible for their program based on Habitat's typical 10-percent rate of application acceptance. Many of them include workers employed in the growing retail and service industries that make up a large part of Lexington's economy. At their current build rate of about 20 homes per year, it would take Habitat roughly 156 years to serve the 3,300 households, Phelps said.
"We're not even putting a dent in the need," Phelps said. "There's got to be some consensus with the local, state and federal governments as to how we address affordable housing problems."
Phelps said the current city administration has been putting forth an effort so far in that regard. Historically, the city has played a supportive role for numerous local initiatives to encourage housing affordability and has helped to finance the homeownership efforts of local nonprofit groups Community Ventures Corporation and REACH, in addition to its role in helping secure the Hope VI grant awarded last year.
Mayor Newberry also proposed the use of $2 million from the city budget for land acquisition to further infill and redevelopment efforts, and currently, the city is in the process of taking inventory of vacant and underutilized property that may be ripe for redevelopment as affordable housing alternatives.
"The primary problem right now is the availability of lots for the affordable housing people to build houses on," said Dr. David Stevens, council member for Lexington's Fifth District, who is heading up the Infill and Redevelopment Committee. "The government is trying to work out a plan to identify these lots and then help the organizations that build affordable housing to acquire them."
The committee is currently examining a variety of infill and redevelopment issues, including challenges related to density and mixed zoning as well as housing affordability. Stevens said the committee hopes to present its findings to the mayor and the council by the end of the year.
"If we are going to continue to grow," Stevens said, "we have to be able to create opportunity so a reasonable number of people who want to live here can do so."
But the city's efforts to support affordable housing options downtown need to get more aggressive, said Richard Moloney, council member for the 11th District and chief operating officer for REACH.
"I'm afraid at the pace we're going right now downtown, we're going to be a Boulder, Colorado," Moloney said. Moloney hopes to see Lexington follow the lead of cities like Louisville and Covington that have become more proactive in their efforts to secure property for affordable housing projects. Moloney also hopes that affordable housing elements will be taken into account when the city considers any possible incentive programs for infill and redevelopment initiatives.
"I think there's opportunities for Lexington to be creative to make (affordable housing) happen," Moloney said.
In his role with REACH, Moloney has seen firsthand how housing prices in Fayette County have climbed out of reach for many residents. REACH's clients include those with lower-paying but essential professions, such as teachers, police and firefighters. To be eligible for REACH funding to help with down payment and closing costs, an individual can earn up to $34,600, or up to $49,450 for a family of four. The bulk of REACH's clients can afford roughly $65,000 to $90,000 homes through traditional mortgage lending avenues, Moloney said, and the opportunities for such housing anywhere in Fayette County are scarce.
However, Moloney said, assistance that has recently become available, such as one-percent interest rate loans for income-eligible recipients offered through Kentucky Housing Corporation for certain new development, is helping to stretch the low-income home buying dollar. Without access to such programs, Moloney said, the city of Lexington risks losing many of its workers to outlying areas with less expensive houses and similar financial assistance opportunities.
And competition for the workforce is only expected to increase in coming years. As many of today's workers near retirement age and businesses face the challenge of major employee turnover over the next decade, the availability of affordable housing options will factor into their ability to recruit a new workforce, St. John said.
"It's a double-edged sword, and we've got to find a balance," Phelps said. "You've got to figure out how we can serve (the entire workforce) and do it in a way that doesn't encumber the city but enables both public and private dollars to be applied to the program without a lot of bureaucratic red tape."
In upcoming articles, Business Lexington will continue its discussion of housing affordability by taking a closer look at some local initiatives and examining the tools and techniques that have been used in other cities.