Newton to consider housing incentives

By Adam Stsrunk, Newton Now

At its upcoming meeting, the City of Newton will consider a possible incentive program to set aside $100,000 in public funds to spur construction of dwelling units within the city.

Newton Now spent the week taking a deeper look at the proposed incentive program, the recently conducted housing study used as support for the proposed program, and how incentives and development fits into the larger picture of community growth. What we found was that the study backs up the often discussed and reported demand in Newton. Addressing the demand, based on the demographics of the area and expected new employment, will take far more than a simple push to build new houses.

The incentive program

At the behest of a work group formed by Commissioners Rod Kreie and Leroy Koehn consisting of realtors, developers and local bankers, city staff worked with the group to draft an incentive program presented publicly to the city for approval at its last commission meeting. Commissioners chose to table the vote on the program to give them time to look and understand the proposal, as well as a recently conducted housing study used as support for the proposal.

The initial incentive program would have the city set aside $100,000 to act as a safety net for licensed builders.

A builder participating in the program would be reimbursed for the interest the builder paid on the construction loan for the building between the time the city cleared the building for occupancy until the time it sold for a maximum of $10,000.

The housing study, as well as the group, stated that newly constructed homes stay on the market longer in Newton than in surrounding markets, discouraging builders from taking an additional risk in Newton.

“We looked at it from what’s the incentive to get the builder to put in a house,” Ron Lang, who was a part of the housing work group, said of the program. “If it should sit on the market for six months, how would that risk be offset for the builder?”

The longer a house is on the market, the more interest the builder pays and the more that eats into profits.

The program would offset some of the risk, with the hope that builders might have positive experiences and continue to build more housing.

“The theory is once two or three or 10 goes well, they might say, ‘Now I’m going to build 10 more,’” McElroy explained.

The other idea is that currently there are not enough options for people looking to move into a new home.

“If you’re moving to town, you’re only going to see two or three houses,” Lang said. “Even some people here in town, they might go, ‘Eh, maybe I want to look at a new house but not want to fool with building a new home or designing it.’”

People in nearby tight housing markets, such as McPherson, Hesston, and other surrounding communities, might move to Newton if homes are available, instead of driving further south to Valley Center or Maize. Right now, with little new inventory, there’s little to draw those looking to buy a new home.

“Our thought is if we get some inventory, they’ll turn quicker,” Lang said.

Yet, the incentive program does not apply strictly to new homes but dwelling units. A dwelling unit would consist of a wide variety of constructions, such as duplexes, triplexes, modular homes, patio homes or a single family housing unit.

In the case of duplexes and triplexes, each individual unit within the construction would qualify for the incentive program.

“People say it’s just for high-dollar people, but it’s entry level homes,” Lang said. “It could be entry level and a much pricier home.”

A builder would have to apply through the city to participate in the program. As the program paid out and homes were sold, additional incentives might be available, which the city would provide based on how a proposal would fill perceived housing needs in the city. Basically, when it has 10 applicants approved, the city would stop taking applicants until a dwelling unit sold and any remaining money, once the interest was paid, would be available to distribute. Currently, there’s no plan for refilling the incentive account, making it a one-time program out of the resolution.

It would take a $170,000 project around eight years to pay off the maximum available incentive in property taxes. More expensive projects would pay quicker. Less expensive projects would take longer to pay off.

“The main thing at this point is trying to get some homes built and builders back in the market,” Lang said. “If you start seeing three to five 10 housing units going up, it creates a positive environment.”

The Study

As a previous Newton Now article discussed, cheaper houses sell like hotcakes in Newton. The study showed an existing home averages between 50 and 80 days on the market in Newton. New, more expensive houses tend to linger on the market from 73 to 270 days.

While realtors have said that more inventory of new homes on the market would encourage shorter times on the market, the study also shows other reasons for newer homes remaining on the market.

For one, old homes are way cheaper to buy. Median selling price on a Newton home is $99,900, making move-in level housing for homes, when available, relatively cheap, even compared to the $122,000 median value for the State of Kansas.

Meanwhile, new home construction costs far more, according to the study. The study lists median home construction in 2018 for $232,000.

On top of that, Newton homes pay higher taxes and often pay to offset special improvements, which makes them more expensive to own than older homes with little or no specials.

The study shows something else: manyNewton residents can’t afford to purchase a home priced $170,000 or more.

A bank, when issuing a loan, takes into account residents’ existing debt, car payments, college loans, credit cards, etc. If the payment on that debt and the bank debt adds up to a certain percentage of income, the bank usually declines to issue a loan.

Lang said the maximum is about 43 percent.

According to the housing study, only 26 percent of Newton make more than $75,000 a year. The study pegs one-third of Newton household incomes below $35,000 and 22.1 percent bellow $25,000. Sixteen percent of households make between $35,000 and $50,000 annually. Median household income in the city is $49,874.

McElroy said that number and income is skewed downward based on an aging senior population, living on fixed incomes.

Senior citizens represent the city’s fastest growing demographic. Those over 75 years old make up a little under nine percent of the city’s population, and that number is growing.

She said that the city needs to serve and keep the population.

“I want them bringing their grandkids to Newton, instead of going to their grandkids,” she said.

Currently, a development for senior housing is in the works with the help of the city near Sand Creek Station Golf Course.

However McElroy said that that the aging demographic presents work force issues. While Newton now has more workers than homes, with a rapidly aging population, that might not always be the case.

“I need the folks moving into our community needing to be in our workforce,” she said.

Taking these numbers into account, including projected future jobs and incomes, the study does project the need for between 175 and 270 dwelling units.

McElroy said industry is hiring in Newton.

“We want to capture those people as they’re coming in,” she said. “I need homes for all of them to live in, not just the five percent of them.”

That means looking out housing options besides just new homes.

The study estimated that of needed units, 55 percent would be owner occupied and 45 percent renter occupied.

Sixty-two to 117 would fit into the price range of a new home. Fifty-two units would fit into an entry level market listed between $150,000 and $199,000. The rest of the need would be for rentals.

Of those based on market trends, 60 percent would need to be subsidized or income based at some point.

That could mean senior targeted patio homes like what’s proposed near Sand Creek Station, as previously has been discussed and platted. That can mean some market rate and some subsidized rate like the city’s two recent apartment developments.

Forty percent of the need for rentals would be for a market rate of $800 and up.

The Future

The study makes a number of recommendations to fill housing needs in Newton. Number one would be come up with a plan of incentives and strategies to address all community needs.

That means engaging developers to build maintenance-free, smaller patio homes and/or multiple family homes to attract the elderly and empty nesters.

It would also include continuing to support income- and market-based rental housing and seeking partners to develop city-owned property for new neighborhoods of entry level homes priced in the mid to high range of $100,000.

That refers to a lot of land owned by the city on First and Boyd St.

McElroy explained that small lots could go in the area and a developer could install modular homes. The homes, which would come prefabricated and be assembled on site, would have higher building standards than existing city homes but be cheaper to buy then homes built from the ground up.

She said that she hoped a developer would be able to make the area a neat ,contemporary, colorful neighborhood that would be attractive to young people and families starting out. A green space could also be installed in the flood plain area behind the lot, currently zoned commercial and residential.

The study also recommended possibly putting tiny homes in a piece of property at 12th and Sherman zoned for mobile home development.

Other recommendations included helping with interest for construction as the incentive program would, establishing a land bank to purchase property at tax auctions meant for redevelopment and offering city property at reduced cost or for free to builders for spec homes.

“This building incentive is one piece of the housing strategy,” she said. “The housing strategy is a piece of the larger development strategy.”