Low-lying land a hurdle for apartment developers

Both Lafourche and Terrebonne parishes have made strides toward making more affordable housing units available to low income families in the area, but the need for affordable homes still far outweighs supply.

According to the U.S. Department of Housing and Urban Development website, families paying “more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care.”

The federal department estimates that 12 million American households currently spend more than 50 percent of their income annually on housing costs. The department continues by stating that a family with one full-time worker earning the minimum wage simply cannot afford the market-value rent for a two-bedroom apartment anywhere in the U.S.

In the local economy, the problem is compounded because the growing economy makes workers want to enter the area to better themselves. This puts available spaces at a premium.

“Historically in Terrebonne [Parish], we’ve had a very tight housing market and unfortunately because of the [high] demand for housing, affordable housing has been very difficult to obtain,” Terrebonne Parish Michel Claudet said.

“To be honest with you, at 100 percent occupancy in the whole community, if I was an investor, I would definitely do a rural development or any kind of affordable housing because you’re going to see 100 percent [of those properties] rented out all of the time,” said Sarah Butcher, manager at Renata Lakes Apartments in Houma. “The whole community is almost at 100 percent occupancy and it’s because of the industry here.”

But there are reasons why investors are not already doing just that.

Lowlands Means Low Development

Cynthia Pellgrin, president of the Bayou Board of Realtors, believes that the lack of affordable housing is attributable to various issues that together, make prices of units go up. The biggest culprit: the lack of higher elevation land.

“A lot of our land is too low to build on,” Pellegrin said. “One of the criteria that you look at is what…the elevation of that land [is].”

The widespread flooding endured across the Gulf Coast during 2005 brought to light the insolvency of the National Flood Insurance Program, which has subsidized insurance for second homes and businesses since its inception in 1968.

The Biggert-Waters Flood Insurance Reform Act of 2012 was an amendment to the National Flood Insurance Act of 1968 that ended these subsidies and would have saw premiums go up with the true risk of living in a flood plain. There have been a number of bills moving through the U.S. Congress to keep the insurance hikes Biggert-Waters would precipitate down, but only one has been signed into law by President Barack Obama. The Homeowner Flood Insurance Affordability Act of 2013 offers some relief.

The NFIP produces updated flood insurance maps every few years. These maps identify special flood hazard areas that are prone to flooding and the base flood elevation, which is the elevation at which flooding can possibly reach during a catastrophic flood. In essence, the cost of insuring a home goes up as the BFA goes up.

When the NFIP released their updated maps in 2008, leadership in both Lafourche and Terrebonne Parishes appealed the maps, stating that the computer models used to generate these maps did not account for levee systems built by the parish governments and not the U.S. Army Corps of Engineers, among other things.

The appeal is still ongoing, so the maps released in 1985 are still being used to determine property owners’ flood insurance premiums, insulating property owners in the meantime. But real estate developers don’t look at their investments in the short-term perspective.

“We don’t know what the final outcome is going to be,” said Pat Gordon, Terrebonne Parish planning and zoning director. “We’re predicting that it’ll be another two years before the final maps come out. To me, that’s probably the greatest deterrent to developers. If they’re not sure what the maps are going to be in two years…that has been a question on a lot of developers’ minds – what are the [base] flood elevations going to be in East Houma, in Bourg, in Grand Caillou – in these areas where they’d like to build subdivisions but they’re just not sure what the finished flood elevations are going to be.”

Pellegrin believes that if these maps are approved, “it will automatically change the whole ballgame for us.”

New Building Codes, New Added Costs to Building

Another reason Pellegrin believes real estate developers are disinclined to invest in new investment properties is the inception of new building codes.

Every three years a revision to the International Code Council’s building codes is reissued. Many of these codes require contractors to incorporate things into new construction of homes that were never required before.

For example, in 2009, the ICC required that new homes built in hurricane-prone regions, “be equipped with shutters or impact-resistant glazing.”

Other new requirements include increased complexity of structural design because floors and roofs must now be rated to withstand more weight on top of them.

According to a study published in 2005 by the Office of Policy Development and Research of the U.S. Department of Housing and Urban Development, restrictions like these significantly increase the costs for homebuilders.

“The cost is going up, going up, going up,” Pellegrin said. “Now you have a piece of land that is developed…to recoup the money that you’ve got invested, it’s not going to be affordable housing…[I’m] not saying that I’m against the ICC building codes. They have their merit and their reasoning behind it, so that when you build a house you’re getting into safe house. But, you know, the majority of the homes that we sell every day are not new homes that were built recently.”

Along with those added costs come the traditional costs of building the infrastructure needed for new developments. Roads, drainage, power lines, water mains all cost housing developers’ money, Pellegrin said.

It is because of these reasons Pellegrin doesn’t see the private sector jumping into the affordable housing market anytime soon, but does believe that there is some hope.

“We do have affordable housing, we just don’t have affordable housing developments, but there is housing available in our area,” Pellegrin said. She notes that it is the government – granted, different levels of government – that controls flood insurance rates and building codes. So it is the government that is best poised to step in and develop new affordable housing to fulfill the needs of lower income people.

And the government, in partnership with various non-profit organizations, is developing new affordable, rent-controlled housing.