City considers waiving development fees to incentivize affordable housing

WILMINGTON — As the city continues to prioritize affordable housing and finding ways to incentivize some developers, it’s proposing a new ordinance that would save project applicants money.

In the fiscal year 2024 budget, an update to the fee schedule for rezoning and site plan application fees, as well as tree mitigation requirements, would waive the cost to certain workforce housing developments. It’s only applicable to developers that receive financial assistance from the city, New Hanover County or North Carolina Housing Finance Agency. 

In the last few years, the city has received seven applications for workforce and affordable housing developments — which means eligible to someone bringing in 80% average median income or below. Residents would have to make $47,750 to qualify.

More than 400 affordable housing units are in the works. All have been financially assisted by the city as well, which has invested more than $50 million toward affordable housing in the last two decades.

City spokesperson Lauren Edwards said the ordinance is being considered “in an effort to find creative ways to offset or reduce the financial barriers to developing affordable housing.”

City council will vote in June on the budget adoption. If it moves forward, the change gives city manager Tony Caudle power to waive payments in lieu of on-site tree mitigation, in addition to waiving other development-related fees, according to Edwards.

Developers often propose cutting down certain trees as part of their site plans. Based on their size, species and scope, they must mitigate the removal as part of the city’s ordinances. That can be done through planting of new trees on site, payment in lieu of mitigation or a combination of both. 

For every caliper inch of tree lost, an applicant must dole out $175 or replace double the number of caliper inches.

In fiscal year 2023, ending June 30, the city has so far collected $105,000 from tree mitigation costs. In total, there is a fund balance of $452,000 from fees paid, which are put into the city’s tree improvement fund.

The account is reserved solely for planting trees on public lands and rights-of-way, Edwards confirmed.

Total mitigation requirements can also be reduced through the identification and preservation of non-protected trees on-site, Edwards said.

For Starway Village, a 278-unit workforce housing complex proposed for construction on Carolina Beach Road, the amount for tree mitigation tops out at $74,200. The largest workforce housing project within the region, Starway developers recently received pre-emptive relief from the cost burden, approved by the city’s board of adjustment May 18. 

Starway received $3.5 million in gap financing from the city, $1.8 million from the county and $9 million from a state grant last year. Kelly Development Company’s Ted Heibron said in November, without the government entities’ assistance, the project would not be possible as planned. 

“We’re subject to the same cost of construction, but our cost of capital, we’re capping rent at half the market rate,” Chris Bostic said Thursday. Starway must remain affordable for at least 30 years, per state and federal funding requirements.

Bostic works with Kimley Horn, the engineering firm representing Starway developers. He explained having to pay the mitigation standards creates a hardship for a low-income project. 

“The intent is to construct within a budget that supports the rents of workforce housing,” Bostic explained. “We’re seeking relief from mitigation as the current budget does not include allocation for those payments.”

Board of adjustment member Patrick Moore did not think the developers should get a pass on paying the same fees everyone else has to. 

“Nobody wants to pay,” Moore said. “I’m not sure that’s a hardship.”

City zoning administrator Kathryn Thurston revealed during the meeting the upcoming changes the city is considering, to go into effect until July 1. 

Bostic said the team is on a tight deadline per state and federal funding requirements and a groundbreaking is planned for August. As the updated amendment is “coming down the line,” the board approved the waiver in a unanimous vote.

City council identified increasing affordable housing as one of its five priorities in the upcoming budget; waiving fees is one way the city is hoping to accomplish that, Edwards said.

Also being considered for city-assisted low-income housing developments are site plan and rezoning application fees. Depending on the size of a project and location, the cost can reach upward of $2,000.

Fees vary based on the size of the proposed development, with a base fee plus $20 per 1,000 square feet:

• Less than or equal to 10,000 square feet: $250 
• Greater than 10,000 square feet: $500 
• More than 40,000 square feet: $1,000

Zoning application fees also range in cost, depending on the district and acreage of the proposed project. The price ranges from $400 to $800, plus $20 per acre.

While the city is working to encourage additional building, one prominent local development company said waiving fees will have “no meaningful impact” on housing affordability.

Cape Fear Commercial partner Brian Eckel said his firm has studied the complexities of affordable housing, recognizing it’s both a local challenge and a need.

“Though these measures might be part of a much larger solution,” Eckel said, “the dollars in question are negligible as compared to the entire cost required to deliver housing.”

According to the National Association of Home Builders, regulatory costs from local governments account for nearly 23.8% of housing costs nationwide.

“Make no mistake, housing affordability is both an issue of the total cost to deliver additional housing units and a problem of simply supply and demand,” Eckel added.

He pointed to the “risk factor” developers incur when undertaking any project of large scale. 

“With entitlement, planning, and permitting timelines being lengthened by more onerous planning regulation and density being tamped down by more restrictive UDO’s, the time to market and the cost per unit are driven upward,” he explained. 

Meanwhile, it can cost a company “hundreds of thousands of dollars” just to put their plans before a planning board, after design, TRC review, and traffic impact analyses, Eckel added. From introducing a plan, up to city council giving the final green light, the process isn’t quick; it can take up to six months. 

Starway was first proposed in June 2021 and by the time it breaks ground at the end of summer, more than two years will have elapsed.

“The cost of capital, the risk associated with these front-loaded costs, and the unpredictability as to whether the developer even has a project that can then be built, has a huge cost,” Eckel said.

In November, the city updated its ordinances to try and streamline the process, making it easier for affordable housing developers to submit applications. City planner Linda Painter told council at a work session last fall, developers interested in building lower-income complexes typically do not have the financing for full engineering and site plans. 

Applications with at least 50% workforce housing within conditional districts can submit fewer details for proposed plans. Projects that will be 100% affordable need to only submit a narrative describing plans with limited information — building height, buffers, etc. — for approval.

Once a plan is approved, there are still possible roadway improvements, utility upgrades, stormwater retention, green space and more adding to the bottom line.

“The process needs to be simplified,” Eckel said. 

Since 2020, 92 units of workforce housing have been included in market-rate projects, including Switchyard, Vivo Apartments, The Range and Barclay West-Middleburg. Another 72 units of affordable housing were approved for the senior living complex, Canopy Pointe, annexed into city limits last spring. The city also allocated $1.85 million in gap financing to the project last year.

Also approved as a general rezoning last year, was 3939 Carolina Beach Road. Good Shepherd plans to build up to 33 units on the site, donated by the city in September.

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