A recent study reveals the hard numbers that explain why so many Sevier County workers have been forced to live in substandard motels or even storage units: The county has long lacked enough affordable housing, even before the deadly wildfire that swept Gatlinburg in November.
The study, commissioned by the Sevier County Economic Development Council details the problem and offers concrete suggestions to local governments and developers for creating new low-cost rental units.
For years, there has been “pent-up demand” for every type of housing, from market-rate to workforce and seasonal apartments, the report notes. It indicates this housing scarcity has led to artificially depressed employment.
Another result is that “there is a significant portion of the market that is living in substandard housing conditions that are either not up to code overcrowded,” the report states—mostly service workers living in motels.
“It just confirms what we all suspected: We need to figure out how Sevier County and the cities can participate in making more affordable housing available,” says Sevier County Mayor Larry Waters. Gatlinburg City Manager Cindy Ogle could not be reached for comment last week.
The market study highlighted barriers to developing new rental housing, such as high land prices, the limited footprint of city utilities and public transportation, and the income levels of potential renters living in the market.
Those incomes are way too low for resort pricing. For example, 56 percent of Gatlinburg residents—and 60 percent of the entire county population—would have qualified for some form of lower-income housing last year, even though almost none is available in the county.
The report by Knoxville-based Hodges & Pratt was commissioned by the council last fall before the fire and released a few weeks ago, says EDC assistant director Emily Whaley.
Officials with the council have begun meeting with those from Sevier County and each of its cities to discuss ways to help developers overcome the hurdles identified in the study. Among the possibilities suggested in the report: offering subsidies or supplemental vouchers for specific projects, partnering with nonprofits on developments, supplementing the “rent gap” with an investment fund whose returns could help with operational costs, providing payment-in-lieu of tax (PILOT) deals, paying for utility or public transit extensions, and—the option that seems to be generating the most interest—contributing land.
While noting that elected officials will make the final decisions, Gatlinburg City Manager Cindy Ogle says city administrators are focusing on the land strategy. Ogle says there are two or three areas within the city limits that could fit multi-family workforce apartments. (A 22-unit project planned for Ski Mountain Road, the only workforce housing under private development after the fire, appears to be dead, Ogle says.)
She says the city isn’t actively working on other recommendations but has not dismissed them either.
“I don’t think there’s going to be one magic bullet,” Waters says. “One of the things we’ve been looking at is how the governmental entities really don’t want to be in the housing business.” (He and Whaley say they don’t foresee local governments choosing to supplement the rent gap, or to own or manage housing directly.) “What we want to do is figure out a way we can encourage developers and make sure they build affordable housing.”
For instance, Waters says, a government might buy land or acquire an option to purchase it, then take proposals from developers who’d build workforce housing there. Whaley says governments also seem open to lowering some fees or altering density requirements. Utilities have been at the table as well.
The market study also suggested that local governments partner with employers to “master-lease” workforce apartments for their employees, which could help with securing a loan for the development. Waters says he knows of at least two employers in the county who are trying to put together self-financed employee housing projects. Whaley says some employers also have land they could put on the table to sweeten a deal.
“Getting all of us together to provide for affordable housing is the silver lining of this whole horrible event,” Ogle says, adding that if works out, it will be one of the “most significant” accomplishments she has seen from local government.
Although PILOTs can be enticing in areas with a higher property tax rate, the report noted that this incentive would likely have less influence over Sevier County projects because the county’s property taxes are so low anyway.
Six projects in Sevier County have applied for a Low Income Housing Tax Credits, which can offset the costs of developing affordable housing. These provide owners and investors with credits against federal income tax liability for 10 years; a certain percentage of low-income units are required, and must remain available to low-income renters for at least 15 years. The amount of credits a project is eligible to receive is based on its acquisition and construction costs.
Patricia M. Smith, communications director of the Tennessee Housing Development Agency, says, “At least one (of the proposed Sevier projects) will be funded through the $1.4 million set aside from returned 2016 credits, and more could be funded through the 2017 credits.” She says the agency expects to announce the grants in mid-August.
All but one of these projects are proposed for Sevierville; the exception would build 76 units in Gatlinburg. At the time the market study was written, there were already 47 units under construction in Gatlinburg (without tax credits), but 27 of those were being built by Ober Gatlinburg for seasonal employees who come to the U.S. from other countries.
Creative approaches to house service workers
An estimated 225 rental units in Gatlinburg were destroyed by the fire, not counting the long-term stay hotels commonly used as primary housing for service workers, the study indicated. But even those who didn’t lose their homes in the fires were slipping into homelessness over the winter because so many employers drastically cut employees’ hours. (See our March 8 cover story.)
Cara Parker of the Sevier County Tennessee Recovery Project was regularly learning about large groups of people living in substandard housing like storage units or burned apartments during the winter. The FEMA-funded Recovery Project provides counseling and referrals to Sevier residents struggling after the fire.
Parker says they are no longer finding widespread homelessness, although some people did lose their housing this spring as hotels either increased their prices or stopped accepting locals in favor of tourists.
The unexpected infusion of an extra $5,000 per family in My People Fund money from the Dolly Parton Foundation in May helped some continue to pay for hotels, Parker says. The influx of tourists has also helped service workers get more work hours, although often not as many as they need, she says. Transportation continues to be a challenge, because the housing shortage has forced many to move to other counties. They now struggle to reliably get to work in Sevier, Parker says. (The study found that 44 percent of people who work in Sevier County live elsewhere, and that number may have increased since the data were gathered.)
“We’re not saying no to anything right now,” says Allen Newton, executive director of the Sevier County Economic Development Council. He added that his agency is also looking at tactics that have been successful in other resort communities with similar challenges.
In fact, the Tennessee Housing Development Agency, at the request of local governments, created an issue brief in February that outlined strategies for encouraging moderately-priced housing based on ideas that have worked in other vacation destinations, says agency communications director Patricia Smith. Little seems to have been done with the information, and Waters says he does not remember seeing it.
The policy brief outlined options including mixed-income incentives (like increased density and reduced parking requirements),“co-housing” (in which common spaces like kitchens and laundry rooms might be shared among multiple renters), and land banking (a government entity buying, holding, and reselling land).
It also described shared equity approaches, when a governmental agency or nonprofit—often some kind of community land trust—pays part of the purchase price for housing (or just the land) and maintains part ownership. The residents get to buy the house for less, but must agree to restrictions on the asking price when they decide to sell, keeping the home affordable.
The brief also outlined housing options for “modest-sized homes,” including small stand-alone structures on the same property as a primary residence and even “half-homes” with full external structure but initially only half the internal structure completed—providing residents a fully-functioning small living space that could be expanded later when money is available.
Ogle says Gatlinburg is really not considering any of these approaches.
The Hodges & Pratt market study warned against attempting to solve the short-term housing problem by “building a high number of low-quality units” that are too small to be wanted in the future. “Many of the residents are living in substandard conditions, so building units without adequate plumbing and appliances would be less than desirable,” the report states.
In most communities, about 5 percent of rental units are vacant at any given time, the market study noted. In Sevier, it’s less than 1 percent.
There are no vacancies at all in properties that accept federal Section 8 vouchers or in the county’s trailer parks, the study indicated. (The state made an additional 50 vouchers available to Sevier County residents after the fires. But only one was taken, and it was “ported” by the family for use outside the county, Smith says.)
The housing squeeze is partly because available rental housing is focused on weekly vacation rentals. The state housing agency’s policy brief indicated that Sevier County is home to about 14.5 percent of all the seasonal, recreational vacant rentals in the entire state.
Whaley says by the time the economy recovered from the recession that began in 2008, land values had started climbing more steeply. “Developers just couldn’t get the land to make the numbers work. Word got out you can’t afford to do anything like that in Sevier County,” she says.
When the market study was prepared in March, there were just eight major parcels in the county being marketed for possible developments, and they ranged in cost from $24,000 per acre to $206,000 per acre.
In an example case developed in the market study, a 950-square-foot unit in a complex of 100 apartments would need to rent at about $1,000 a month to be economically viable to a developer. (The fair market rent for a two-bedroom apartment in Sevier County is $696, which already represents 97 percent of the median household income among renters there.) If the purchase of land were removed from the equation, the rent could be reduced to $919–although that’s still well above what service workers could afford.
But workforce housing is the number-one priority, Whaley says, adding that there might even be criteria that renters of new units be working in the community. (This would exclude seniors and people on disability. She says Sevier has other housing options for some of them, but acknowledges there’s not enough of any kind of residential housing.)
The market study was needed to convince developers of the types of housing in demand, Whaley says. “We have some plans we really can’t discuss yet, but we hope this study will show the developers that hey, if you take a chance on doing this, we don’t think you’ll have a problem with making the development a success,” Whaley says. “Our next step will be what can the governments put in the deal to make it happen. We have started meeting with the three cities and working through what incentives they can offer. We should know something pretty soon.”
Although the market study lists potential developments already under discussion, only a few, such as the 144 units of “Allensville Phase II” in Sevierville, are far enough along to be quantified. Despite the many parcels left empty by the fire, Gatlinburg has almost no projects in the pipeline.
“We would like to have 150 to 500 new units in each city,” Whaley says. She says single giant developments are cheaper for developers, but it’s tough to find a piece of property in Sevier County that is flat enough and close enough to existing infrastructure for that many units. “We’ve identified some properties we could put 200-250 on, and that would be good to start with,” Whaley says.
However, the housing market report discouraged focusing exclusively on large projects and said “incentivizing smaller scale development could also assist in providing some units at a lower price point.”
And in Gatlinburg, any complex with more than 150 units probably isn’t feasible, Whaley acknowledges. She says the EDC has been looking at putting together three to five vacant properties to make larger development parcels. “That would be the best way to go, but you’re dealing with property owners who think their property is gold,” she says, noting that local governments can’t pay more than 10 percent above a property’s assessed value.
Despite the barriers, Whaley says she hopes local governments will move quickly. “They know the urgency,” she says. “Hopefully in the next three to five months we should be able to see something happening. … We feel like if we could start just a couple, other developers would come in and do it without government help.”
Updated 6/21/17 to include further interviews.
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