Fear keeps RI from building more housing, developer says. Here's how.

As the state faces a crushing housing crisis, Providence has the steepest rent increases in the country and the price of a single-family home is up 50% since the onset of the pandemic, why is there fierce opposition to new housing in Rhode Island?

Fear.

That was the answer Boston real estate developer Adelaide Grady gave during a real estate symposium put on by Roger Williams University last week.

Grady is leading a 2,699-unit mixed-income housing project in Boston called Bunker Hill. Underneath the normal objections – density, wastewater, short-term rentals, traffic – there is the true problem.

"It's a fear," Grady said. "It's a fear of people who live in apartments, or condos, which is utterly irrational and very damaging to communities. But no one wants to talk about it, so they really hide behind other reasons."

What are the common complaints about more housing in Rhode Island?

Last year, the General Assembly passed a package of bills aimed at the housing crisis and Rhode Island's fundamental dysfunction – a lack of new units – by tweaking things to make homebuilding a little easier in the state. That effort has been renewed this year.

At the same time, cities and towns across the state are passing zoning rules to intentionally thwart the density that 2023's package of pro-housing bills promised and fighting a new set of changes proposed in this year's session.

The reasons to oppose new housing, or standards that allow a little more density, range from complaints about children to the loaded term "community character," invoked by David Bodah, associate director of the Rhode Island League of Cities and Towns.

Other complaints include:

• More students will cost towns too much money in schools

• More residents will overload the wastewater/water systems

• Traffic

• Increased housing supply results in lower property values

• Loss of local control

Grady, who is on the Carlisle, Massachusetts, Planning Board, said she is experiencing first hand the pretextual nature of small-town politics, as the health board in her town works to change the standards for septic systems.

"It's basically trying to outlaw (accessory-dwelling units, known as granny flats) and other forms of multifamily development by changing their septic regulations," she said.

One Neighborhood Builders CEO Jennifer Hawkins took a different tack on the issue, giving municipal leaders a little more grace.

"I don't believe that municipalities are generally bad actors," she said. "I think that they're working in their own logical sort of interests, right? And I think that if you're able to ask the questions and understand their motivations, I do think it's incumbent upon developers to ask those questions, listen to the responses and then sort of address them."

State leaders should start stepping in to address the concerns that cities and towns raise when they oppose housing, like funding for students or sewer capacity, something Hawkins said she is eager to see gain traction at the State House.

Supply-side skepticism

In almost every facet of the economy, the underlying forces are supply and demand. But people often don't want to believe that increasing the supply of housing will decrease rent, leading to supply-side skepticism, both Hawkins and Grady said.

In Austin, Texas, so much new housing was built that rents are down 6% in the last year (or 12.5% depending on the report).

"They think more housing means higher prices," Grady said.

The solution?

"It's really important to kind of have those counter-factuals ready," Hawkins said.

Few reasons to fight uphill battles

With the limited resources available in the state for income-restricted and subsidized housing, Hawkins said she seeks out cities and towns where they, and their developments, are welcomed, instead of trying to fight tooth and nail against cities and towns that want no new residents.

"I personally think that the work is far too hard to engage in arguments with municipalities that don't want to work with me," Hawkins said. "There is plenty to do and there are plenty of really creative cities and towns open to partnering with us out there."

High interest rates, delays, rising construction costs

Rising construction costs and the high cost of financing are hitting big projects across the state very hard. When delays in securing financing, filling funding gaps, litigation or endless opposition from neighbors and municipalities push out construction start dates, projects get more and more expensive, said lawyer Michael Mineau, with the firm Partridge Snow & Hahn LLP.

Financing residential projects, any housing projects, has become harder and harder. The heart of the problem is both interest rates and the yield on treasury bonds, something housing developers across the spectrum have been complaining about, including when they argue for tax-stabilization agreements.

The high treasury bond rate is a key part of the calculations by investors when deciding to invest in a project. High treasury bond yields, which are an essentially risk-free investment with current returns around 4.5%, means housing projects need to provide much higher returns to get financed.

"Capital is really, really, really expensive," Grady said.

For income-restricted housing projects, little of the project is financed, in comparison to market-rate projects, because otherwise the low rents will not produce enough income to pay off the debt.

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Reach reporter Wheeler Cowperthwaite at wcowperthwaite@providencejournal.com or follow him on Twitter @WheelerReporter.

This article originally appeared on The Providence Journal: RI's housing crisis driven by fear of new housing, developer says