Public Policy

Tackling the Workforce Housing Shortage

Jennifer Sunstrom RANW Government Affairs Director Realtors Association of Northeast Wisconsin

Despite continued record-low unemployment rates, Wisconsin’s economic future still hinges on the ability to retain and attract a skilled workforce to fill existing and future job vacancies. As part of this struggle, Wisconsin employers are finding it increasingly difficult to recruit workers to areas lacking attractive and affordable housing options. With statewide housing inventory levels at historic lows, median home prices continuing to rise, and apartment rent increases outpacing wage growth, Wisconsin’s workforce housing shortage is a growing problem for Wisconsin’s economic success. For that reason, the Wisconsin REALTORS® Association (WRA) commissioned a study, that demonstrates 1) A severe workforce housing shortage does exist in Wisconsin, 2) the primary causes of the shortage, 3) the consequences of the workforce shortage, and 4) how we can take steps to address the problem. The report titled “Falling Behind,” is authored by University of Wisconsin Madison Professor of Urban and Regional Planning, Dr. Kurt Paulsen, Ph.D., AICP. Three Main Causes of the Workforce Housing Shortage 1. Not building enough homes to keep up with population - Wisconsin is creating about 75 percent fewer lots and 55 percent fewer new housing units than pre-recession levels. In the past two years, fewer than 10,000 buildable housing lots were approved in WI, even though WI usually adds 10,000-20,000 net new households each year. In Outagamie County, from 2006-2017 there were 5,727 new households and 6,245 new housing units. Although Outagamie has not yet joined its neighbor Brown County in actually underproducing housing, it is drawing close with a narrow margin of just 518 units.

2. Construction costs outpacing inflation and incomes - In the past seven years, construction costs have risen substantially faster than inflation, and construction companies are facing severe labor shortages in Wisconsin. In the Fox Valley area, from 2010-2017 area builders say that construction costs for single-family homes have risen 15%- 17%. Unlike home construction costs, development costs (land, engineering, permits, carrying costs, etc.,) can vary from community to community. For this same time period, local developers have seen costs rise approximately 10%-15% depending on the community. 3. Outdated land use regulations limiting supply and significantly driving up the cost of housing - Local regulations that have no public safety purpose, such as large minimum lot sizes, prohibitions on non single-family housing, excessive parking requirements and high-end building materials, and long approval processes are adding substantial costs onto housing.

The National Association of Homebuilders estimates that regulations can drive up the cost of single-family homes by at least 24 percent and multifamily housing by 30 percent based on regular surveys of developers. As a result of limited supply and rising housing costs, the housing study reviews several negative results that impact not only our local economies but the quality of life in Wisconsin including Northeast Wisconsin.

Three Consequences of the Workforce Housing Shortage 1. A continued decline in overall housing affordability – According to U.S. Census data, one in five individuals in Outagamie County holding a mortgage paid 30% or more of their monthly income for housing. Although Outagamie and Winnebago County have not yet met the threshold to be considered officially unaffordable, from 2010-2017 their scores dropped 8.5 and 11.27 points respectively. Affordability for rental units is even more challenging, with surrounding counties including Brown, Winnebago, Calumet, Fond du Lac and Door County all considered barely affordable based on the 2017 index. This means that median income families can barely afford the medianpriced rent in the majority of Northeast Wisconsin communities. For those individuals earning below median income levels, housing affordability is even more dire. Wisconsin currently leads the Midwest with the highest percentage of lower-income renters with extreme cost burdens, meaning families pay more than 50 percent of their income on housing.

2. Declining homeownership in Wisconsin, especially among younger households and African American and Hispanic families - The report finds that from 2007-2017 homeownership rates in Wisconsin declined across all age groups (except Seniors) with the largest drop for young families. Homeownership rates also declined during this same time period across all ethnic groups, with the largest drop in African-American families.

3. Wisconsin homeowners are borrowing more - Even with historically low interest rates, Wisconsin homeowners are borrowing a larger percentage of their home’s value. Most recent data show the loan-to-price ratio for mortgages in Wisconsin exceeds 83 percent.

30,000

Housing Construction and Subdivision Activity in Wisconsin have not Recovered from Great Recession, Remain at Historically Low Levels

25,000

20,000

15,000

10,000

5,000

0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Lots Created by Subdivision Plats Single Family Building Permits Multifamily (5+ units) Building Permits

ROADMAP TO REFORM

• Expedite permitting and development approval processes at state and local level

• Establish maximum and minimum lot sizes for sewer areas

• Require communities to allow multifamily housing in at least one zoning district

• Provide incentives for the creation and approval of workforce housing

• Create TID for workforce housing

• Create first-time homebuyers savings account program

• Create state tax credit for rehabilitation of older housing

• Coordinate housing programs across state agencies

• Provide technical and financial assistance to local governments

• Providing financing incentives for innovative models and for nonprofit and affordable housing providers

• Employer down-payment assistance and homebuyer counseling programs

Through strategies that address some of the identified causes of the workforce housing shortage as well as ideas and best practices gathered from around the country, the report offers several strategies to tackling this problem.

Five Strategies to Eliminate Workforce Housing Shortage 1. Building more housing 2. Increasing housing choices 3. Rebuilding and strengthening homeownership 4. Reinvesting in older housing and older neighborhoods 5. Making housing a priority

The health of the housing market plays a critical role in the overall economy and the desirability of one community over another. This is especially true when it comes to issues surrounding housing affordability and the supply of workforce housing. Without an adequate supply of housing options and price points to meet the housing needs of workers across the spectrum, Wisconsin will be at a competitive disadvantage in trying to attract and retain businesses and workers.

Now is the time for all stakeholders including local governments, the business community and real estate related professionals to work together to find innovative solutions to address this growing housing problem.

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