Although luxury apartment communities such as Meriden’s Newbury Village have been built in recent days, Connecticut is in need of affordable rental housing

It’s no secret that Connecticut has a short supply of affordable and market-rate rental housing. Affordable-housing advocates and developers have long been encouraging the state to regulate the planning and zoning powers of municipalities, which, in many cases, require large lot sizes and discourage density that could lead to more development.

And according to a recent study from the Harvard Center for Joint Housing Studies, the state and the rest of the Northeast lag behind the rest of the country in the production of new rental housing.

In Connecticut, the share of rental housing existing in 2004 that was built in the preceding 10 years was less than 15 percent, according to the study, called “The State of the Nation’s Housing.” The share was smaller than that in Massachusetts, New York and Rhode Island.

But demand for rental units is increasing. According to the study, 2005 marked the first time in years that the number of rental households grew and rental vacancy decreased.

That was good news for landlords, but not for those with low income. The increased demand is making rentals more expensive in some parts of the country. According to the study, “Neighborhood decline is fueling the loss of affordable housing and exposing residents to poor neighborhood conditions.”

From 1993 to 2003, the supply of rental units that are affordable on a $16,000 income fell by 1.2 million. In 2001, 12 percent of such rentals were operated at a loss.

Although most developers in Connecticut acknowledge the need for more affordable housing, there are few incentives to make it financially possible – let alone profitable – to build affordable rentals, according to Steve Witten, senior director of national multifamily housing for Marcus & Millichap in New Haven.

“There really is no program to encourage developers [to build affordable units],” he said.

Witten puts new rental housing into several categories: conventional, market-rate apartments; affordable apartments; and over-55 developments. The over-55 developments, which appeal to empty nesters looking to downsize, are popular across the state, and Witten said he expects to see even more of them.

“That’s one of the hooks developers have used to get through the permitting process,” he said.

Cities and towns are eager for such housing and often do not put up many roadblocks, making it easy and profitable for developers to build. Municipalities claim age-restricted housing puts little strain on infrastructure, like schools, while adding to the tax base.

But that sort of development does not address what many say is Connecticut’s biggest problem: the lack of affordable housing. And with interest rates rising and fewer people buying homes for the first time, as well as little production of new rental units in Connecticut, the cost of renting is bound to increase.

“When you have a short supply of rental housing, rents get bid up,” said David Fink, policy and communications director for the Hartford-based Partnership for Strong Communities.

Increased demand for apartments also can make landlords less flexible. If a tenant misses a rent payment one month, landlords are more likely to evict the tenant immediately when they can fill the unit with little difficulty. Landlords are also more likely to raise rent.

The pressure on the market that pushes up rent also causes many people to pay more in rent than they can afford, so when any unforeseen circumstance arises – like a necessary car repair – their rent payments may suffer.

“It’s that kind of pressure for people living on the edge and just making ends meet that pushes them over the edge,” Fink said.

For many, eviction means they move in with a friend or family member. But for some, it can mean homelessness, adding to the estimated 33,000 people who are homeless in Connecticut each year.

Fink points to the high cost of land and the restrictions placed on developers by municipalities as reasons for the lack of affordable rental housing.

Cities and towns are “afraid of schoolchildren,” as many believe more students will put too much of a strain on the school system, he said. So they look to high-end housing development, instead of development that will allow working people to live in the community.

“Generally, there are very few communities in Connecticut that understand the importance of rental housing,” Witten said.

‘A Real Problem’

Although over-55 development is healthy across the state, it is not the choice of every empty nester who wants to downsize. In many cases, the lack of rental housing in a municipality means people have to move away to find an apartment.

But there are two sides to the construction of new rental housing. Some places in the country – like Atlanta – can support tens of thousands of new housing starts in a year. They also, however, have tens of thousands of job starts, making it easy to absorb new housing.

Connecticut does not have those job starts. So when new construction comes online in an area, vacancy goes up in surrounding areas.

“That’s how fragile the market is,” Witten said.

And most of what is coming online in Connecticut – particularly in Fairfield County – is luxury apartments.

“That’s the only thing we can afford to build,” Witten said.

Some developers do 80/20 complexes, where 20 percent of the units are affordable. But “affordable” is a relative term.

“‘Affordable’ often depends on the market,” Witten said. Affordable housing in Greenwich, because of the high home prices and incomes in the area, is not actually affordable to those on a low income.

Developers realize the need for more low-income housing, but cannot afford to build it. It costs about $200,000 per unit to build rental housing in New England, according to Witten. That means building owners have to charge an estimated $1,200 per month in rent just to pay the mortgage, let alone make a profit. The rising interest rates and lengthy permitting process in most municipalities make building even more expensive.

“It’s a real problem,” Witten said.

The lack is particularly felt in immigrant communities, where eight or 10 people might be sharing a one-bedroom apartment to save money, Witten said.

“There’s no place to house them,” he said.

The Harvard study highlighted the significant contribution that foreign-born individuals and minorities will make to overall household growth. Household growth will likely accelerate to 14.6 million over the next 10 years from 12.6 million over the past 10 years.

A lack of affordable housing is a nationwide problem. According to the Harvard study, the country has been losing affordable housing for more than 30 years. The study defines affordable housing as housing stock that is affordable at 30 percent of income to the third of renter households with incomes of $16,000 or less.

“From 1993 to 2003, the inventory of these units – with inflation-adjusted rents of $400 or less, including utilities – plunged by 1.2 million,” according to the study. “With such drastic losses to upgrading, abandonment, or demolition, the shortage of rentals affordable and available to low-income households was a dismal 5.4 million. As dire as the situation already is, even more risks lie ahead.

“A significant portion of the remaining affordable stock is in financial distress. In 2001, owners of fully 12 percent of all rental properties with average rents of $400 or less reported negative net operating income – an unsustainable condition that points to accelerating losses of low-cost units going forward.

Twelve percent of all rental properties with average rents of $400 or less reported negative net operating income – an unsustainable condition that points to accelerating losses of low-cost units going forward.

Removals of affordable rentals are especially alarming because preserving low-cost units is usually far more cost-efficient than building them new. In addition, losses to deterioration and abandonment erode the quality of neighborhood life and can exacerbate the economic decline of entire communities.

“Despite the urgent need, available federal subsidies and tax incentives have been insufficient to forestall, let alone reverse, the growing deficit in affordable rental housing.”

The lack of incentives is a big part of the problem, Witten said. The state recently added $10 million to the Housing Trust Fund for Economic Growth and Opportunity, which provides gap financing in the form of loans and grants to help create housing for low- and moderate-income working families in the state. It was signed into law last July. But developers need a lot of help to build affordable housing.

Some use low-income tax credits, but obtaining those is difficult and time-consuming. Years ago, there were many grants, like facade grants, available from the state and from municipalities. Many of those have dried up, but should be resuscitated, Witten said.

“I find it really frustrating,” Witten said. “We know there’s a need.”

According to the study, “Five years of unprecedented house price appreciation and decades of land-use restrictions that make building affordable housing difficult are adding to widespread housing affordability problems.”

The number of households spending more than half their incomes on housing increase by 14 percent to 15.8 million from 2001 to 2004. That means that, while more people are building home equity than ever before, the bottom three-quarters of the income distribution is seeing slow growth in wages and is not keeping pace with escalating housing costs.

“[Amid] a housing boom, it is now impossible to build housing at prices anywhere near what low-income households can afford without subsidies,” according to the study.

In addition to more funding for affordable developments, cities and towns in Connecticut need to reevaluate their processes, Witten said. He predicted there will be more than 5 percent growth in rentals nationally this year. Occupancy in Connecticut is high.

“It clearly is screaming for more building,” he said.

But the type of building needs to be carefully considered because of the fragility of the market.

“Even as the housing industry looks past the current softness to robust growth in the decade ahead, the challenges of providing affordable housing for low-income, and increasingly even middle-income households, are clear,” said Nicholas P. Retsinas, director of the Joint Center for Housing Studies. “Slow growth in domestic discretionary spending at the federal level and the reluctance of state and local governments to relieve intense barriers to the production of more affordable housing make the road ahead difficult. Unless governments step up to these challenges, spending on housing will increasingly crowd out spending on pensions and savings among those with low and moderate incomes.”