When land is scarce, one way to make housing more affordable is to increase density by building apartment complexes and multi-family homes. At least that’s the way it’s supposed to work. In Sitka, the largest apartment building in over two decades is going up, but the ten units will be more costly than the market average. A developer behind the project says the economics just don’t pencil out.
Before property manager Vicki D’Amico even advertised the one- and two-bedroom apartments under construction at Sealing Cove, she’d already rented out three of them.
“It has all top of the line equipment, that’s what makes them so appealing. People walk in and say wow, they have a wow factor,” D’Amico said. “They really do.”
When I visit on a sunny day in late April, the two-story indigo building is a flurry of activity. There are still countertops to install and trim to finish before renters move in just a few weeks from now. All of the apartments are already rented, and D’Amico even has a waiting list. The apartments overlook the harbor and towering snow-capped peaks.
But it’s not just the view or the quality of construction that’s attracting renters — it’s that they can’t find anything else. Even professionals with higher incomes are struggling to find housing.
“I watch the market; I watch what’s available. And I thought there were some things available, but so many people said no, there just isn’t. Or it’s not something I’d want to live in, is what I hear,” D’Amico said. “And some people put money down sight unseen, which tells you about desperation, I think.”
Every year, Sitka’s housing supply increases slightly. But on average, roughly half of that construction comes in the form of single-family homes, according to permit data from the building department. And a lot of it is high quality and high value.
“Most of the new houses we see built are fairly high end,” building official Pat Swedeen said. “Pretty high cost per square foot to build.”
New apartment complexes are rare. Sitka has permitted a little more than 20 in the last two decades, and most of them are small, with three or four apartments. Since 2000, only two privately funded developers have constructed long-term rentals bigger than a four-plex.
“We’re not really ready as a city, I don’t think, to move beyond the four-plex,” John Hardwick said.
He and his wife are the developers behind the new 10-plex at Sealing Cove.
“Many times even on a large piece of property, it’s more cost-effective to build two four-plexes than it is to build one eight-plex. Which doesn’t make sense if you’re in the building trades, usually one foundation, one set of exterior walls, one roof is more efficient,” he said.
Hardwick said the additional safety requirements for buildings with more than four apartments, like sprinkler and fire suppression systems, drive up the cost. Financing is also more expensive. He said his company didn’t receive any local, state or federal assistance to help offset the costs.
Add energy efficiency measures, parking requirements, skyrocketing lumber prices,and unforeseen projects like building a seawall, and he says the apartments aren’t going to make money anytime soon, even with high rental rates. They’re charging around $500 more than the fair market rent and that doesn’t include utilities.
“It’s kind of sad that we’re charging $1,800 a month for a two-bedroom, unfurnished, no utilities paid,” Hardwick said. “But that would be great if we were making money, but the fact that you’re not making money, you’re treading water here hoping that in the future you can make some money.”
Hardwick said they were trying to fit as much housing on one property as they could, knowing that possible expansions from SEARHC and the Coast Guard could make a tight housing market even tighter. He thinks there are opportunities for the city to work jointly with private developers to address Sitka’s housing issues.
“I know that the comprehensive plan for the City of Sitka says that they would like to have higher densities. And yet when the rubber meets the road, it becomes a little bit more problematic,” Hardwick said. “It’s not saying you can’t do it, you can build it. But if it’s not economic, why would you put your hand in the blender again?”
City planning director Amy Ainslie says there are many ways to encourage denser and more affordable development, from tax incentives and fee breaks to increasing access to financing and relaxing requirements for accessory dwelling units. Some cities even have a dedicated affordable housing fund.
“The approach that Sitka has generally taken has been to look at our general code and to see what parts of our code might be encouraging or discouraging certain types of development,” Ainslie said.
Sitka’s zoning is fairly accommodating to denser development. The bulk of residential zones do allow for at least a duplex. And even if Sitka isn’t adding a bunch of new apartment complexes, Ainslie said she has seen progress over the last couple of years, especially since the city reduced minimum lot sizes and modified some density requirements.
“There are definitely developers who are taking advantage of some of these changes to the code,” Ainslie said. “We’ve had some subdivisions that were possible because we decreased the minimum lot size, subdivisions that wouldn’t have otherwise met our standards for subdivision, so more lots are being created as a result.”
Still, she said, there’s a lot of work left to do.
“If you’re measuring success, I think a lot of people tend to do that based on ‘is housing affordable?’ And I think a lot of people would still say the answer is no,” she said.
D’Amico, the property manager, worries about what the housing shortage could mean for Sitka’s future. She said one potential tenant told her, “people are coming into work, and you’re going to have tents pitched if you don’t do something.”
Throughout April and May, KCAW News will be bringing you stories about affordable housing solutions every Friday as part of its “Building Solutions” series.