Officials seeking affording housing solutions in Black Hills

“I think it’s no secret to anybody that (housing has) been alive in the last six to nine months and that housing is an issue across the board from affordability to availability,” Johnson said recently.

The April economic indicators showed a decrease in active real estate listings from 128 in March to 118 in April. The median listing price increased from $234,000 to $302,000.

Affordable housing is defined as 30% of a household’s income. Rapid City’s area median income was $49,000 in 2019, which would mean $14,700 would be dedicated to housing and utilities a year, according to a city presentation on a strategic housing plan.

One solution to achieve affordable housing is to subsidize the cost of construction, which would reduce costs for developers and builders, the Rapid City Journal reported.

Johnson said there could be programs to subsidize the cost of development so the developer can build houses at a lower cost, still see a profit and allow the home buyer to see an affordable rate.

CNN Business reported that random-length lumber futures reached a record high of $1,615, a seven-fold gain from a low of about $300 in April 2020.

The second solution is to subsidize the borrower, which could also be through a program where a nonprofit offers lower interest rates or equity requirements to first-time home-buyers.

Single-family homes have increased on average by $35,872 over the last year with an increase in lumber prices, according to the National Association of Homebuilders.

Johnson said the third solution is having nonprofits and governments look at infrastructure to help eliminate cost to the borrower and developer. He said developers need water lines, sewers and roads to develop homes.

The fourth solution is for local governments to get into development, although Johnson said it’s not an ideal solution.

He said local governments would artificially come in and affect the market rate by building homes and setting prices. He said it works in the short-term, but can create problems in the long-term.

“Building houses themselves can become fraught with corruption,” Johnson said. “Ongoing maintenance issues, cost issues -- it’s the basic question of if it’s the correct philosophical approach to competing in the private sector.”

He said a more appropriate solution is the nonprofit sector coming up with creative solutions between developers and borrowers.

The active real estate listings in the area have been on a decline since August 2020, according to previous Elevate Rapid City economic indicators.

A graph showing the active real estate listings from July 2020 to April 2021, according to numbers from Elevate Rapid City’s economic indicators.

However, Johnson said it’s not just Rapid City or the Black Hills facing affordable and available single-family housing. He said he’s seen it in Denver, Minneapolis and Wyoming.

He said the housing dilemma is fueled by the federal policy on interest rates and the stimulus package.

Joel Kan, vice president of economic and industry forecasting for Mortgage Bankers Association, said Wednesday that mortgage rates were slightly higher last week and purchase applications fell for the second week in a row. He said average loan sizes increased for each loan type.

“This is a sign that the competitive purchase market, driven by low housing inventory and high demand, is pushing prices higher and weighing down on activity,” Kan said. “The higher prices are also affecting the mix of activity, with stronger growth in purchase loans with larger-than-average balances.”

Johnson said money has never been this cheap in the United States, so a lot of first-time home-buyers are out in the market.

“On the other side, sellers are realizing that people want to buy houses, so that causes upward pressure on prices,” he said.

Johnson said many economists believe this is unsustainable and could result in inflation since there are prices increasing in not only housing but in corn, wheat, flour, shortages on circuit boards and more.

He said if inflation goes up too high, interest rates will be raised to tighten the market, which would affect the capacity of borrowers, a decrease in home purchases and fewer people on the market.

Johnson said people are fleeing to suburbs and smaller cities due to the pandemic, which is a “double whammy to the market” and affects the prices, too.

He said another aspect to consider is single-family housing versus multi-family housing. Multi-family housing would focus on density.

Johnson said the rental market is an issue, too, with cost of development high to begin with. He said single-family housing affects the price of two- to-three bedroom apartments. If apartment rent is so expensive it’s cheaper to buy a house than rent, someone may just buy a house.

Bryan Achbach, executive director of the Pennington County Housing and Redevelopment Commission, said the commission is planning to develop more public housing in the near future with the demand increasing and affordable housing waning.

“There are 331 million people in the country and there are 331 million definitions of affordable housing,” he said.

The commission is a low-income housing authority that exists to provide housing assistance to families that are at 80% of the area median income and lower. It has units in Wall, New Underwood, Hill City and Rapid City.

Achbach said the solutions Johnson discussed for housing could apply to the commission. He said the agency would accept all the help they can get as far as subsidies for development.

He said the commission is working to figure out how to serve the most people possible by a development, and may consider expanding the housing they already have.

“I see us having some plan here within the next couple of months,” he said. “We’re really trying to quantify (the need). We don’t want to build a $5 million complex and find out we don’t have any customers.”

Achbach said they’re going to look at their numbers to help determine the next move. According to the April 29 waiting lists, there are 1,971 people on the list for a one-bedroom for the commission’s public housing with an estimated waiting time of almost two years. There are 2,475 on a two-bedroom list with a 28- to 30-month wait, 1,441 on a three-bedroom waiting list with a 16- to 18-month wait, and 424 people on a four-bedroom waiting list with a wait of a little over two years.

Johnson said the area needs more housing and affordable housing now. He said the pandemic mixed with inflation and availability of cheap financing for housing has caused something that hasn’t been seen in a long time.

“Add on top of the fact that Rapid City is seeing the most significant growth in the Black Hills with the base and what’s happening,” he said. “We’re bound to see challenges and think of creative solutions. It’s not easy, but we get up everyday and try.”

Housing availability and affordability are concerns in every South Dakota county, said state Rep. Roger Chase, R-Huron, who is a real-estate agent. He will chair a legislative summer study to identify how the state can help communities strengthen their local housing markets. The first meeting for the group is scheduled for June 9 in Pierre. Other meetings will likely be held on the western and eastern sides of the state, Chase said.