Kalamazoo explores steps to build housing market

Lofts, condos, townhouses and single family homes could be an exciting part of Kalamazoo's future downtown. Polices and incentives will be needed to make it a reality.

With housing in downtown Kalamazoo at nearly 100 percent occupancy, it's clear there is a need for additional housing options. A recent study for the City of Kalamazoo shows that there will be demand for more than 1,400 housing units--and that includes affordable and upscale housing. 

Whether that housing comes about depends largely on how the developments "pencil" -- whether the financial returns are great enough for developers to take on the projects, says Todd Poole, president, and founder of 4wrd Planning.

Poole was one of four speaking before a full-house at Cityscape Events Center in downtown Kalamazoo in a session called to let the community know the results of three reports analyzing the walkability of various parts of Kalamazoo, the community's housing potential, and the realities that should be addressed if further development is to take place.

Mary Beth Graebert of Michigan State University Land Policy Institute says that communities are improving their walkability in part because they have found those with higher incomes and higher educational attainment are seeking out communities where they can walk to work and to shop.

"As more communities shift toward walkable urban places, Kalamazoo is behind other places in the nation. You need to ramp up your efforts," Graebert says.

Laurie Volk, of Zimmerman Volk, described how the housing market is changing now that it is driven by Millennials and Boomers. Today, there are 78 million Millennials and they will dominate the market for decades, Volk says. They are mostly single, ethnically and culturally diverse, very mobile, move frequently, start their own businesses if they can't find a job, and are green in two definitions of the word--they are new to the work world and they are concerned about the environment. "They like the noise, the bustle, the clubs, the cafes, everything about urban neighborhoods."

Boomers, numbering 77 million, share a preference for walkable urban living that appeals to Millennials. The Boomers like theater, museums, golf, tennis, gardening, and volunteering. They tend to be retired or nearing retirement.

Since the economic downturn of 2008, the market has shifted from a preference for homeownership to renting, even among relatively affluent households. The Zimmerman Volks study says, today, Boomers and Millennials have households of predominantly singles and couples. "As a result, the 21st Century home-buying market now contains more than 63 percent one- and two-person households, and the 37 percent of the homebuyers that could be categorized as family households are equally likely to be non-traditional (e.g.—single parents or unrelated couples of the same sex with one or more children, adults caring for younger siblings, to grandparents with custody of grandchildren) as traditional families."

As a result, mixed-use, mixed-income development is not only acceptable, it is often preferred.

The study looked at the core downtown and surrounding areas within a 20-minute walk of the downtown. 

The study found that an annual average of nearly 10,000 households represents the potential renters and buyers of new and existing housing units within the City of Kalamazoo each year over the next five years. Of those 9,980 households, 2,495 households represent the potential renters and buyers of new and existing housing units within the Target Market Study Area each year over the same time period. 

Of those 2,495 households, 1,575 households have incomes at or above 80 percent of the 2014 Kalamazoo-Portage median family income (AMI) of $58,000 for a family of four. And 750 of those 1,575 households are potential renters of new urban housing. The annual incomes of these 750 households can support base rents, not including utilities, ranging from $550 to $2,200 per month, depending on location in the Study Area.

The kinds of housing they would prefer? 51 percent would move into apartments, 18 percent into row or townhouses, 18 percent into detached houses, and 13 percent into condominiums.

The market can absorb an average of 113 to 135 units per year, the Zimmerman Volks report says. 

Todd Poole of 4wrd Planning urged the city to recognize that it will take subsidies to get these residential developments built. The profit margin on most the proposed developments is about 10 percent and many developers will be reluctant to take on such projects without tax breaks or similar incentives. 

He also says that having a strong housing policy is critical for a community. Without one, the city undermines its workforce policy and an inadequate housing supply will hit the bottom line of local employers, Poole says.

In developing his company's report, they walked the market area and spoke with developers that are active in the market. Financial information included in the 4wrd Planning report is based on the numbers from the developer interviews and others familiar with the local housing market.

Poole detailed the various key developments that are being considered,  suggested what it might cost to develop each of them, and whether they would be appropriate for either a novice or experienced residential developer. Elements such as how much parking would be required all were factored in when reaching the anticipated development costs. 

For example, the Creamery Site on Portage Road would cost about $7.3 million and could be undertaken by a novice. The Performance Paper site is 20 acres and would take about $120 million to develop. And Arcadia Commons is about a $42 million project that should be undertaken by a "seasoned developer." 

Poole says it would likely take the success of one or more of the projects for the others to take off as the projects would build on one another and the ability to charge higher rents will come with time. "You build up to it," Poole says. "You don't do them en masse." 

State and local incentives "should be key," Poole says. And he encouraged the city to offer more incentives to developers who proceed before others do. "The first guy in the door should get the best incentives because he is taking the greatest risk."

In a question and answer period, following the presentations, a member of the audience wanted to know whether the studies deal with the problem development creates when residents are forced out of areas as rents rise and neighborhoods become gentrified.

None of the reports dealt with gentrification issues, as those were outside the scope of these studies. Such issues are dealt with as part of housing policy. Poole pointed out that as long as residents are not forced out of their neighborhoods they generally benefit as residential growth brings in new development that otherwise might not have located there.

Jon Durham, a partner with NoMi Developers Inc. who has a successful residential project completed and another project under way, rounded out the program urging other developers to join him in bringing a renaissance to the downtown. He says that the city helped in ways it would not have four years ago. "The important question is why aren't more people developing in downtown Kalamazoo. We have to really think about this. If you do, it will be rewarding. It's a very, very exciting place to be."

Kathy Jennings is the managing editor of Southwest Michigan’s Second Wave. She is a freelance writer and editor.
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