As Chattanooga’s chief housing officer, Nicole Heyman, addressed the Women’s Council of Realtors during its March luncheon, she announced what must have been music to the ears of the agents at the Walden Club: She has 25 pre-qualified buyers who need a Realtor to find them a home.
These buyers had applied for the city’s Down Payment Assistance program, which provides up to $60,000 in downpayment help and $10,000 for closing costs, depending on the applicant’s income, Heyman said. The city operates the $1.5 million program in partnership with Chattanooga Neighborhood Enterprises.
“We weren’t fooling around when we put money in our Down Payment Assistance program,” Heyman said. “All you have to do is live in the city and buy a house in the city that costs less than $300,000.”
This is easier said than done, Heyman added, because there’s a problem: Chattanooga doesn’t have enough houses at that price to meet the demand.
“Sixteen families have taken advantage of this program and are in their homes, but we now have 25 buyers who can’t find a house they can afford.”
Affordable means different things to different people. For example, to RP Homes, which in December announced its development of The Bexley, a 56-unit community it said will “redefine urban living by providing affordable housing options in the heart of the city,” $380,000 (the starting point for The Bexley’s townhomes) is affordable.
This price point isn’t out of reach for some Chattanoogans, but it’s well beyond the means of many local residents, noted Heyman, including some teachers, some firefighters, and the servers at the luncheon.
“A majority of people who live and work in Chattanooga can’t afford to buy a home,” Heyman claimed. “They’re not even looking anymore. It’s no longer a dream.”
Wages that lag behind housing costs are one of the culprits, Heyman argued. She then paired the U.S. Department of Housing and Urban Development’s criteria for affordability with statistics on local job earnings to paint a dire picture of what she said is a crisis in Chattanooga.
“According to HUD, if a household is paying more than 30% of its gross income on housing and utilities, it’s cost burdened. If a household is spending more than 50% on housing and utilities, it’s severely cost burdened,” she reported.
Most renters in Chattanooga fall into the former category, according to research Heyman has done since November 2022, when she became the city’s first chief housing coordinator.
“Until maybe the year before the pandemic, Chattanooga was affordable to everyone. If you wanted to live and work in this community, then there was an option for you. But that’s no longer the case.
“Today, 80% of renters in Chattanooga are earning less than $35,000 a year. Of these folks, 85% are cost burdened. If you’re earning $35,000 to $50,000 a year in Chattanooga, 77% of you are cost burdened. If you’re earning 50,000 to $75,000 a year in Chattanooga, 20% of you are cost burdened.
“The disparity between what the average Chattanoogan makes and the cost of housing is so great that it’s priced many people out of this market.”
The gap would lessen if Chattanooga had adequate affordable housing options, Heyman contended, but in February, there were 32 houses in the market under $185,000, according to her staff, which used Zillow as its source of data.
“I’m guessing Chattanooga had plenty of houses for below $185,000 seven years ago,” Heyman ventured. “But the inventory of available housing is shrinking.”
Heyman said this “scares the daylights” out of her.
“There was a time when we thought, ‘If you own a home, you’re good.’ That’s no longer the case. As the cost of living has increased, macroeconomics have made it difficult for people to either get into or stay in a house. We have to find a way to level the playing field.”
If no solution is found, the lack of affordable housing in Chattanooga will give rise to a labor attraction and retention catastrophe, Heyman posited.
A builder at the luncheon raised his hand and agreed, citing his inability to hire roofers at a wage that will allow them to pay for housing in the city. As a result, he’s seen people look beyond Hamilton County’s borders for work.
“They return to Alabama and Georgia, where they can rent a house for 700 bucks a month,” the man said. “Even though they’re working for a cheaper rate, they can afford it. So, I’m having trouble attracting quality workers.”
Heyman nodded and said the dearth of affordable housing will cripple Chattanooga in its efforts to not only hold on to its current workforce but also meet the demands of the industries that are coming to the city – which makes affordable housing an economic development issue.
“At every level of industry in the city, whether you’re a developer who needs roofers, a restaurant owner who needs servers, or a ... [manufacturer] who needs workers, our wages have not kept up. And the people who are moving out of Hamilton County are looking back and saying, ‘I don’t have to drive to Chattanooga to install a roof or serve a drink, so why not work where I live?’”
Solutions
The city’s Down Payment Assistance program has enough funds to help its 25 pre-qualified buyers, Heyman said. Moreover, she said she believes the city will replenish the fund if necessary.
Chattanooga has also launched two housing rehabilitation programs designed to help landlords to improve the quality of their properties. A $5,000-or-less program will help landlords address minor needs such as fresh paint and new carpeting, while a second program will match up to $25,000 in rehab spending by landlords.
“The quality of housing in Chattanooga has substantially decreased over the years, and some of our lowest income earners don’t have the voice they should have to demand quality rentals,” Heyman said. “So, we’re trying to make sure ‘affordable’ doesn’t mean ‘substandard.’ We have money on the street for rehabbing vacant units so we can get renters in them.”
The city has also retooled its payment-in-lieu-of-tax (PILOT) program, which Heyman said is designed to incentivize developers to include affordably priced units in a rental development.
“Most of our affordable rental properties are in our lowest market value neighborhoods. We hope our new PILOT will allow developers to mix affordability into any development they build in Chattanooga so we’re able to enter more high value, amenity rich neighborhoods and make sure people can live where they choose to and not where the market is telling them they have to live.”
Lastly, the city is using federal entitlement dollars to clear the titles on about 50 properties in its land bank inventory, which Heyman said the city would leverage for free in exchange for affordability.
“These are infill single-family, so developers will be able to fit maybe up to three units on most of the properties. The requirements will be that you develop the property within a year and that you either sell or rent it at an affordable level.”
As Heyman spoke, she addressed residential Realtors, commercial Realtors, lenders, partners in title businesses and landlords – “a hefty mix of the entire housing ecosystem” in Chattanooga, she said. Before closing, she asked this group for suggestions.
Bill Panebianco, Women’s Council president and vice president of sales and marketing at Pratt Home Builders, proposed Realtors try to initiate the snowball effect.
“You don’t have to find someone who’s looking for a $200,000 house; you don’t even have to find someone who’s looking for a $300,000 house. You just need to find someone who’s looking for a $300,000 to $400,000 house and move them up. The person who moves into their house has to move from somewhere, and they’ll move up, too. So, every person you find as a Realtor, be thinking, ‘What’s happening to the house you’re in now?’ And it will snowball down as we sell homes.”
Christi Doll, owner and broker of Premier Property Group, countered by noting that many homeowners will be reluctant to relocate and pay a higher mortgage rate.
“The challenge with that is a lot of the people who are already here bought their house for 2.9 or 3% interest. So why would they sell that house to jump into another one at a higher rate?”
Heyman acknowledged that there are no easy solutions and then closed by saying she feels confident the people of Chattanooga – including Realtors – will find them.
“We don’t have enough homes for sale or rent for the people who need them, but Realtors can help. You can make all the difference in the world.”