May 23, 2023

Housing Needs Findings

Housing for One Chattanooga

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• Need to take the draft mark off of the side, and the draft mark in red. Make sure to get both.

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Agenda

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Welcome Back

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Welcome Back | HR&A Introduction

HR&A’s housing practice works in a variety of markets, where affordability issues are longstanding or newly emerging.

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

“Affordable housing is the number one priority emerging from the community engagement process.”

“Increased development costs combined with inadequate subsidy is an obstacle to building more affordable housing in Chattanooga.”

“A lot of people live in substandard housing because they cannot afford home improvement loans.”

“There is an opportunity to build capacity and develop partnerships.”

Advisory Committee members shared concerns and visions for success.

In our last meeting, we reviewed the Study process, discussed housing issues in Chattanooga, and began discussing housing goals.

Welcome Back

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Understanding housing needs in Chattanooga is the foundation of the Housing Action Plan.

Welcome Back | Timeline and Next Steps

March

Advisory Committee Meeting #1: Housing Issues

Advisory Committee Meeting #3: Draft Housing Action Plan

Advisory Committee Meeting #2: Final Housing Needs Assessment

Draft Housing Needs Assessment

April

May

July/ TBD

TBD

Final Housing Action Plan

Other presentations?

Present Housing Action Plan to City Council for Adoption

Nicole, we need to add council meetings, other Advisory Committee meetings, etc. here. Can you please share some dates, even if approximate?

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Housing Needs Findings

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Key Findings

The affordability of homes in Chattanooga has significantly declined and will continue to decline as a result of growing competition for a limited supply of homes.

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• Put HO first
• Call out racial equity as a separate point after rental point

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Homeownership

Home prices and interest rates have risen to historically high levels in recent years, making the homeownership market extremely competitive today.

Source(s): Zillow, Freddie Mac

HOME SALES PRICE AND INTEREST RATES

(2010-2023)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Homeownership

Vis-à-vis income, homeownership has historically been affordable to the median household but no longer is due to the 30% increase in home prices coupled with rising interest rates.

Source(s): ACS 2010-2021 5-year estimates, Zillow

Note(s): Projected median household income in 2022 is based off observed average annual income growth in Chattanooga over the past 5 years.

$20k gap

PURCHASE CAPACITY OVER TIME

(2020-2023)

$72K is the minimum income required to purchase a median-priced home

Median household income is roughly $50K

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Source(s): ACS 2010-2021 5-year estimates, Zillow

Findings | Homeownership

Chattanooga’s housing market is increasingly tight on the homeownership side with the average days to close on a home fell by 20% from 2021 to 2023.

AVERAGE DAYS TO CLOSE

(2021-2023)

Note(s): Vacancy rates from 2021 onward depicted in the chart above are straight line projections from the trend observed between 2019 and 2021.

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

+6,600 households

-6,100 households

Findings | Homeownership

The higher cost of homeownership, and increased competition, has contributed to a net decline of just of 6k homeowners among households earning <$100K.

Source(s): ACS 2011-2021 5-year estimates

Note(s): Area Median Income (AMI) is based on HUD’s income limits for a 2-person household.

Occupations:

• Nurse
• Electrician
• Mail carrier

Occupations:

• Preschool Teacher
• Starting Police Officer
• School Bus Driver

CHANGE IN OWNER HOUSEHOLDS BY INCOME

(2011–2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Homeownership

The homeownership rate for Black households was already among the lowest and has declined at the fastest rate.

There is a 24% difference in homeownership rates between Black and White households.

COMPARATIVE HOMEOWNERSHIP RATES BY RACE

(2011-2021)

Source(s): ACS 2011-2021 5-year estimates

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Source(s): HMDA 2018-2021

Findings | Homeownership

Income alone is not the primary factor hindering access to ownership, a Black household earning $100k has a higher mortgage denial rate than a White household earning $35k.

MORTGAGE DENIAL RATE BY INCOME AND RACE

(2018-2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Source(s): Zillow, ACS 2021 5-year estimates, PUMS

Note(s): Median renter household income for 2022 is estimated at $38k, based off a 5-year average of the most recent ACS 2021 5-year estimates available to date.

Findings | Rental Affordability

$346

$329

$570

Over the last three years, the increase in Chattanooga’s median rent has outpaced income growth, making rents increasingly unaffordable to the median renter household.

MEDIAN MONTHLY RENT COMPARED TO RENTER INCOME

(2015-2023)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

1 in 4 of every affordable rental homes became unaffordable in a 5-year period.

Findings | Rental Affordability

The dramatic rise in rents is translates into approximately 7,000 rental homes becoming unaffordable to a household earning $35k between 2016 and 2021.

Source(s): Zillow, ACS 2021 5-year estimates

RENTAL UNITS AFFORDABLE TO HOUSEHOLDS BY INCOME

(2016-2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Rental Affordability

Affordable rental housing in Chattanooga is nearly equally split between naturally occurring affordable housing (NOAH) and subsidized stock. The decrease in affordable rental homes is among the NOAH homes.

Source(s): ACS 2020 5-year estimates, PUMS, City of Chattanooga

Naturally Occurring Affordable Housing (NOAH)

A rental home where the market rent is affordable to low-income resident, in this case less than under $875/month, and there is no public subsidy reducing the rent.

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Subsidized Housing

Housing that is funded in part with public funding in exchange for a below marker tent. Common public affordable housing subsidy programs include - the Low-Income Housing Tax Credit (LIHTC) program, Public Housing, or other local, state, or federal subsidy.

What is ‘Affordable Housing’?

Note(s): $875 is the monthly rent affordable to a 2-person household making $35,000/ 60% AMI in Chattanooga.

COMPARISON OF SUBSIDIZED AND NOAH UNITS

(2016-2021)

The decrease in affordable rental homes is primarily among the NOAH homes, which comprise a little over half of the total affordable rental housing stock in Chattanooga.

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Rental Affordability

Source(s): ACS 2020 5-year estimates, PUMS, City of Chattanooga

The vast majority of Chattanooga’s NOAH affordable homes, are old and in need of repair. Their lower quality is a significant factor in why they are affordable.

RENTAL UNITS WITH RENTS <$875 BY DECADE

(2016-2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

[ ]

DEMAND

SUPPLY GAP

Income

≤$35,000

Supply Gap

There is a gap of 1,800 units for households making $35,000.

For every 100 households, there are only 90 affordable homes.

SUPPLY

Source(s): ACS 2021 5-year estimates, PUMS

Findings | Rental Affordability

In 2021, for every 100 households making less than $35,000 a year, there were only 90 homes affordable to them; this was down from 107 homes in 2016.

RENTAL HOUSING GAP FOR HOUSEHOLDS EARNING <$35,000

(2021)

Occupations

• Preschool teacher
• Starting Police Officer
• School Bus Driver
• Nursing Assistant

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This results in an increase of the rental gap from 1,800 to 7,300 units.

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For every 100 households, there are only 50 affordable homes.

8.7K decline in supply as rents increase and outpace income growth

Results in a 7.3K increase of the rental gap

3.2K decrease in demand as population attains higher-paying jobs and low-income households move out

1.8K

7.3K

Findings | Rental Affordability

The rental housing gap is growing is projected to drop from 90 affordable homes for every 100 households earning less than $35,000 to 50 affordable homes.

PROJECTED RENTAL HOUSING GAP FOR HOUSEHOLDS EARNING <$35,000

(2021–2030)

Income

≤$35,000

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Source(s): ACS 2021 5-year estimates, PUMS

11k of 18k households making less than $35k are cost burdened

Findings | Rental Affordability

Note(s): A household is considered cost burdened when 30% or more of household income is spent on gross rental housing costs and severely cost burdened when 50% or more of household income is spent on gross rental housing costs.

In 2021, the majority of renter households making up to $35K were cost burdened, and households earning up to $50K were starting to become challenged by rental affordability.

~2k households making $35k-$75k are cost burdened, and more are expected to become cost burdened in the future

SHARE OF COST-BURDENED RENTERS BY INCOME

(2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Source(s): ACS 2021 5-year estimates, PUMS

Findings | Rental Affordability

Note(s): A household is considered cost burdened when 30% or more of household income is spent on gross rental housing costs and severely cost burdened when 50% or more of household income is spent on gross rental housing costs.

Black and Latino renters experience the highest levels of cost burden compared to other racial groups.

SHARE OF COST-BURDENED RENTERS BY RACE

(2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

88% of households that are cost-burdened in Chattanooga earn <$35K. This includes pre-school teachers, starting police officers and firefighters, and nursing assistants. 

Findings | Rental Affordability

Cost burdened

When a household spends more than 30% of its gross income on housing costs

Severely cost burdened

When a household spends more than 50% of its gross income on housing costs.

Monthly Income:

$2,300*

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Rent: $1,600

Residual Income:

$700

Rent: $1,100

Residual Income:

$1,200

Food

Child Care

Medical

Transportation

Severely Cost Burdened (55%)

Cost Burdened (38%)

Residual Income

The amount of money a household has to spend on necessities after paying for housing

* Assumes a 20% tax rate for state and federal

Source(s): ACS 2020 5-year estimates, Economic Policy Institute

Residual Income:

$1,425

Affordable (30%)

Rent: $875

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Chattanooga has experienced steady, but not extreme, population growth over the past two decades.

+2%

+7.8%

+7.6%

Findings | Market Drivers

Source(s): Decennial Census, 1990-2021

CHATTANOOGA POPULATION

(1990–2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Note(s): “Some College” includes individuals with professional certifications, licenses, technical training, associate’s degrees, or with some college credit but no credentials

+6,700

+5,400

Source(s): ACS 5-year estimates, 2016-2021

Chattanooga has experienced significant growth in residents with a Bachelor’s degree or higher and early career and senior residents in recent years.

Findings | Market Drivers

POPULATION BY EDUCATIONAL ATTAINMENT

(2016–2021)

POPULATION BY AGE GROUP

(2016–2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Market Drivers

70% of all households moving to Chattanooga come from out of state, with higher incomes and smaller household sizes than existing households.

Source(s): ACS 2021 5-year estimates, PUMS

Note(s): In-migrants are all households moving into Hamilton County in 2020. They do not represent the net increase in households moving to Chattanooga.

PROFILE OF HOUSEHOLDS MOVING TO CHATTANOOGA

(2020)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

80% of the job growth created in the regional economy has been among middle-income manufacturing and logistics and lower-income service jobs.

AVERAGE EARNINGS

(2021)

Service Jobs

+6,700 jobs

Manufacturing and Logistics

+7,000 jobs

Knowledge Economy Jobs

+2,400 jobs

Findings | Market Drivers

+1.7K

+2.1K

+1.5K

+1.4K

+2.0K

+3.4K

+1.5K

+1.3K

+1.2K

Source(s): EMSI 2011-2021

GROWING SECTORS IN 2021

(2011–2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Note(s): The labor force is the working age population (16-65) that is employed or is actively seeking employment.

Findings | Market Drivers

| 69%

| 31%

Total Population Age 16+ | 143,058

In Labor Force| 87,408

Not in Labor Force| 55,650

Total Population Age 16+| 147,765

In Labor Force| 93,092

Not in Labor Force| 54,673

2016

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2021

4,707 increase in total population age 16+

5,684 increase in labor force

Labor force participation (LFP) increased in Chattanooga, adding 5,700 new workers to its labor force between 2016 and 2021, while national LFP trended downward.

Source(s): BLS 2016, 2021

POPULATION BY LABOR FORCE PARTICIPATION

(2016–2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Market Drivers

9.8K units added in 2010-2019, down from 45.6K units added in 2000-2009

While Chattanooga has sustained its economic and population growth, the pace of home development dropped by approximately 80% from the 2000s to the 2010s.

Source(s): ACS 2011-2021 5-year estimates

UNIT TYPE BUILT BY DECADE

(1939–2019)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Households who are not able to afford homeownership at the higher home prices are now competing for rental homes driving up competition and rents.

Source: American Communities Survey, 2011-2021 5-year estimates

80-120% AMI

30-60% AMI

60-80% AMI

<30% AMI

>250% AMI

120-170% AMI

170-250% AMI

CHANGE IN HOUSEHOLDS BY INCOME AND TENURE

(2011–2021)

Households who are not priced out of ownership are becoming renters

Findings | Market Drivers

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Findings | Market Drivers

The combination of growth and the slowdown in housing development has exerted downward pressure on households looking for housing.

New slide: This is leading to downward pressure (people are renting crappier apartments, people who aren’t able to buy anymore are renting now)

• Depict pictorially
• HHs who can’t access HO are now renting at the top of the market
• HHs who would have rented at the top of the market are renting NOAH
• HHs that would have rented NOAH are now cost burdened and at risk
• Refer Phillip’s drawing

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

The City of Chattanooga operates its housing programs almost entirely with federal entitlement dollars, which provide a modest amount of funding.

Source(s): HUD, City of Chattanooga, Hamilton County Government

Note(s): Federal entitlement, annual includes HOME and CDBG; local funds includes CAHF and PILOT; and federal entitlement, one-time includes ARPA and CV funds. Chart does not include LIHTC.

Findings | Programs and Funding

Nicole, we have cobbled together these numbers based on data that the City shared with us but would appreciate if someone could look over our spreadsheet and verify that these are right (or at least in the ballpark).

FUNDING SOURCES FOR HOUSING

(2017–2021)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Chart showing small number of units and small number of partners

The City and its partners operate multiple programs with this limited amount of funding, producing and preserving roughly 185 units per year.

Findings | Programs and Funding

Source(s): HUD, City of Chattanooga, Hamilton County Government

Note(s): ‘Rental new construction’ includes HOME, PILOT, and CAHF funding; ‘Rental repairs & rehab’ includes Landlord Renovation and Rapid Rental Repair programs. ‘Homeowner new construction’ includes HOME and CAHF; ‘Homeownership repairs & rehab’ includes CNE Homeowner Rehab, Habitat Homeowner Rehab, CCHDO Roofing, and Minor Home Repair programs. ‘Homeownership’ includes HOME-funded new homeownership development and CNE Homebuyer Assistance program.

IMPACT OF HOUSING FUNDING, ANNUAL AVERAGE

(2017-2021)

CITY OF CHATTANOOGA HOUSING PARTNERS

Includes LIHTC (14) and PILOT (37)

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

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Use municipal regulations and zoning authority to indirectly improve affordability by increasing the supply of housing, or to directly incentivize (or require) the production of affordable units.

e.g. by-right development, density bonuses, inclusionary zoning

Provide below-market rate loans, grants, or other public resources to close the gap between what a household can afford to pay and the costs to develop and operate housing.

e.g. rental assistance, gap financing for new construction, down payment assistance, public land sale

Subsidy

The City of Chattanooga needs a comprehensive approach to addressing these challenges, centered on three key types of tools.

Next Steps | Housing Tools

Preserve existing affordable housing and housing stability by using laws and regulations that protect current occupants.

e.g. right to counsel, rent control, just cause eviction863111

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Right way to do this is a comprehensive approach

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

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Use municipal regulations and zoning authority to indirectly improve affordability by increasing the supply of housing, or to directly incentivize (or require) the production of affordable units.

e.g. by-right development, density bonuses, inclusionary zoning

Provide below-market rate loans, grants, or other public resources to close the gap between what a household can afford to pay and the costs to develop and operate housing.

e.g. rental assistance, gap financing for new construction, down payment assistance, public land sale

Subsidy

Preserve existing affordable housing and housing stability by using laws and regulations that protect current occupants.

e.g. right to counsel, rent control, just cause eviction

Next Steps | Housing Tools

Due to the constraints of Tennessee law, Chattanooga will have to rely primarily on subsidy programs to address the growing housing affordability challenges.

Cross out land use and tenants’ rights

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

May 23, 2023

Housing Needs Findings

Housing for One Chattanooga

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors

Appendix | FY 2022 AMI

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Housing for One Chattanooga_Housing Needs Assessment | HR&A Advisors