Rapid City Experiments To Provide Affordable Housing

Sep 6, 2017

Credit Lee Strubinger / SDPB

Rapid City has a new housing development in the works that will provide five affordable new homes.

It’s a city hall experiment that allows higher density in a neighborhood, which in turn drives down the price of each house.

Over the past few years, the cost of housing has risen faster than wages.

Robert Graham is standing on the lot where his new home is going up.

The 51 year old spent more than a decade in the marines during the Gulf War. He recently decided it was time to buy a house, but it was harder than he thought.

“Within a week I was really disillusioned about what was out there versus what I could afford,” Graham says. “The housing market in town is not easy for people who have low incomes.”

Graham makes about $24,000 a year at a Rapid City non-profit

Graham started looking for a house in January. He says the homes he could afford needed thousands of dollars of work. One’s that didn’t were out of his price range.

Finally, he found the right place for him.

Kevin Paugh is an associate broker with VIP properties in Rapid City. He says Rapid City has a history of a shortage of affordable housing. But right now, his theory is because of growth.

Paugh says it’s put pressure on a housing market that has never kept pace with the demand.

“Had we lived in another area like Sioux Falls or Omaha where, a long time ago, there was lots of stuff there already. That stuff is well built, it lasts a long time," Paugh says. "It’s blown up here, people want to live here and there wasn’t a whole lot to begin with.”

Experts say Rapid City’s housing market is tight across the board. Kent Hagg is the president of Hagg Development, which has various residential and commercial lots around the city. Hagg says demand in and around Rapid City shows a need for all levels of housing.

“Based on that, and what we see out in the market, it is more of seller’s market, now, than a buyer’s market, perhaps,” Hagg says.

Rapid City and the state of South Dakota are looking at various ways to encourage affordable workforce housing project across the state.

Hagg says that’s what it will take, because there’s little profit in building affordable housing.

“You really have to have local government, and government in general, involved in affordable housing, because there’s simply no margin in it for developers and builders, prices of materials cost the same," Hagg says. "A 2x4 for that costs the same as a 2x4 for a mansion. So, there really are cost challenges that municipalities can help out with.”

Which is exactly what Rapid City officials are doing with the new housing development just north of downtown.

Developers and Rapid City Mayor Steve Allender take golden shovels to a vacant lot to break ground for the “Village On Monroe.” It’s a high-density development on one city lot.

The city is coordinating with non-profit developer NeighborWorks Dakota Home Resources for the project. Since 1998, NeighborWorks has built more than 150 homes. Joy McCracken is the executive director.

“This project, because we’re placing five homes on one lot, we’re driving the cost of the homes down," she says.

McCracken says the price of city lots, alone, can drive up home prices.

"When we started building homes 17 years ago we were buying lots for seven and eight thousand dollars," McCracken says. "Today’s market in Rapid City the average is $35,000 to $37,000. So, there’s been thirty thousand dollars added to the purchase price of homes.”

The city established a special tax district to encourage this development.

Rapid City Mayor Steve Allender says the Village on Monroe is 50 percent experiment and 50 percent affordable housing.

“This development violates the traditional set of rules that the city usually applies to neighborhoods," Allender says. "Because there’s greater density, reduced square footage. We have tested the system to see if we can adapt to this kind of development.”

Over the years, money generated from the rise in property value will help pay back some of the initial startup costs. Funds generated from the new district will also provide loan assistance and down payment help for future buyers.

Allender says the city is ready for another similar project soon.

“Now we know how to build this. We know how to permit it. We know how to finance it. We know all this kind of thing," Allender says. "Now, this plan can be taken to other lots in town and can be produced all over.”

Experts say generally people should spend no more than a third of their household income on housing.

Mark Lauseng is the executive director for the South Dakota Housing Development Authority.

He says affordable housing availability is a statewide issue.

“We’re hearing more and more in rural communities, and just even larger communities, that the supply of housing—the housing stock is getting older. It costs so much to replace it," Lauseng says. "There’s this need for more workforce housing all across the state.”

Lauseng says it’s hard to build anything new for under $200,000.

Rapid City’s Village On Monroe project anticipates the list price for a one bedroom home is about $110,000. The two-bedroom home will list for about $140,000.

That’s around homebuyer Robert Graham’s price range.

“It’s a project that was just destined to happen for me,” Graham says.

A legislative taskforce is looking at the availability of affordable housing statewide.