By: Ryan Kelly, Reporter August 14, 2014
Riccardo Emilien, a teacher at Cohen College Prep High School, recently got engaged to his longtime girlfriend, confident that their combined $100,000 a year income would suffice for mortgage payments on an Uptown house.
“Right now I am looking at houses and feel that I am priced out of a lot of decisions,” Emilien said. He doesn’t want to borrow much more than $100,000 but said he can’t find something under $250,000 that meets his expectations.
The cost of housing keeps rising in New Orleans, while incomes remain steady. The math points to a possible breaking point, where middle-income residents may no longer be able to afford to live in the city.
The inflation-adjusted median family income in New Orleans has been going down since 2006, even accounting for the boost seen after Hurricane Katrina when the city’s poorest residents were forced to leave en masse. Meanwhile, rents in the city’s historic core have increased 10 percent in the past five years and 35 percent since spring 2005. A similar climb is seen in home prices.
This is the situation the city faces as it attempts to sustain the economic growth it has experienced in recent years. With incomes staying flat, mortgage payments and rent will take a larger bite out of workers’ paychecks.
The result could be that members of the working class are faced with a difficult question: Do they continue to absorb the increasing cost of living in New Orleans, or move to where housing is more affordable, even if that means leaving the city entirely?
An increase in housing stock, whether for sale or rent, typically provides some relief for rising prices. But real estate professionals don’t forecast inventory increases substantial enough to significantly temper inflation in New Orleans.
Apartment complex broker Larry Schedler doesn’t expect any significant swing in the rental market, even when taking into account more than 1,000 units under construction in the metro area. Most of that is concentrated in the Central Business District.
“You have barriers to entry that limit the amount of supply,” Schedler said. “Where we don’t have the geographic restrictions, we might have income restrictions or community resistance.”
The metro New Orleans market is 95 percent occupied.
Apartment occupancy in the New Orleans market was 94 percent in the spring, according to the Greater New Orleans Multi-Family Report that Schedler co-publishes.
New apartment construction has been at the market rate level, with the average unit going for $1,379 a month in the historic center.
The lean toward affordable rental development has lessened since the immediate post-Katrina period when several new projects and rebuilds included some form of below-market rate housing as part of the project. Planning officials had no reliable predictions as to who would return and where they would go, Schedler said, and the new inventory didn’t provide nearly enough space to accommodate the wave of transplants and returning residents.
The affordability of housing post-Katrina has been a calling card for New Orleans, especially among younger professionals who have relocated from more expensive markets. But as the cost increases, there is a concern that it will deter more arrivals and make it more difficult to retain some residents.
The rent-to-median household income ratio in the New Orleans-Metairie-Kenner region was 40.8 percent in April — well above the 30 percent ratio widely accepted as the healthy benchmark — according to a RealtyTrac survey. It compared counties with a population of 100,000 or more where Millennials make up at least 24 percent of the population. That means those households spent more than $40 of every $100 they make on housing. The New Orleans region was listed in the report as the seventh least affordable places to live for Millennials, with only Baltimore, Philadelphia, San Francisco, Los Angeles and the Bronx and King County, New York, ranking as less affordable.
Guy Williams, president and CEO of Gulf Coast Bank and Trust, often refers to Millennials when talking about the resurgence of New Orleans, calling them “a significant part of the brain gain that helped the city rebuild and keeps it today on a positive trajectory.”
Beyond his role with the bank, Williams also serves on the Louisiana Housing Commission. The board explores ways to increase the affordable housing supply in the state and is considering an ordinance by Williams that would use $10 million of federal money to subsidize workforce housing at yet-to-be determined sites across the state.
Michelle Whetten is vice president and market leader for Enterprise Community Partners Gulf Coast, the local branch of a nonprofit that works to identify affordable housing needs and lobbies the government to contribute. She and other sources say developers aren’t willing to invest in low-income housing without those incentives because such projects aren’t profitable without them.
Whetten said local government can conceivably establish zoning laws that would force developers to build mixed income developments in place of higher-end plans. The approach has been used in parts of Manhattan where developers could still make a profit without handing their competitors an edge.
State Sen. J.P Morrell said small steps were taken after Katrina to address the dearth of rental housing in a large-scale fashion. Through the Road Home Program, incentives were provided to rebuild some of the stock destroyed, which could have theoretically decreased rents — as well as selling prices of other homes in the neighborhood.
“That program was woefully underfunded and we didn’t build close to what we needed,” Morrell said.
Rent control policies similar to those in New York City are out of the question, he said.
“All of the landlords would lose their minds overnight,” he said, adding that scores of lawsuits would surely follow.
Although there is no clear solution to rising rents in New Orleans, real estate interests don’t perceive it so much as a potential pitfall than as an opportunity for New Orleans.
“It’s a confusing issue,” said Mark Maderra, a mortgage lender in the multifamily residential sector. “Most of that affordable housing demand, the new construction almost comes directly from federal subsidies like low- income housing tax credits.”
There are two primary ways to build new apartment complexes in New Orleans, Maderra said. Either developers erect high rises to keep land costs low or spread out a complex to save on construction costs. The problem, simply, is a lack of space.
Accordingly, some experts say underdeveloped areas such as eastern New Orleans and the 9th Ward could be next in line for the growth following the build out of the Marigny, Gentilly and Algiers —all of which are seeing increasing interest among homebuyers.
But as the federal money that fueled much of the growth after Katrina recedes, the important question of how the city’s isolated, poorer communities will fare remains. While renters and buyers in Mid-City, the Warehouse District, Uptown and Lakeview are clamoring for housing at accelerating prices, one still hears crickets in sections of New Orleans East and the 9th Ward.
But it’s only a matter of time before that changes, said Liberty Bank President and CEO Alden McDonald, whose headquarters on Read Boulevard is surrounded overgrown lots and empty commercial buildings. Just across Interstate 10, New Orleans East Hospital is open, providing a facility that many believe will bring more residents back to the area.
The issue of housing prices being out of reach for the majority of New Orleans residents concerns McDonald. He said he has been talking about the topic until he “is blue in the face,” but he has made little to no progress trying to sway decision makers.
When asked whether politicians he has approached are placing a priority on affordable housing, his answer is somewhat gruff.
“They don’t care.” •