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Homebuilders need more flexibility and diversity in Bloomington-Normal projects

FILE - A construction worker is seen on the roof of a new home under construction in Mebane, N.C., Monday, Jan. 10, 2022. The Federal Reserve is expected to raise its key short-term rate by a substantial three-quarters of a point for the third consecutive time Wednesday, Sept. 21. The goal is to slow consumer spending, reducing demand for homes, cars and other goods and services, eventually cooling the economy and lowering prices. (AP Photo/Gerry Broome)
Gerry Broome
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AP
Even with the activity in the last year, consultant Justin Carney said homebuilders haven't begun to address future demand. And builders need to do different things because of changing demographics.

Homebuilders in Bloomington-Normal are playing catch up in meeting the growth of the last decade, the more recent expansion of the labor market, and projected future growth. Data show they need to increase the pace, in spite of higher interest rates, and build a variety of housing.

Patrick Hoban, CEO of the Bloomington-Normal Economic Development Council, said government data is finally showing up as proof the Rivian expansion is likely to yield further growth. Hoban said employment in the area is at its highest level since 2013. One sector accounts for a lot of it.

“In 2021 we averaged a little bit below 3,000 in manufacturing jobs. Now, Rivian is definitely being counted, probably some of Ferrero as well. That has gone from 2,800 up to 8,700. These numbers are finally here. And this just happened in January. You can see that jump,” said Hoban.

Hoban said he can use that data to attract Rivian suppliers and complementary business, making a housing unit deficit of more than 4,000 even bigger.

Justin Carney is the St. Louis-based consultant that did a housing study for the EDC a year ago. Bloomington-Normal is not the only midsized city seeing growth and talking about how to deal with it. Carney said Gainesville, Florida, Clemson, South Carolina and Blacksburg, Virginia, are all in the same boat. But in Illinois, the momentum of the Twin Cities stands out in the last decade.

“It is I believe, I did a quick calculation, 7-8% of the entire state's growth over that same amount of time. You're seeing momentum that a lot of neighbors aren't,” said Carney.

Even with the activity in the last year, Carney said homebuilders haven't begun to address future demand. And builders need to do different things because of changing demographics. The national narrative includes fewer family households and more one- and two-person households and blended arrangements where professionals choose to have roommates.

There also are more high-income households that rent. Carney said that narrative is true for Bloomington-Normal as well.
“In Bloomington-Normal, you're seeing a net gain of 6,200 households earning more than $100,000 since 2013,” he said.

The reasons millennials are putting off homeownership are partly economic. Some of them are late coming to mid-tier earnings. Others simply want to stay mobile. But even a lot of high earners are not choosing homeownership.

Drew Mitchell is a partner and senior vice president at Holiday Properties in Chicago and the suburbs. Mitchell said tax law matters for people who pay more than $10,000 a year in property taxes.

“It used to be you would get the benefit of your mortgage interest. And your real estate taxes were deductible. Because there is now a ceiling on it, you're seeing this tipping point change of where it makes sense to rent versus own on the high income side and they're starting to rent. Their financial advisors are saying go rent because you're not capturing the benefit anymore of your homeownership,” said Mitchell.

Mitchell said older people also are shifting to rental as a quality-of-life issue. They like walkable neighborhoods. They never have to change their water heater again because there's no maintenance. Covered parking is often part of upscale rental. And they can get to their restaurant reservations.

“And you know what? I'm willing to pay $3,800 a month for an apartment because I took my equity out of my home. I de-risked my asset profile and I have this really easy lifestyle,” said Mitchell.

Responding to the trends

So far, Twin City builders haven't fully responded to those trends. In 2017, Carney said, the rental vacancy rate was over 8% in Bloomington-Normal. This month, it was 2.8%. And 82% of the Bloomington-Normal housing permits in the last year have been for lots at the edges, outside the urban core. He said infill is important, as is a diverse housing stock.

“That doesn't have to just be dense apartments. They can be townhomes. They can be duplexes, quad-plexes, something that can fit in different parts of your community with different characteristics. But providing that diversification and that ability for different price points and different amenities,” said Carney.

McLean County is projected to have the highest population growth of any county in the state outside the Chicago area over the next decade, he said. If builders meet the housing demand, he said growth could outpace projections. If not, a lack of housing could choke off growth.

“This has an impact on talent attraction and retention. Households are changing and changing where they want to be. Sometimes it's close to employment, sometimes it's close to entertainment. Sometimes it's close to a walkable dynamic neighborhood or it could be at the edges. All of this is actually needed in order to fully meet all of the demand that you're looking at,” said Carney.

Bloomington-Normal also needs to tend to its existing aging housing stock: 48% of housing units in the community date to before 1980. Reviving rundown housing can improve neighborhoods and it can improve affordability of housing. That's something very important, Carney said, because average rent has risen 22% since 2017, or $230 a month.

Encouraging infill

Carney fielded a question at a recent Economic Development Council event about how cities and towns can encourage infill. His answer started with an uneasy laugh because the topic is always fraught.

There's already been neighborhood resistance to a couple of recently proposed multifamily infill projects in Bloomington-Normal. Carney said it's a challenge, even on a greenfield site, because people don't like change, but even more so when it is infill. In St. Louis, he cited recent development in unused portions of three cemeteries.

“That was the green space in these first-ring suburbs that hadn't been developed. The cemeteries need less and less. There was a lucrative way to sell a portion of that undeveloped cemetery for homes. While anybody that backed up to that cemetery who saw that green space is now a subdivision. And so that can be challenging,” said Carney.

Sometimes, infill happens in a failed commercial node that a developer can turn into housing, maybe a crumbling mall, a big box strip center, something that already had density.

“That gets a little bit easier because that density in those uses were kind of there,” said Carney.

Developer Drew Mitchell said convincing neighbors to accept something new requires the project to be compatible with the area. But communication can overcome worries. He said it's working with rather than working for.

“There needs to be a collaborative effort between economic development, the municipality, the developer, and the neighborhood. One of the ways to get to a final product everybody's agreeing on is neighborhood meetings. There is an iterative process where you allow the community to provide input. That can be powerful,” said Mitchell.

It's key for the neighborhood to have a role in the project. Justin Carney said a current example of that is a hospital with old neighborhoods around. The hospital got actively involved with the city and the neighborhood organizations to rehab single-family homes. It also made them affordable and served a segment of their own workforce. Kearney said city incentives can help make infill happen, but the municipality has to make sure incentives aren't used to force something in that doesn't need to be there.

“Sometimes you can use incentives in a very strategic way to say, Hey, you want to redevelop here. We want you as a community to redevelop here but we have some community goals that you need to meet. If those community goals make it challenging for this development to pencil out, let's talk. A lot of times that's part of the equation as well,” said Carney.

Role of incentives

Bloomington-Normal is already doing some targeted incentives, facade grants in downtown Bloomington, for instance. Developer Drew Mitchell said local Chambers of Commerce and Economic Development Councils can do right-of-way grants and other awards for improvements. Sometimes there are incentives to provide affordable units in what is mostly an upscale project in return for a small subsidy for those units. Mitchell said tax increment financing (TIF) districts are also key. If a project that costs $30 million can only get $1.80 per square foot in rent, it won't happen.

“A lot of times our desire for an end product don't work for 1-5 years. It takes time for your rents to start to move up for you to be able to afford your debt coverage. So really, what we need to do is encourage the developers in these really fragile, precious early years to get comfortable,” said Mitchell.

Cities usually think of TIF districts for big projects, that $30 million building Mitchell mentioned, for instance. But he said it's even possible to make TIF incentives meaningful on projects as small as an eight Plex.

What to build is important. So is what goes inside, the amenities. And those depend on the nature of the area. On the edge of town, he said, it helps to have commercial development nearby. In an urban core, it's already there.

“In some cases, you want to reduce your amenities so that your people, your residents, are getting out there spending money locally,” said Mitchell.

And those changing demographics mean changing amenities.

“You'll see things like fire tables, a built-in bar or wall Scrabble, maybe a tournament size bocce court on a roof deck. Those are things that you're going to see in that urban infill product. A creativity room is a concept for downsizing empty nesters who now no longer have a workroom where they can take a vacuum apart and put it back together,” said Mitchell.

Mitchell said the choice to have an exercise room in the complex versus a pool is complicated. Fewer people have dining room tables, though. And a quasi-business center within a multifamily development is something that's popular for work-from-homers. Carney and Mitchell said builders in Bloomington-Normal, though, have to answer all these questions faster than they've been doing so far.

WGLT Senior Reporter Charlie Schlenker has spent more than three award-winning decades in radio. He lives in Normal with his family.
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