Why one Indiana city is halting apartment construction with moratorium

A city in Southern Indiana has put a pause on new apartment construction while it attempts to improve its homeownership rate — baffling national experts who say the decision could lead to higher prices market-wide.

Last month, New Albany’s City Council passed an apartment moratorium that prohibits developers from filing new proposals for up to a year while officials update the city’s comprehensive plan and zoning code with homeownership in mind.

The moratorium follows the release of a housing study that showed 54.5% of New Albany residents own their home — a low figure when compared to the city’s peers. While owner households are expected to grow twice as fast as renter households over the next 25 years, New Albany’s ownership stock is not keeping up with the pace.

“This moratorium will give us time to pump the brakes on the high rate of apartment construction and allow us to plan and prepare for the next few decades of housing needs in New Albany,” Mayor Jeff Gahan said in a news release.

National housing experts, however, aren’t convinced the moratorium is the right move. More units of all kinds — from single-family homes to large apartment complexes — are needed to make up for years of under construction, they say, and limiting new options amid a hot housing market could lead to increased prices across the board.

“This policy, if I was grading it as a project in one of my classes, it would be an F,” said Ken H. Johnson, a real estate economist at Florida Atlantic University. “This is a very ill-thought-out policy.”

What’s causing the homeownership decline?

To New Albany’s elected officials, the results of a housing study conducted by the Urban Studies Institute at the University of Louisville were eye-opening.

Homeownership rates in New Albany were in sharp decline, falling almost 5 percentage points over the past 20 years, the study showed. Data analysis indicated a large number of homes had been gobbled up by investors to be used as both long- and short-term rentals. Multi-family construction was also far outpacing single-family development, contributing to a tighter market for interested homebuyers.

“It is clear that there is a mismatch between the available housing stock and the types of homes that people want and need in our city,” Gahan said in the release.

Higher home values along with income barriers for renters likely have contributed to the city’s lower homeownership rates, the study stated. New Albany’s median house value, at $139,500, is third highest among its peers. And the median renter income is less than half the median owner income, at $32,103.

“Importantly, should the city pursue a strategy to prioritize owner-occupied housing, it should do so with an eye toward accommodating existing renters,” the study stated. “The goal is not to eliminate renter households from the city, but rather to assist them in transitioning to ownership.”

Matt Ruther, director of U of L’s Urban Studies Institute, said he did not speak with city officials about specific ideas for increasing homeownership. But he suggested several in the study, including pursuing meaningful infill development, converting existing multi-family units to condos and repurposing existing single-family rental units.

“Everyone is well aware that there’s a housing crisis or a housing shortage,” Ruther said. “Not in New Albany, necessarily, but everywhere. I doubt anyone wants to stop housing from being produced. They want it to be produced in a sustainable, healthy way for the community.

“I think there are going to be many cities, states that are going to be coming up with ways to deal with this.”

National experts question moratorium

Martha Galvez, executive director for the Housing Solutions Lab at New York University, doesn’t question the benefits of homeownership.

But she does question what consequences could arise from limiting new housing stock.

“We work with a lot of small cities across the country, and places are typically trying to go in the opposite direction to get as much housing as they can, as much different types of supply as they can,” Galvez said. “It seems a little counter to what many communities are trying to do.”

Galvez said cities can pursue policies and programs to advance homeownership while still allowing construction of apartments for people who can’t buy a home or don’t want to own one.

“It’s a little muddy,” she said of the moratorium. “What is the problem that they’re trying to solve? Is it helping homeowners? Because reducing housing supply doesn’t typically help prices. Or is it reducing renters? And who are those renters that they’re trying to reduce?”

Johnson at Florida Atlantic University said homes for sale in Metro Louisville — which includes New Albany — are currently overpriced by about 20%, when compared to long-term estimates, according to his research.

Encouraging homeownership at this time, he said, “will be pushing people into an asset that is more overpriced than the other alternative.”

A review of 83 homes recently listed for sale in New Albany on Zillow showed an average asking price of about $300,000.

“I think the mayor is very well-intentioned, and it comes from advice that we heard at our parents’ table growing up: Why rent when you can own?” he added.

But owning a home isn’t the only way to generate wealth, Johnson said, and renters who diligently reinvest can sometimes come out ahead of homeowners.

“What so many people are doing is they don’t have the discipline to reinvest every month,” he said. “… Homeownership is a forced savings account.”

An opportunity ‘to get it right’

New Albany City Council President Adam Dickey doesn’t want people to think the community is closed for business.

“No one on this council, I think, is against moving forward good developments in our community,” he said. But with a finite amount of available land, “we also want to make sure they’re the right developments in the community and they fit the community in a very complimentary way.”

Dickey said the apartment moratorium buys the city a little time to set itself up for success in coming years.

The city plans to hire a consultant to review its zoning code and comprehensive plan, looking for ways to increase homeownership. And any suggested changes would go through New Albany’s Planning Commission and City Council, with opportunities for public input.

The city will also consider expanding or starting programs aimed at making homeownership more accessible, such as down payment assistance and financial education.

“This is an opportunity for us to kind of get it right,” Dickey said. “And I think that through this, we’re going to emerge in a much better place.”

Jun Zhu, a nonresident fellow at the Urban Institute, a nonprofit research organization, said revising zoning codes to allow for more housing types — such as condos and modular homes — is a good step to increase ownership.

But cities don’t have control over other changes that could make more people eligible for homeownership, such as including rent history in a person’s credit score or expanding sources of income that are considered for a mortgage, she said.

Sherri Banet, a realtor with Schuler Bauer and a board member with the Southern Indiana Realtors Association, said people interested in buying a home should contact a realtor or lender to learn what programs are available and what they can afford before starting their search.

“Now is still a good time to buy a house,” she said. “… Any time you can invest in yourself instead of paying rent, you’re going to be better off in the long term.”

Reach reporter Bailey Loosemore at [email protected], 502-582-4646 or on Twitter @bloosemore.


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