Why it’s so hard to build affordable condos in Maine

Affordable condominiums could be a great first foray into homeownership for working Mainers, but building them is one of the least profitable ventures a private developer can undertake.

Despite financial and cultural roadblocks, some, like Merritt Carey, are trying it anyway.

Carey, 54, of Yarmouth heard first-hand from fellow lobstermen about their housing woes while writing a report on the working waterfront for the Island Institute. Like many middle-income earners — typically those who make between 80 and 120 percent of their area’s median income — they were being priced out of homeownership where they work, threatening not only their livelihoods but the economic viability of the midcoast region.

“Everyone was talking about housing,” said Carey, a lawyer-turned-consultant. “I felt very strongly for people to own in their communities and not rent. They’ll have a vested interest in the community.”

Condos, Carey thought, would be an attractive option for first-time homebuyers at the middle-income level. These units are offered at a lower price than traditional single-family homes, the prices for which have skyrocketed since the COVID-19 pandemic. Plus, residents in a condo building can save by sharing amenities and maintenance costs. To that end, Carey and her nonprofit, Maine Working Homes , have converted distressed or existing multi-family buildings into 11 reasonably priced condos in Thomaston and Rockland since 2021.

But it’s not been the straightforward solution Carey hoped it would be.

“If no one else is doing this in these communities, there’s a reason. It’s really hard,” Carey said. “I had to fight at every turn.”

Private developers such as Carey — whose group has invested more than $1 million in capital into these projects — are finding it near-impossible to make a profit while developing condos so long as they’re offered at submarket prices. It’s put a potential solution to the state’s housing crisis out of reach for the middle-income earners who could desperately use it.

“There’s no subsidies truly available for middle-income homeownership. There is for rental, but not for homeownership,” said Jack Soley, director of development at Portland-based East Brown Cow. “So in order to do it, the margins have to be slim to none. And there’s not many developers willing to take that on.”

Justifying building affordable or middle-income housing without subsidies is hard enough, but condos are even harder to finance than single-family homes are, said Kevin Bunker, founder and principal of Portland-based Developers Collaborative. There are added hoops to jump through depending on whether the condo is warrantable or not , said Bunker and Laura Johnson, director of mortgage and consumer lending at Bangor Savings Bank.

“There’s some additional documentation you have to get; there’s a questionnaire that needs to be completed,” said Jim Dell’Anno, Camden National Bank’s director of mortgage banking and consumer lending. “Other than that, it’s the same type of financing in terms of loan to value qualification guidelines.”

It’s enough to turn certain homebuyers off, lenders and developers said. Last year, about 3 percent of the mortgages for first-time homeowners purchased by MaineHousing, the state’s housing authority, were used to finance condos, according to agency spokesperson Scott Thistle.

“They can be a little more difficult to make work, with a few more steps around homeowners’ associations and mortgage insurance,” Thistle wrote in an email.

But that resistance is more than financial. Some homebuyers just don’t like the idea of “sharing a wall” with other families, as Carey often heard while showing her units. People are concerned about the rules an homeowners associations can impose and a lack of privacy. It’s especially hard to convince homeowners who live rurally or outside major cities of the perks of a condo, as it’s an unfamiliar ownership model to most, she and Thistle said.

“Rural areas aren’t looking at condos as a viable homeownership option, simply because they don’t really exist,” Carey said.

However, the reality is that for many middle-income earners who’d prefer a single-family home, what they want is not affordable . So condos could be “a real option” for them, Carey added.

For those who do end up moving into Carey’s condos, it’s a real relief. The first unit she sold, at less than $200,000, went to a nurse from Pen Bay Medical Center. Though the nurse had put multiple offers in on homes around Knox County, she kept getting beat out by cash buyers and was contemplating leaving the state because of it, Carey said.

She’s not the only private developer putting people over profit margins. Soley, the Portland developer, is hoping to make middle-income condos his bread and butter with a new company he’s forming. John Finegan, a broker with the Boulos Co., is proposing 49 such units on town land in Falmouth.

It’s a tough road ahead, but each developer is convinced of the value of a reasonably priced condo as a way to break into homeownership. The hope is they break even by building enough units — some at market rate — to spread the costs and make the math work, Soley said.

“Anything that we can do to get people owning their own home and allow them to benefit from home value appreciation, I think is a really noble effort,” Finegan said. “Instead of paying rent, which basically sets your money on fire, you’re paying a mortgage.”

Correction: An earlier version of this report misstated MaineHousing’s role in financing condos. It does not issue loans. It purchases loans from lenders and provide a subsidy to buyers.