'We have a housing shortage': Topeka wages are static as rentals costs rise

With the price of housing increasing at rates faster than wages can keep up, Topeka continues to face a city-wide affordable housing shortage.

The Topeka Citywide Housing Market Study , published in July 2020, was conducted to find long-term solutions to the city’s lack of affordable housing. Four years later, Topeka still struggles to provide appropriate and affordable options for low-and-moderate income households.

The study found that 85% of potential home buyers didn’t have enough savings for a down payment on a median-priced home in the capital city. Investors who took advantage of historically low interest rates bought up single-family homes and converted them into rental properties.

This practice drove up home prices, putting ownership out of reach for many Topeka residents, and especially for first-time buyers.

Demand for rental housings has led to shortage of safe options

“We definitely need more housing in Topeka. That’s been an ongoing issue for quite some time,” said Topeka Housing Authority CEO Trey George. “We have a housing shortage across all types of housing. There’s a need for approximately 4,000 additional units for home ownership and rentals.”

Renting has become the most viable option for many families due to the rising costs associated with owning a home. George said the need for rental housing is high, but the increased demand has caused a shortage of safe and affordable rental options in Topeka.

“We have a lot of rentals available, but not enough that are affordable and of quality," he said. "Some of the homes available are not at acceptable levels for the programs we operate.”

Topeka Housing Authority’s mission is to connect low- and moderate-income residents with quality, affordable housing. The organization helps eligible individuals apply for rental assistance programs like Section 8. Under these programs, tenants contribute 30% of their monthly income to their rent and utilities, and the balance is covered by such federal agencies as the U.S. Department of Housing and Urban Development (HUD) or by a city’s local housing authority.

George said THA works with more than 400 property owners across the city to offer a variety of property sizes and types.

“We have a pretty good stock," he said, "but we need more.”

The definition of affordable housing is generally accepted to mean that an individual or family spends no more than one-third of their monthly budget on housing and utility costs. The median income in Topeka in 2020 was $50,066. An individual or family with this income would need to have a mortgage less than $227,000 or pay no more than $1,250 in rent and utilities each month to avoid being house or rent burdened.

Wages have remained static as rental costs have increased

At the time of the market study, George said a decent two-bedroom market-rate apartment in Topeka was going for $785 per month. The study found that a renter in 2020 needed to make a minimum wage of at least $16 per hour to afford a quality apartment this size.

Rental rates over the past four years have only continued to grow, while wages have remained static. George estimates that rent for the same two-bedroom apartment would be closer to $900 today. Many property owners won’t offer a lease until a renter can show that they have a monthly income at least three times the cost of rent.

As a result, more Topeka residents than ever are being priced out of safe, affordable housing options.

“We have a fairly high poverty rate in Topeka, and we have older housing stock that hasn’t been maintained well,” said George.

Twenty-five percent of households in Topeka have an annual income of less than $25,000, making market rate rentals unaffordable for a quarter of the city’s population. Those households require rental costs less than $625 per month, including utilities, to meet the definition of affordable.

Low-income households are often forced to choose between spending a significant amount of their monthly income on housing or residing in substandard or unsafe conditions.

In Topeka, 47% of renters are rent-burdened by what they pay in housing costs, leaving them less income for basic needs, and making it difficult to save up for better housing in the future. The study acknowledged that without additional affordable housing options, this cycle will continue.

To complicate matters, the majority of rental properties in Topeka were built before 1970. In 2020, the city had an inventory of 10,400 multi-family rental units, but fewer than 100 of them were less than 10 years old.

Cost of materials has quadrupled in the past four years

And while many Topeka neighborhoods have vacant lots that could be developed or existing properties that could be redeveloped, the cost of new builds comes with a price.

George said there is a correlation between quality of housing and rental prices. Properties built after the turn of the century have rents 20% higher than the city-wide average for comparable units, putting the price to rent newer builds out of reach for many low-income households.

This is largely due to costs surrounding new construction projects. Even when a developer wants to keep rent prices affordable, they are unable to do so because they need an income to recoup the loans taken out to develop the property.

“The cost of materials has gone up fourfold in four years,” said George. “An HVAC system that used to cost $3,000 to $4,000 in 2020 now runs between $8,000 and $12,000 installed.”

Another challenge associated with constructing new affordable housing is that new builds cause property taxes to go up, which in turn increases the cost of insuring them.

“Growth in our city is wonderful because it funds police and schools and roads, but it also drives up prices. Property taxes go up and insurance goes up. You have to have rent to support the debt you’re taking on to support the project,” said George. “Anything you can do to drive down operating expenses of a property is helpful in keeping rentals affordable. Tax credit programs are the most viable way to build.”

The Low-Income Housing Tax Credit (LIHTC) is a federal program by which Kansas receives an allocation of housing tax credits based on the state’s population. Credits are distributed to property investors for the purpose of developing affordable housing. Investors benefit by using the tax credits to offset their tax liability, and LIHTC provides an incentive for private developers to build housing that would otherwise fail to generate enough profit to support the investment required to build it.

“LIHTC provides us 80% of the cost to build a development, and then we come up with private funds or loans to make up the rest,” said George.

Additional revenue sources needed to meet affordable housing demand

Rental units built through the LIHTC program are leased at below-market rental prices. They are not rent-subsidized like public housing or Section 8 housing. LIHTC helps families who are rent burdened by high market rates, but who make too much money to qualify for rental assistance programs.

George said LIHTC is a very competitive program, with states vying for the available tax credits. The government has five times the applications than they do funds to allocate, and since Kansas has not grown as quickly as others, the state doesn’t receive as many tax credits.

“There’s not a lot of new development happening,” said George. “We do develop affordable housing through the low-income tax credit program, but there aren’t enough credits available.”

The Topeka Citywide Housing Market Study noted that Topeka had 4,820 affordable rental units in 2020. Three thousand were part of LIHTC initiatives, 745 were public housing units, and the remainder were supported by Section 8 vouchers or other rental assistance programs.

Stakeholders, including George, seem to agree that meeting the growing demand for affordable housing in Topeka is going to require additional sources of revenue.

“If more funds were available to develop affordable housing, the want is there,” he said. “We have a number of good organizations in Topeka that work on housing on a daily basis, but there has to be another reliable funding stream to address the housing challenges.”

Housing trust fund idea has stalled because it would require tax increase

Solutions have centered around partnerships between for-profit and affordable housing developers like THA, as well as the creation of affordable housing trust funds.

Trust funds would provide a revenue stream paid for by the public that could be used to develop affordable housing communities. George said this idea has stalled because it would require a tax increase and due to the current cost of development.

“Money from a trust fund would be spent quickly on one or two projects,” said George. “Without a way to continually replenish funds, it would be a one-time solution.”

For now, THA relies on the generosity of area property owners who recognize the importance of the organization’s mission.

“We’ve got some really amazing landlords who have kept market rates level because they think what they’re doing is important,” said George. “It really warms my heart.”

This article originally appeared on Topeka Capital-Journal: 'We have a housing shortage': Topeka wages are static as rentals costs rise