Why Building 1,000 New Housing Units Will Take time and Collaboration

By Connie Yoshimura

Anchorage has a long road ahead of them to reach an annual  goal of 1,000 new housing units in  the coming years.  Over the last seven years, Anchorage has averaged only 376 permits, including single family, duplex or multi-family. 

And the need grows greater every day. Not counting Eagle River and Chugiak, there are only 17 single family homes for sale between $450,000 and $500,000 and only an additional 17 homes for sale between $500,000 and $550,000. Of these 34 homes for sale 8 were built before l970;16 before 1980; 3 in the l980’s; 4 in the l990’s when building codes became a requirement; and 6 since 2000.   If you are living in one of these older homes, , you have most likely already replaced the roof and the hot water heater and probably more than once. If you are  considering a home purchase you will be confronted with a home inspection health and safety list longer than you can count on the fingers of both hands and may change your mind out of fear of future problems.   Nevertheless, there are multiple offers with escalator clause on these homes  with buyers even willing to pay some of the standard seller closing costs.  “As Is Where Is” will be the increasing seller’s standard counter  as  Anchorage’s inventory continues to age. 

So qualified buyers are left with the difficult decision of deciding between a much smaller and new single family home on a 3,200 square foot lot or a 2000 plus square foot home complete with landscaping, appliances and window coverings but running the risk of expensive repairs as the home reaches or have already reached its economic obsolescence.

In 2022, the state of Alaska had a total of 1,874 single family and multi-family permits.  Anchorage had only 20% of that total yet we have a population of almost half of the state’s population.   This statistic speaks for itself.  Thanks to multiple outreach programs by the Anchorage Assembly and current administration how to fix the housing shortage is the topic of conversation at community councils, the ADN opinion page and around the morning  breakfast table whether at home or Kaladi Brothers.   The need has clearly been established. We are all aware of the problem .  But the real dilemma is how  do we get to those 1,000 new housing units.  To build a 1,000 new homes on the rungs of the housing ladder, we need three things:  financing, land and builders.  You might think that builders make a 20%  profit but they don’t.  The national average is between 8 and 10%.  I am not a builder but my assumption is after they  pay their builders risk insurance, put diesel in their equipment, and pay all their subcontractors who now charge by the square footage of the structure, they earn about 6 to 8% on a good job.  That’s why building small isn’t very profitable.  Currently, only Spinell Homes is building in that under $500,000 range on half sized lots and square footage around 1,400. That’s why the average single family building permit is over $600,000 not including the land and so most new construction is now costing a buyer $1million. 

Anchorage doesn’t have national or publicly traded builders.  Almost all commercial lenders are resistant to funding residential spec building unless there is a long term, proven relationship already established and a substantial financial statement.  Commercial lenders are interested in the product to be built but they are, frankly, more interested if the borrower can support the project if it doesn’t sell. We are constantly looking at residential mortgage rates  but the interest cost of developing a tract of land or a spec home requires a loan about 3-4 percentage points above today’s mortgage rate if you can find a lender. The Alaska Housing Finance Corporation should offer financing for single family and duplex homes and not just multi-family or weatherization upgrades. AHFC should act like a lender, the same as commercial banks and credit unions.  That could be their contribution to our community  to help build a 1,000 units.  

Residential land in sizes of 10 to 20 acres is difficult to find except on the hillside. If you drive by a large vacant parcel, and wonder why its not developed, it may have wetlands, a steep slope, a creek running through it, owned by a non-profit or lacks basic infrastructure like water,sewer, gas and electric. A fully developed lot should be no more than 25 to 30% of the cost of the residential building.  Developers are all on the hunt for land to develop and build on but inside the city limits, its nearly impossible.  It’s the same process and time to develop a three acre parcel as a ten or twenty acre parcel.  That’s why the attempted residential rezone from 15 residential zones to 5; the ADU and the duplex ordinance will only create minimum new starts. ADU’s,duplex rezones and unit lot subdivisions are a benefit for vacant infill but they are not going to move the needle to 1,000.  Anchorage has large parcels of vacant land owned by the MOA, the Greatland Trust, Heritage Land Bank, the Mental Health Authority and private entities.  Churches and schools also have vacant land adjacent to their facilities.  I applaud the Central Lutheran Church at 1420 Cordova.  Not only do they host a Saturday market which I regularly walk to  buy a loaf of whole wheat sour dough break from Turkey Red  they are now building five housing units for a temporary six month shelter. 

 We will be lucky if  the start of Anchorage’s 1,000 new housing units begins in 2025 but it will most likely occur in 2026 because that’s how long it will take to get through the entitlement process, create new, lower financing opportunities as well as more disposal of public lands.  All that needs to occur before lenders, builders and developers can feel confident in moving  forward. Goal setting is not enough.