Eleven years ago, Chapel Hill tried a new solution for an old problem.

Town leaders, seeking to assuage concerns that housing in the college town was becoming increasingly unaffordable, negotiated an unusual special-use permit for the sleek, urbanized Rosemary Village at 400 W. Rosemary St.

Adopted in August 2002, the agreement required builder Tom Tucker to offer at least six units, or about 15 percent of the available condo units, as affordable rentals. Tucker would continue to own those units and rent them to residents qualifying for affordable housing under federal guidelines, meaning they earn at or below 80 percent of the area’s median household income.

The arrangement made Rosemary Village an oddity. Builders typically sell the units to affordable housing nonprofits, such as EmPOWERment Inc. and Community Home Trust.

Today, the experiment seems doomed. Tuckerowner of the local Carolina Car Wash & Detail and one of the chief investors in Chapel Hill’s failed Greenbridge developmentsays he has turned over two unoccupied condos that were in foreclosure to Harrington Bank. The other four, occupied by low-income residents, have a nebulous future. “As long as I have to keep them, I have to operate them at a loss,” says Tucker.

Harrington Bank, saddled with deed restrictions preserving the condos for affordable housing, has been unable to sell the units since buying them back in a November auction, Tucker says.

At press time Tuesday, a representative for Harrington Bank hadn’t returned INDY Week phone calls regarding Rosemary Village. But deed documents show the bank bid $328,000 for the two troubled condos in November.

The Rosemary Village model, Chapel Hill Mayor Mark Kleinschmidt notes, is not working: “It’s not a preferred model, that’s for sure.”

It may be only a handful of units, but in Chapel Hill, where advocates say local real estate is increasingly dominated by student rentals and high-end condos, every dwelling matters.

“Every time we lose even one unit, that’s another family we can’t put in place. And that means that family is either homeless or they’re leaving Chapel Hill,” says Delores Bailey, executive director of EmPOWERment Inc.

In the past 11 years, Chapel Hill leaders have negotiated many deals to preserve affordable housing, a key priority in the town’s 2012 comprehensive plan. In that plan, town leaders noted the majority of Chapel Hill’s new construction favored high-end housing. Town leaders adopted an “inclusionary zoning” ordinance in 2010 that mandates developments of five or more housing units retain at least 15 percent of their units for low- to moderate-income housing. The number is 10 percent in downtown Chapel Hill.

According to a December 2010 housing study, the median single-family home price in Chapel Hill ballooned 45 percent from 2000 to 2006, rising from $287,000 to $425,000.

The prices and growth far outstrip most of the Triangle, except for Cary. In Raleigh, the median single-family home price rose 29 percent to $220,000, and in Durham, the price increased by 24 percent to $177,000.

The survey estimated 1,364 units, or about 5.7 percent of the total housing in Chapel Hill, is affordable. For perspective, U.S. Census data reported roughly 22 percent of the town’s population lived below the federal poverty line from 2007 to 2011.

But as Kleinschmidt notes, the town’s affordable housing efforts have relied chiefly on the public sector, not private builders such as Tucker, to manage those units.

“An agency that is publicly supported like Home Trust or EmPOWERment is a better bet to maintain affordability than a private person who is subject to their own private investments,” he says.

Tysha Alston, a single mother of two who lost her job as a McDougle Elementary School teaching assistant last June, has benefited from local affordable housing. With the help of EmPOWERment, Alston lives in a home on McMasters Street.

“There’s a lot of people in my situation,” Alston says. “There’s a lot of people that just need help trying to come out of poverty, trying to do something successful for themselves. Everybody deserves a second chance.”

Rosemary Village remains an outlier on this street, which is still mostly occupied by squat, one-story businesses and convenience stores. But just two blocks to the west, Greenbridge is a reminder of the risks of high-end development.

Tucker was one of a few investors to join area businessman Tim Toben in developing Greenbridge, where condos initially ranged from $300,000 to $1.4 million. The building was sold due to distressed Bank of America loans in 2011just a year after it opened.

Chapel Hill Councilwoman Sally Greenean affordable housing proponent who sat on the town Planning Board when the Rosemary Village permit was approvedsays the town has learned how to better manage affordable properties since then.

Tucker says the costswhich included local property taxes and a $150 monthly condo feewere too expensive to maintain the affordable housing units.

“Everybody says they want affordable housing,” Tucker says. “But nobody’s willing to pay for it. When you don’t get any breaks on taxes for affordable housing, when you don’t get any breaks on how you pay for it, when you’re supposed to rent these properties at rates that are 25 percent of what the value should be, it’s just an uphill battle.”

Tucker says he wants to sell the remaining condos he owns to an organization like EmPOWERment. However, banks, still insecure from the recession, often deny the loan applications.

Bailey says the town should collaborate with Tucker and Harrington Bank to find a solution, or Chapel Hill loses one of its relatively few affordable housing options for low-income families in a student-dominated market.

Agreed, says Robert Dowling, executive director of Community Home Trust. “It seems this whole thing is not working out for anybody,” he says. “It didn’t work out for [Tucker]. It’s not working out for Harrington. It seems like the town and the bank and [Tucker] need to get together and figure out how to solve this thing.”

This article appeared in print with the headline “Rosemary Street has its thorns.”