Raleigh’s Affordable Housing Deal With John Kane Cost the City a Lot of Actual Affordable Housing

Some Raleigh City Council members claimed victory last week after strong-arming developer John Kane into including affordable units in his proposed high-rise development on Peace Street, the first foray into a new policy that uses affordable housing as a bargaining chip in rezoning cases.  

“It’s a modest first step as part of a long-term vision about what our expectations are for the city of Raleigh,” says council member Russ Stephenson. “We have set the precedent now that our premiere local developers want to be part of the solution.” 

Perhaps. But in terms of raw numbers, the city hosed itself. 

Kane had previously offered to contribute $1 million toward the city’s affordable housing fund. The city could have leveraged that money to build forty units at the cost of about $25,000 each and keep them affordable for at least thirty years, says Larry Jarvis, the city’s housing and neighborhoods director. Wake County is building affordable units for even less, paying just $14,000 per unit this year, with $8.1 million in approved projects that will construct 576 new units. These, too, will remain affordable for at least thirty years. 

Under the agreement he reached with the city, however, Kane’s building will likely include twenty units of affordable housing for only five years, and it’ll cost him significantly less than $1 million. 

In other words, the council could have gotten twice as much affordable housing for six times as long if it had taken Kane’s money instead of forcing him to include the units in his building. 

So why did the council go for it? 

It’s hard to argue that politics didn’t play a role. With affordable housing at the forefront of next month’s city elections, the council’s development-skeptic majority—Stephenson, David Cox, Stef Mendell, and Kay Crowder, who all face tough re-election challenges, plus Dickie Thompson, who is not running again—had signaled that they wouldn’t approve Kane’s request unless his project included affordable units. His money wasn’t enough. 

The council’s Growth and Natural Resources Committee, run by this bloc, first proposed the voluntary-affordability policy in March as a way to circumvent the state’s ban on inclusionary zoning. Forcing Kane to play ball allows them to show voters that they brought a powerful developer to heel. (Kane’s project is also contingent on a traffic study.) 

To be sure, the council voted unanimously to approve the rezoning request. Mayor Nancy McFarlane, who was on medical leave during the negotiations, says she did so to avoid further delays. 

“I think if the one million dollars produced more units, it seemed to me that would have been more beneficial,” says McFarlane, who is not seeking re-election. “But I guess it’s also symbolic. [Developers] feels they can do a project with those units and include them and make it work.”

Asked if the city got a good deal, McFarlane replies, “You will have to talk to the members of the council that pushed for that deal.”

Stephenson argues that, while Kane’s cash would have netted the city more affordable units, insisting on affordability in the project was essential. 

“If we don’t emphasize the need to actually build affordable units downtown, but take a fee in lieu to build something somewhere else, some would say that’s an admission that you plan for downtown to only be for rich people in the future,” Stephenson says.

But the voluntary affordability policy only works with rezoning requests—cases in which the city has leverage. However, the downtown core along Fayetteville Street is already zoned up to forty stories. That means most eligible rezoning requests will abut residential neighborhoods, where they’re already likely to face an uphill battle. 

Stephenson voted against this zoning measure in 2015, arguing then that the city was giving away its ability to negotiate for potential community benefits. 

“It was a huge mistake, and now we’re paying for it downtown,” Stephenson says. 

Kane’s tower will likely have about four hundred residential units, says his managing director, former city council member Bonner Gaylord. At the current market rate, those apartments would rent for at least $2 a square foot, or $2,400 for a twelve-hundred-square-foot two-bedroom. Under the deal, Kane could rent as much as 15 percent of the units to people earning 80 percent of the area median income for fifteen years to—more likely—as few as 5 percent of units to people earning 50 percent of the AMI for five years. 

In Raleigh, the AMI for a two-person household is about $74,200. At 50 percent of the AMI, a couple making $37,100 would be eligible to rent an apartment in Kane’s tower for about $800 a month. After five years, the units would return to the market rate. 

Over five years, according to Gaylord, that option will cost Kane about $771,000. He’ll save about $229,000 over his cash offer to the city. 

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Contact staff writer Leigh Tauss at ltauss@indyweek.com. 

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