JOHNSON CITY, Tenn. (WJHL) — City Manager Cathy Ball wants Johnson City to remain a place where people of mixed incomes can live and thrive. Housing and rental prices are putting that at some risk, she says.

“I think if we become a city…where you don’t have a working class people within the area then you’ve really lost the character of what Johnson City is,” Ball told News Channel 11.

Johnson City’s commission has moved affordable housing into its strategic plan priorities and the topic will be part of its work session Thursday. The chairman of the Johnson City Regional Planning Commission, Chris Dagenhart, pulled together a working group to focus on the issue earlier this year.

“Everyone is worried about it,” Johnson City Mayor Todd Fowler said. “It goes from the people that own businesses to the people that work for them.”

It’s those working people that are at the center of leaders’ concerns. Assistant store managers, police officers, medical assistants, factory workers and social workers — all tend to fall within an income range that doesn’t qualify for traditional “affordable housing” subsidies like Section 8.

Rather, those workers who form the backbone of the economy and the community need what area officials call “workforce housing.” That’s in short supply.

Johnson City’s metro area became unaffordable, according to the Atlanta Federal Reserve’s Home Ownership Affordability Monitor, starting in April 2022. (Atlanta Fed)

“If you want a house that’s ($600,000) to $1.8 million, we can find something for you,” Fowler said. “But anything under that I can’t guarantee there’s anything for you, so we need affordable housing for people that are looking for a house…all the way up to $400,000. We need those homes.”

While the situation may not be quite that dire, the inventory of homes on the market skews toward prices that leave many area families “cost-burdened” according to the traditional measure of the term. Anyone who pays more than 30% of household income on housing falls into that category.

The situation in the rental market is no better, if not worse, Ball said, agreeing it’s reached an urgent stage. People without any income constraints are struggling to find places to rent or buy when they move to the area.

“We are seeing numbers that are indicating rental availability at less than 1%, which means that even what’s out there and what the market is driving, people still can’t get housing,” she said. “So…the reason the commission put this on their list for us to work on is they feel like it is something we need to be working on this year.”

The U.S. Census Bureau’s American Community Survey for 2022 showed that of 19,128 occupied units paying rent in Washington County, 10,892 rented for somewhere between $500 and $999, amounts that would leave some people cost-burdened.

Not quite 20% of units (3,613) units rented for $1,000 to $1,499, leaving all people meeting the area “workforce” definition cost-burdened. A $1,000 monthly rent would be more than 30% of income for anyone making less than $40,000 a year. Another 1,306 units rented for $1,500 to $2,000, with 715 above that rate.

The Kingsport-Bristol metro has also fallen from being highly affordable to being unaffordable. (Atlanta Fed)

But rental rates have been increasing, in some cases dramatically. One soon-to-be homeowner reported their $920 rent on a 2-bedroom, 1.5-bath apartment was moving from $920 to $1,048, a 14% increase. A single person would have to make $20.15 an hour or more to not be considered cost-burdened by the traditional measure.

What can be done?

Leaders around the region have spent the last few years attacking the affordable housing shortage with some traditional tools. They’ve worked to increase building on “infill” lots (properties with existing city infrastructure).

They’ve ramped up efforts to maximize production by non-profits that build and repair housing for the traditional low- and moderate-income demographic.

This has included giving some county-owned lots, which typically come after tax repossession, to the likes of Appalachia Service Project, Habitat for Humanity and Eastern Eight Community Development Corp. to build on. Washington County also just approved granting $300,000 in federal ARPA funds to Holston Habitat for Humanity to help offset costs for a 14-home project it’s building on an infill lot not far from Science Hill High School.

A combination of price increases and interest rate hikes have raised the amount paid monthly for a median-priced Johnson City home by 58% in two years. (WJHL photo)

But those homes typically get purchased by people with incomes below 60% of the area median, which for a family of four is just $40,440. Ball said Johnson City is looking to develop strategies that would help people up to 80% of median (just under $54,000 for a family of four, $37,750 for a single person).

That mythical family of four earning 80% of area median income (AMI) becomes cost-burdened at just $1,350 a month. That’s enough to borrow about $190,000 at 6.2% interest. Less than a third of Johnson City houses, 38 sold for below $180,000 in the first quarter of the year, when prices are typically lower. The year before 53 had sold in that range during the same period.

Some keys for Johnson City strategically, Ball said, include “identifying the resources and the tools that we have available to help developers produce this product at an affordable price.”

She said the city is inventorying all the property it owns. In fact, the 3-plus acres Habitat will build on was owned by the city.

“If some of those properties end up being what we call strategic properties for the purpose of housing redevelopment, we may potentially be able to enter into a public-private partnership wherein we make the land available at a cheaper price if the product is put on the market at a lower rent so it can be used for folks for affordable housing,” Ball said.

Those type of efforts, at least for now, would target housing for people making up to 80% of median income.

“They’re entry-level firefighters, police officers, teachers,” Ball said.

She said one strategy could be offering payment-in-lieu-of-tax (PILOT) agreements in exchange for accepting a lower rent.

Johnson City’s home price burden has remained below the national average even as it has entered a range considered unaffordable for people with median incomes. (Atlanta Fed)

“Our requirement would be that it would be for an extended period of time, and that at least say 20% of the units in that development would be available for 20 years to those who have income qualify at that 80% average median income,” Ball said.

Without strategies like that one, she said, Johnson City runs the risk of becoming increasingly difficult for many people to afford.

“As long as the market is like it is and they’re continuing to be able to rent at a market rate, there’s no reason that a developer would rent for less unless there is an incentive by the city,” Ball said.

It could be (a lot) worse

The Atlanta branch of the Federal Reserve Bank has a “Home Ownership Affordability Monitor” (HOAM) that tracks affordability monthly in several hundred metro areas using a few key indicators.

Combining current interest rates and median home price the HOAM produces an average payment, including taxes and insurance. It then uses a metro’s median income to determine an “index” amount based around the percentage of median income that average payment represents.

A score of 100 or higher denotes an area is affordable, with 100 being 30% of income.

The Tri-Cities has long prided itself on being an area where homes are very affordable, and Johnson City’s metro area was in the affordable range from 2014 all the way through March 2022.

The index dropped to 96.7 last April and fell all the way to 77.0 last September, just as Johnson City was enjoying continued attention as one of the nation’s hottest emerging housing markets. That meant a person with the median income (interest rates were at 7.0%) was paying 38.8% of their income for a median-priced house.

The figure for March was 87.5, with the median home price down to $233,250 and interest rates at 6.3%. The highest median home price month so far was July 2022, at $273,069. The March data meant the median-income household would pay 34.3% of income for that median-priced home. The index assumes no down payment.

Those increases may have set local leaders to seeking solutions, but the lack of affordability pales in comparison to the situation just over the Blue Ridge in Asheville, N.C., where Ball worked as an assistant city manager prior to taking the Johnson City job in late 2021.

Asheville’s HOAM index has reached the affordable level just once since 2014, when it hit 100.1 in February 2016.nIt was still at a fairly reasonable 93.6 in March 2021, when the median home price was $327,500 and interest rates were 3.1%, making for a 32% of median income payment.

By last October, when interest rates hit 7.0%, the index stood at its all-time low of 54.0. A person making Asheville’s median income of $63,843 would have had to put 55.6% of that to housing for the median-priced house, which had risen to $427,667.

In March 2023 things weren’t much different, with the median home price at $423,500 and the share of median income to afford that home’s payments at 51.3%.

Fowler wants to avoid that level of unaffordability on his side of the mountains.

“It’s really high priority. That’s one of the things we’ve got to do because we can’t grow if we don’t have a place for anybody to stay,” he said. “There are people here who would love to own a house instead of putting their money into rent putting it into a mortgage, but if there’s no place to go, what do you do?

“And when the rent has gone up and you can’t find an apartment to rent — we are full, pretty much.”

Johnson City and Kingsport/Bristol metro areas remain more affordable than the national average, though that gap has closed some over the past two years. The HOAM index nationally was 75.2 in March, compared to 87.5 in Johnson City and 88.9 in Kingsport/Bristol.

Two years earlier, it was 126.4 in Johnson City, 139.7 in Kingsport/Bristol and 104.0 nationally.