GOSHEN — Goshen city leaders met at the Schrock Pavilion Friday for a candid discussion on housing issues in the city.
Members of the Goshen City Council and Goshen Redevelopment Committee were in attendance, as well as around a dozen community leaders and six-panel members. “Every community is grappling with how to respond and address the need of adding additional housing resources in our community,” Goshen Mayor Gina Leichty began, adding that it’s one of the most pressing needs of the Goshen community.
In 2022, the city completed a housing study which concluded that the city of Goshen would need 4,537 new housing units to fill the demand by 2030. Of those, 2,466 should be rental units and 1.26 owner-occupied. Over half of those are from people who said they would live in the community if there was available housing, due to work or school. Of the more than 30,000 people working within the city, 23,000 do not currently live in the city due in part to the lack of housing.
“There are a lot of people coming into our town every day and even if just a small percentage of those chose to live in Goshen, to move to Goshen, that’s a lot of growth,” Goshen Redevelopment Coordinator Becky Hutsell said.
In recent years, in an effort to better accommodate growth, the city has begun allowing for project-specific tax increment finance district funds to be used for developments. The Copperleaf Cove Apartments, Aerial Cycleworks property, and Cherry Creek development are examples of ways the city has begun working with developers to allow TIFs to directly support housing. Cherry Creek was the first residential TIF the city created, officially in 2023, after state legislators changed the TIF law to allow single-family property taxes to be captured as revenue when historically it was excluded from the agreements. Cherry Creek is expected to provide the city with 1,200 housing units including condos and singlefamily homes with construction anticipated to begin in the summer.
The Aerial Cycleworks apartment complex, which will include a small commercial space possibly for a coffee shop, will provide 135 apartments and is also expected to begin construction this summer.
Copperleaf Cove Apartments began offering rentals in late 2023.
But the issue of housing in Goshen isn’t as simple as just building more properties and filling them. There’s interest rates, rent and mortgage prices, profit margins, and investment capital to consider, and dramatic changes that have transformed the landscape when it comes to housing projects.
The panel included Lacasa Chief Financial Officer Brad Hunsberger, AP Development LLC Principal Jon Anderson, Kosene & Kosene Real Estate Broker Chris Chabenne, Kosene & Kosene Investment Analyst Michael Kosene, President of Ancon Construction Doug Von-Gunten, and Senior Vice President of Commercial Lending at Interra Credit Union Mike Blosser.
AP Development LLC Principal Jon Anderson, whose company is working on the Aerial Cycleworks apartment project, said in February 2021, that he closed a deal with a HUD (U.S. Department of Housing and Urban Development) rate of 2.9%. Last year, the rate in February was 7.25%, but this year it’s closer to 8.5%.
“To put that into perspective a little bit, if I close that same deal at 2.9%, if I close it at 9%, my interest carry-on a deal like Aerial Cycleworks increases a million bucks,” he said. The Aerial Cycleworks project is currently estimated to cost around $30 million, ”which means I need to somehow lease my apartments 17 months out of the year in order to pick up what I just lost in interest. It’s a financial impossibility.”
Increases in materials have also brought up total construction costs and while they’re going back down, that means that companies are working to build up their stock.
“One of the challenges is to always try to predict what’s coming,” Anderson said. Luckily, Anderson said, now it’s expected that HUD rates will fall to about 5.5% by the end of the year, and calls from contractors and subcontractors are beginning to have availability for projects again.
“It’s ubiquitous across the board, the struggles that developers are having to get projects across the finish line,” Chabenne said. “Pretty much anything that you’re looking at doing is going to require a tremendous amount of public subsidy just to get the deal to work.”
Kosene added that with TIF support and subsidies, projects are nearly impossible.
“It’s not about greed, it’s not about somebody wanting to get their name out there or whatever it is, it’s simply economics that drives the need,” Kosene said. “The interest rates, the cost of construction, it’s just the perfect storm to ward off growth without help from the public.”
President of Ancon Construction Doug VonGunten, whose company built Copperleaf Cove Apartments, said they signed on for the project in March 2020, but began revisiting it in 2022 and had to reprice it. The cost had gone up by around $1 million, around 10% more than the original $12 million project cost.
“Trying to figure out how to make that work from a developer’s standpoint is pretty difficult,” he said.
Blosser said the banking landscape has also changed drastically in the last two years from interest rates to deposits.
“It’s posed new challenges in the banking industry as well as with our borrowers,” Blosser said. Just a few days ago, the U.S. Federal Reserve voted not to lower the interest rate, despite economic forecasts in the fall indicating they likely would. Instead, forecasters are now saying interest rates should begin lowering by summer.
Blosser explained that interest rates have a tremendous impact on the costs not only for developers but for tenants and buyers as well.
He presented an example of a $5 million project with a 2022 interest rate of around 3%, as compared to the 2024 rate of 7.5%. Annual payments on the loan for the development for the first lower would be about $350,000, but for the second, would be $480,000. It’s a 40% increase over two years. As a banker, Blosser said, to approve the loan, it’s preferred that companies have more than what’s needed to service the payments, in this case, around $580,000. For a 32-unit apartment complex, that means that each apartment would need to bring in $1,500 per month after expenses. In 2022, though, that same loan would require $1,100 per apartment.
“When you talk about affordable housing that tells the story right there, and the willingness for some of these developers to jump into these projects,” Blosser said.
The solution, city officials and developers believe, is investing public funds into affordable housing from local taxes to state grants.
“We’re not asking for incentives because we want to make a bunch of money,” Kosene said. “Some of us are leaving everything in the deal.”
Affordable housing by today’s standards includes properties below 30% of the household’s income. For many families in Goshen, that can be as high as $2,000, a sharp contrast from historical rent or mortgage costs in the city.
Lacasa’s Hunsberger said that while there’s been a sharp increase, most of the county isn’t spending near 50% of their income on housing, and compared to the other counties in the state, Elkhart County rent is in the bottom third.
“I would just caution us that we are on the path to that being a problem — five, seven, 10 years from now — if we don’t continue to invest in affordable housing on pace with all of our area,” he added.