Tri-City developers find a way to make new houses affordable. But there’s a catch
A pair of Kennewick developers is betting renters priced out of the housing market will embrace a new community that borrows a page from manufactured home parks.
Ben Harris, Brad Beauchamp and Jamis O’Brien are partnering with Simplicity by Hayden Homes on Sunridge, a 166-home gated subdivision in Kennewick’s Southridge area.
Homes will be listed in April with prices from $245,000 to $350,000 — well below the Tri-City average of $460,000 for new and existing houses.
The catch? The home sale doesn’t include the lot.
Sunridge buyers will pay $350 a month to lease the land under their house.
Buyers can choose floor plans from 900 to 1,300 square feet in the community, now under construction near Ridgeline Drive and South Sherman Street. The site is west of Southridge High School and north of Sage Crest Elementary.
Harris said selling houses but not the land is unusual for the Tri-Cities, but it could give renters priced out of the market a starting point to build equity in the structure. And the homes can be financed with traditional mortgages.
“Our argument is you’ve got all these people renting and left behind. They can’t spend $450,000, $500,000, $600,000. There’s no rung on the ladder between rentals and single-family homes” Harris said.
Leased-land approach
The leased-land approach was used in Richland’s Meadow Springs, where homes were originally built on land owned by the state Department of Natural Resources, which later sold the sites to the homeowners.
Sunridge is a private offering with no public involvement. The developers will retain ownership of the land in perpetuity, Harris said.
Lease rates will be tied to inflation and homeowners will pay an additional $250 a month in homeowner fees to maintain the neighborhood’s private streets, pathways, dog park and pickleball court.
The annual property tax bill will be split, with homeowners responsible for the share associated for the buildings and the landlord responsible for the share associated with the site.
Jeff Losey, president of the Home Builders Association of Tri-Cities, said the approach has been used in other states. It could work in the Tri-Cities if it allows buyers get into the market.
That said, new home construction dropped 20% in 2022 as the Federal Reserve’s inflation-fighting interest rate hikes pushed the cost of a 30-year mortgage into the 7% range.
Losey predicts a “tumultus” year for home construction in 2023 as buyers and builders adapt to the changing cost of borrowing money.
He advises buyers looking at leased land properties to be certain they understand what they can and cannot do with their land.
Cooling market
The Tri-City Association of Realtors said there were 3,985 local home sales in 2022, with activity falling more in the higher price range.
Harris and Beauchamp, a Kennewick city councilman, began their project before the Federal reserve began raising interest rates to combat inflation. The housing market was strong, but he believes the approach will still work.
“If we were trying to sell $600,000 to $700,000 homes, I would be sweating bullets,” Harris said.
Homes priced at $350,000 or below remain in short supply, said David Retter, president and CEO of Sotheby’s International Realty | Retter & Company, which is marketing Sunridge on behalf of the development team.
In February, there were only 90 homes priced $350,000 or lower and they included a mix of manufactured homes, townhomes and aging single-family houses, he said. No new construction could touch that range.
Retter said his team, including agent Sally Jo Freund, is excited to test a new concept.
“This is the first of its kind with Tri-Cities,” Retter said.
Construction at Sunridge began with just eight houses. Harris said the team took a cautious approach as a nod to the cooling market. No one wants to get ahead of sales, even if they’re confident the project will do well.
They will be listed for sale once the street is paved and a home can be staged. Freund at rcsothebysrealty.com is the agent responsible for sales there.
Affordability crisis
Last year, the Building Industry Association of Washington issued a Housing Attainability report that highlights the economic danger of runaway construction costs.
New construction costs have dramatically outrun income across Washington state, including in the Tri-Cities.
Only one in five of the 88,000 Tri-Cities households earns the $132,000 required to finance a home valued at $570,000, the average cost of new construction, it said.
The local median income was $69,000. The spread was similar in communities across Washington.
Separately, the Washington Department of Commerce calculated that the state needs to build 1.1 million homes over the next two decades — and more than half must be affordable.
That means about 50,000 new units need to be built each year. The current average is 35,000.
Harris said Sunridge is stepping into the gap.
“There’s is a need and a shortage of homes, so we should do just fine.”
Affordability and Covid
Harris and Beauchamp have a long history of building apartments, manufactured home parks and rental communities. They typically hold onto their projects, operating them as rentals.
They turned away from manufactured housing parks, saying it was growing difficult to secure the approval from cities and neighbors to build them.
The COVID-19 pandemic made it worse, ginning up demand for manufactured homes from urban refugees. Orders backed up and prices doubled.
Harris said it used to take four weeks to get a home from a Hermiston manufacturer. Now, it takes 18 months and costs doubled. The team struggled to place orders.
“We were low on the list,” Harris said.
Harris and Beauchamp bought the 7.5-acre property in 2021 as North 44 Sunridge LLC and pondered how to approach developing it.
When they learned leased land buyers can finance homes through conventional mortgages backed by the Federal Housing Administration or FHA, they were sold.
Manufactured homes are financed with costly “chattle” mortgages with big down payments and interest rates.
FHA backed ones can be secured with lower down payments and interest rates, so long as the land lease exceeds the term of the mortgage.
“That changed everything for us,” Harris said.
This story was originally published March 12, 2023 at 5:00 AM.