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Business/Economy

In Anchorage, a growing demand for urban living, but builders aren't building

A cluster of overgrown vacant lots on an unremarkable section of C Street near downtown Anchorage seems ripe for residential development. Surrounded by modest townhouses and an apartment complex, the properties sit directly across the street from two schools and aren't far from the trail system.

Weidner Apartment Homes, Alaska's largest private residential landlord, bought the lots nearly five years ago but, despite high demand for rental housing in the city, has yet to break ground. Called City View II, the proposed development illustrates the difficulties of expanding Anchorage's tight housing supply.

The company's vision for what would be the biggest and tallest building on the block is not shared by local residents, who complain that thickening traffic, crowded street parking, obstructed views, intercepted sunlight and poor aesthetics will mar their quiet neighborhood. The South Addition Community Council has passed at least two resolutions opposing the project.

Aside from the neighbors' concerns, Weidner asserts that certain municipal land use regulations could make City View II and other higher-density projects financially unfeasible in a place where building costs tend to exceed those in much of the United States by a significant margin.

Projects such as City View II pose a dilemma for city leaders worried about a growing population and a shrinking stock of land that can be easily developed.

On one hand, they want to encourage the spread of taller, urban-style units rather than the sprawl of single-family and modestly sized multifamily complexes typically found here.

But where those projects will go and what they will look like can't always be easily resolved.

Tight market doesn't spur building

High rents and low vacancy rates are signs of strong housing demand. Anchorage has both.

In 2014 the median rent was $1,178, utilities included, according to a report by the Alaska Housing Finance Corp. That's compared to the median rent nationwide of $904, also with utilities, reported by the U.S. Census Bureau in 2013, the most recent year available.

Landlords in Anchorage can charge more, in part, because not many units go unoccupied. The city's vacancy rate in 2014 was 3.2 percent, well below the national average of 7.6 percent reported by the U.S. Census Bureau.

And yet, heavy demand for rental housing is not enough to trigger a boom in residential construction for the simple reason that builders don't think they could make adequate returns on their investments.

They point to the cost of construction in Anchorage, which is already 37 percent higher than the nation's average in part because of the short construction season and high costs of labor and bringing materials into the state, according to a 2012 report commissioned by the city and produced by the McDowell Group, a consulting firm in Anchorage.

As a result, the rents developers say they would have to charge to make an acceptable profit far exceed what most prospective tenants would be willing to pay. A similar quandary often appears in the health care market, where demand for a drug may be high, but few patients can afford to pay for it.

The need for solid returns has translated into a focus on more upscale housing, rather than the reasonably priced, higher-density rental units that would take pressure off the bulk of the market.

Much of the new residential construction in Anchorage targets people in the market for homes costing $400,000 or more, said Jeff Judd, executive vice president for real estate at Cook Inlet Housing Authority, a provider of low-income housing.

One example is the neighborhood atop a former gravel pit near Kincaid Park, where the streets are named for national parks. Houses there, nearly all built within the last decade, typically list for $400,000 to $600,000, according to the real estate website Zillow.

Is downtown living unattainable?

Downtown is the city's most desirable neighborhood, according to a survey by the Anchorage Economic Development Corporation.

The 200-member organization of companies large and small supports denser residential projects in and around downtown that will attract millennial-aged workers who value the opportunity for short or car-free commutes and easy access on foot or by bike to trails, restaurants and entertainment.

"We have a very young workforce and want to make sure we're taking care of them, to retain them and give them the quality of life we expect as Alaskans," Leah Boltz, marketing director at the architectural firm Bettisworth North, told a Chamber of Commerce audience in April.

But the outlook on the affordability of downtown rents for people early in their careers does not seem promising. Jonathan Rubini, chairman and CEO of JL Properties, said downtown is a particularly expensive place to build because the soil is unstable and there is little land available to store construction equipment for large projects.

Fight over regulations drags on

Builders have long complained the municipality's land use regulations also hamper growth in the housing stock, both downtown and beyond. They argue that a recent rewrite of those regulations added unnecessary costs to projects and made an already complex code even more baffling.

Weidner spokesman Greg Cerbana blamed the regulations, known collectively as Title 21, for the company's decision to set aside a project that would have added 250 units and some commercial space to its Country Lane Apartment Homes. The 54 aging rental units, described by the company as "vintage," sit just north of Tudor Road on the Old Seward Highway.

"The parking requirements, who's bringing water, who's bringing sewer. When you add up all those costs and you look at the size of the building, what kind of rents would you need to justify all that spending?" Cerbana said. "It's not just the concrete, steel and rebar. We have to factor in all these other costs."

But some residents who are heavily involved in the debate over building standards say the codes are vital to protecting neighborhoods from poor construction choices by developers whose top priority is the bottom line.

Cheryl Richardson, director of the Anchorage Citizens Coalition, said she supports the city's push for higher-density, more pedestrian-friendly neighborhoods, but believes developers should concentrate first on putting higher-density housing into commercial districts.

"It's very desirable to build more residential in the downtown core," Richardson said. "And neighbors tend not to complain about building high-rise apartments in high-rise commercial districts."

But construction in the heart of downtown is not without conflict. A proposal to turn the unused 4th Avenue Theatre and surrounding properties into a mixed-use complex of stores, office space and, possibly, residential units attracted opposition from people who would like to see the historic landmark preserved or restored.

Weidner is awaiting a rezoning approval from the municipality for City View II that would allow it to put in a leasing office and build more densely than the current zoning designation allows, Cerbana said. The company plans to break ground in 2016.

He said the company has made some changes to the building design in deference to the concerns of the community.

"We're sensitive to what our next-door neighbors are concerned about," Cerbana said. "It's important for us to maintain the best relationships we can."

Weidner Apartment Homes, based in Kirkland, Washington, owns 5,100 rental units on 42 properties in Alaska, about 95 percent of them in Anchorage. The company, which dwarfs other rental property owners by comparison, regularly engages in building-policy debates at the municipal and state levels. Cerbana, who frequently travels to Alaska on behalf of the company from his home in the Lower 48, is on Mayor-elect Ethan Berkowitz's transition team and the board of directors at the Anchorage Economic Development Corporation.

He emphasized that Weidner has many opportunities to invest outside Alaska. The company owns close to 38,300 units in eight other states and Canada and was the 30th largest apartment owner in the U.S. in 2014, according to the National Multifamily Housing Council.

"Anchorage's competition is the rest of the U.S. and Canada," Cerbana told the Anchorage Assembly at a meeting in April. "Your challenge is to create the environment where the free market will invest in Anchorage."

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