The last five years have seen relatively steady numbers of new housing permits issued in Connecticut — hovering between about 5,000 and 6,500 each year — but experts say this is only a fraction of what’s needed to meet the growing need.
As of October, towns had reported 4,575 permits for new units of housing in Connecticut. Rocky Hill, Stamford, New Haven and Bethel reported some of the highest numbers of new units, according to data from the state Department of Economic and Community Development.
Still, officials and experts say there’s more housing needed across the market, especially in buildings that can be home to up to four families and lower-cost starter homes. During the last legislative session, lawmakers passed a bonding package that included about $1 billion toward housing, and some of those programs are in the process of rolling out.
The issue in Connecticut’s housing market boils down to pressure.
The lack of houses available — including starter homes — puts pressure on the real estate market. When those who can’t find a home to buy have to stay in rental housing, it puts pressure on the rental market. And a lack of available rental units means that those who have the least are the most likely to get pushed out of their homes and into homelessness, in turn putting pressure on the shelter system.
“We are looking at three things: keep up with the production, preservation, then diversity,” said Seila Mosquera-Bruno, the state’s Department of Housing commissioner. “We want to be sure that people have access to a diverse type of housing.”
While the numbers have held steady for the past few years, they’re far from earlier peaks in the number of new permits that Connecticut saw in the 1990s and early 2000s.
“In the grand scheme of things, are we building as robustly as we can be now?,” said Jim Perras, chief executive officer of the Home Builders and Remodelers Association. “If you’re looking short term, that number looks good. If you’re looking at the historical data over 20 years, the numbers tell a different story.”
Residential construction in Connecticut didn’t bounce back completely after the 2008 housing crisis, experts said. And now the state faces a shortage of construction workers as well as rising costs of land and materials.
Many construction projects are also slowed or halted by what experts say are restrictive local zoning ordinances. These types of zoning ordinances have been a politically contentious issue for many years in Connecticut.
State and local leaders across the country are in the midst of heated debates about the best ways to increase housing stock as rising rents push many out of their homes.
No state has enough housing that’s affordable and available to meet the needs of the lowest-income renters, according to research from the National Low Income Housing Coalition. Housing is typically considered affordable if a person is spending about a third of their income on housing costs.
Estimates on the number of units Connecticut needs vary. A new analysis from the Connecticut Housing Finance Authority found that the state lacks about 92,500 units that are affordable and available to its lowest income renters.
The report also found that many homeowners are paying too much in housing costs because higher-income households are living in homes that would be affordable to people with middle or lower incomes.
The pressure in the system has grown and is stretching into burdens on middle-income families as rent costs grow, said Renée Dobos, chief executive officer of Connecticut Housing Partners.
“What’s happening is, we always traditionally thought that 60% and below AMI [area median income] are really the ones who are impacted by the lack of affordable housing,” she said. “It’s creeping up into the middle class now. It’s really becoming a problem.”
Permitting data
Multi-family housing made up a higher percentage of the new permits issued this year than in past years, which reflects market demands, Perras said.
About 65% of new housing permits were for multi-family housing this year, Perras said.
Municipalities report their permitting data to the state. While experts say most issued permits most likely mean a unit gets built, a permit is not a guarantee. And not all municipalities report monthly data.
The towns with the highest numbers of new housing permits are mostly concentrated in the center of the state near Hartford, and along the shoreline from New Haven to Greenwich.
The Department of Housing is involved with funding just over 4,100 units of housing that are under construction. Under Gov. Ned Lamont’s administration, they’ve completed more than 10,000 and hope to help finance 6,000 over the next year, said Michael Santoro, director of policy, research and housing support for the Connecticut Department of Housing.
A project getting started with financing doesn’t mean it’s going to be completed within a calendar year.
“The only thing that’s going to slow us down is going to be the weather,” Santoro said. Building these units and getting financing takes time, he said.
The department also spends between $20 million and $30 million each year on preserving and rehabilitating existing housing, he added.
“It runs the gamut,” he said. “We are not limited in what we do, we are not… we don’t get stuck in a hole.”
The Connecticut Housing Finance Authority is a quasi-public agency that administers the Low Income Housing Tax Credit and State Housing Tax Credit Contribution programs for Connecticut. These projects also include income-restricted units.
A couple of years ago, the agency launched a 9% tax credit program and reworked the application process for developers to encourage more development in underserved areas. Developers typically pair several programs, including tax credits, loans and grants to build a project, said Nandini Natarajan, chief executive officer of the finance authority.
In some cases, it’s getting harder for developers to get loans, she said. Banks tend to be more cautious about loans because of high interest rates. Costs of building are also higher than pre-pandemic, she said.
“Because these were meant to incentivize market-rate developers to include middle income units, we are working with the banks,” Natarajan said. “They have gone through a significant crunch in terms of their ability to lend. Banks are viewing the current uncertainty about rates a little bit unfavorably.”
The state legislature approved a two-year bonding package that included $200 million for a flexible housing fund and $400 million for the Housing Trust Fund. The governor has encouraged “workforce housing,” meaning housing that’s typically affordable to people with hourly wage jobs such as restaurant workers or bus drivers.
Natarajan said the finance authority has had a lot of interest in these loans and hopes to have the first one approved before the end of the year. Five or six more are in the works for early 2024 through the program called Build for Connecticut, she added.
The legislature also added bonding funds to a program called Time To Own that offers mortgage assistance for existing housing.
Time to Own doesn’t support new construction, but Natarajan said the state’s finance authority and other housing experts are examining ways to build more low-cost starter homes. That would be in addition to existing work to encourage more multi-family development.
Starter homes
Connecticut, like many other states in the country, has a shortage of starter homes. This means that first-time homebuyers who are looking for smaller and less expensive homes to buy are staying in the rental market longer.
Overall, inventory of houses and condominiums for sale has been down significantly for months. Real estate agents say it’s because high interest rates mean people aren’t willing to sell and risk paying more for their new mortgage.
The Federal Reserve has indicated that it intends to cut rates in 2024, after months of increases to combat inflation.
The other problem is that starter homes have gotten more expensive to build, Perras said.
That problem has existed in Connecticut for several years, Natarajan said. The finance authority and the state have programs in place to renovate and repair some older homes, but it’s not enough, she said.
“Unless it’s being highly subsidized, I would say virtually none is being built at this time that you or I would consider a starter,” Perras said.
Natarajan added that the finance authority is looking at solutions used in other states, including in Ohio, which just created a new tax incentive to create lower-cost homeownership opportunities.
The lack of starter homes is putting additional stress on an already strained rental market, experts said.
Zoning
Lack of starter homes and growing costs of building are problems across the U.S. Millions across the country are paying more than a third of their income toward housing costs, research shows.
The state needs more multi-family construction, particularly housing that’s set aside for people with low incomes, said Sean Ghio, policy director at the Partnership for Strong Communities.
“If the goal is to sort of mitigate the pain that renters are feeling, construction is necessary,” Ghio said. “It just takes a long time.”
Ghio is among those who have advocated for statewide zoning reform. During the last legislative session, lawmakers considered two general types of reforms: transit-oriented development and fair share.
Transit-oriented development is a land use concept that encourages more density near public transit such as train and bus stations. The idea is to build communities where people can walk to businesses, live and easily access public transportation. It’s growing in popularity in several states and other countries.
Fair share is a regional approach to the state’s housing need that would assess need on a regional basis, then divide that need up among towns. Each town would be responsible for building a set number of units of housing. The model has been used in New Jersey.
Connecticut lawmakers have said that they’re interested in re-examining transit-oriented development proposals next session, but that another look at fair share will likely wait until 2025.
Republicans and some Democrats have opposed statewide zoning reform proposals saying that they won’t work in every town, that they take away local control and that some towns don’t have capacity for services such as sewage to take in more people.
Perras said local zoning can drive up costs for developers.
“There’s no secret there, that restrictive zoning really artificially inflates the cost of land,” he said. “The more municipalities make it difficult for builders and developers to purchase developable lots, obviously the more expensive land gets.”
Missing middle
Most of the multi-family housing that does get built are larger developments, Perras said, adding that the state sees little of what he refers to as “light touch density,” or two to four-family homes.
Vermont recently underwent zoning reform that allows those types of homes as of right in areas with sewer and water service, without developers needing to go through any special permitting process, he said.
The concept is also known as the “missing middle,” said Melissa Kaplan-Macey, chief initiative officer at the Center for Housing Opportunity.
“It’s creating more housing opportunities in the context of single-family neighborhoods,” Kaplan-Macey said. “ … It is really this missing piece that’s not present in single-family neighborhoods. There’s this gap there in terms of the type of housing that meets a need.”
This type of housing might be more agreeable to people who don’t want to see substantial changes in their neighborhood such as large developments, she added. She also said she hopes more people will build accessory dwelling units — a second housing unit on a single-family lot.
In 2021, Connecticut passed legislation that towns could opt out of that required them to allow accessory dwelling units. While more than two-thirds of towns opted out, many passed their own set of regulations for the units that at least partially satisfied state requirements.
“Everyone should be able to have affordability and should have a home, bottom line,” Kaplan-Macy said. “We don’t have that right now. We have these giant gaps.”
Ghio said that while long-term solutions need to include more construction to meet the growing need, government officials, in the meantime, should consider additional rental subsidies or housing vouchers for people with low incomes.
“When we’re not building a lot of homes, and there’s a high interest rate environment where there’s like very few homes on the market, all of that serves to put increasing pressure on the rental market,” Ghio said. “This dynamic can mean that some of our poorest families … can be in vulnerable places where they’re getting evicted for no reason, seeing these incredible rent increases.”