Housing demand - Rental graphic

According to a study done by by MSA Professionals Inc., the City of Sheboygan needs between 401 and 1,023 units by 2030.

SHEBOYGAN — Currently the City of Sheboygan sits at about 8,000 rental units, but it's still not enough to tackle the city's affordable housing shortage.

With a very narrow vacancy rate, a large rental unit mismatch in the city and sky-high development costs, the city is now having to explore some more unique options to solve the problem within the rental market.

"Even though we keep hearing we've overbuilt apartments and housing, we're nowhere near where we need to be," said Chad Pelishek, Director of Planning and Development for the city.

Existing market

According to the study completed by MSA Professional Services, Inc., 39% of the city's housing stock consists of rental units varying from single-family homes and duplexes to large complexes and everything in between. About 48% of those are single-family homes or duplexes while about 31% are buildings with 10+ units.

Since 2015, the city has focused its housing efforts on the rental market, developing nearly 950 units totaling over $161 million in value between affordable units, market-rate units and condominiums. However, according to Pelishek, the majority of these complexes are already at capacity or nearing it.

The breakdown of those 950 units are:

  • Affordable units — 401 units
  • Market rate units — 495 units
  • Condos — 53 units

Badger State Lofts, Washington School Apartments and The Oscar are the city's most affordable recent builds under the state Housing Tax Credits program, meaning rents are determined on a sliding scale based on income. The remainder of the complexes are offered at what the city is calling market rate.

 Rental units constructed since 2015
Project Year built Units Pricing Percent occupied 
Washington School Apartments 2017 43 About $805 100% 
Badger State Lofts 2020 118 About $895 60% 
The Oscar 2021 240 About $990Under construction 
Encore Apartments 2017 81 About $1,255 100% 
Meadowland Apartments 2016 88 About $1,339 100% 
High Pointe Apartments 2018 91 About $1,350 100% 
The Luxe Apartments 2019 48 About $1,525 90% 
Portscape Apartments 2017 88 About $1,570 100% 
Kingsbury Village 2020 33 About $1,590 70% 
7Penn Apartments 2019 66 About $1,600 100% 

"The majority of the apartments, I would say are probably 50/50 young professionals to empty nesters," Pelishek explained in Monday's Council of the Whole meeting discussing the study. 

Despite these prices, the MSA study found the median rent in Sheboygan comes to just $670 per month because of the city's high stock of single-family homes and duplexes for rent. However, this also means a large majority of the city's lower-budgeted rental units are older—and are filled or filling up.

The MSA study found that Sheboygan's rental vacancy as of December 2020 sits at just 3.3% when the desirable rate is between 5-7%. That number is alarming to the county's major employers including Kohler, Johnsonville and the like, Mayor Ryan Sorenson said he's finding when talking with them.

"What we're hearing from a lot of these business owners is that they want to grow and expand, they want to stay in this community but they're not able to grow if we're not able to grow our housing stock and diversify our housing stock," he explained. "There are companies that say they want to add 100 employees, and that's basically a target number of how many more housing units that need to develop in this community to be successful. But also, people would be relocating and possibly starting a family here, so we're not just talking about one person per job that's coming here, we're talking about maybe four or five."

Another issue the city is facing when it comes to rental unit stock is a rental market mismatch. The MSA study found that many households are "renting down," meaning those who can afford higher monthly rents are selecting more affordable units, displacing households that can only afford lower or market-level prices. This helps to explain the city's focus on more market-rate developments since 2015.

The study found that in the city, 13% of households making above 80% of the annual median income (AMI) are renting units affordable to those making 30% AMI. Meanwhile, 32% of households earning less than 30% AMI are renting units affordable to those making over 80% AMI.

Development

Exactly how many units would be needed to get Sheboygan up to the healthy 5-7% vacancy rate? According to the MSA study, that means developing between 401 units to 1,023 units in the next 10 years.

According to the Housing Choice Voucher Program and Section 8 Federally Funded housing programs, fair market rate (AKA "affordable") is identified as $769 for a two-bedroom unit in 2021. So, based on the Section 8 guidelines, about 50% of the rental units available in the City of Sheboygan are considered "affordable."

What city officials are hearing, however, is the desire for units within the $400-$600 range.

"When we hear from people that we need more units in the $400 to $500 range, the challenge is with current construction cost," Pelishek explained. "When we're looking in the $400 to $500 range, we're looking at rents that were in that range in 1993, which is 30 years ago. When you say we need those low rates, those rent rates are quite dated."

According to the MSA study, it costs developers $130,000 in land and construction for a typical one-bedroom rental unit, making for a $1,300 breakeven monthly rent. For the city, this means if these developments cannot be subsidized to provide lower rents, developers will be more likely to want to offer housing with higher price points to breakeven on the project to avoid losing money.

What's next?

In order to meet these affordable housing demands, the city is exploring ways to subsidize these construction costs to bring rents down for constituents. At the Council of the Whole meeting on May 3, Pelishek shared the city has been working with other cities and studying them to see how they've handled housing deficits.

Options on the table for the city currently include applying for additional federal funds, which can be very competitive, creating a revitalization fund, utilizing Tax Incremental Financing (TIFs) or providing land incentive by offering it at a lower price.

City officials are also discussing the idea of forming a separate housing committee or partnering with an existing Sheboygan Housing Coalition to closely oversee and monitor the city's plans, which are projected for the next 10 years. 

"We need to, as a community, look at the development of apartments and housing just like we do manufacturing," explained City Administrator Todd Wolf. "When the city looks at development, we look at it as a tax base bringing in revenue to the community. We look at manufacturing the same way, but we also look at manufacturing as something that's going to bring in revenue through different sources of income. It's also going to bring employees to the community that are going to buy homes if they have them and rent apartments if we have them, they're also going to go the shops and spend money throughout the community.

"The problem is, we talk about what comes first, the chicken or the egg?" Wolf added. "We already have the actual businesses that continue to complain we don't have employees. Now we're continuing to talk about housing and we need more of it. I get it that some people don't realize we are actually doing what we said we were going to do from 2008, and we're doing a good job of it, but with the economy the way it is, even before the pandemic, we need to look at, in my recommendation, development like we do but in regards to actual housing."

Additionally, Wolf said the city needs those big employers to come to the table to help with the issue. One idea was to have the employers contribute to a type of housing fund to assist with the development costs and subsidies needed similar to the program in Dane County.

The next steps for Sorenson, Pelishek and Wolf will be taking these ideas to the other major stakeholders not only in the City of Sheboygan but throughout Sheboygan County to see financially which plans make the most sense for the city to surge forward to subsidize these new units.

Stay tuned in the coming weeks for follow-up stories on the ownership market, senior housing and more coverage!

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