The lack of affordable housing isn’t just a problem in high density cities like Portsmouth and Manchester or the in-demand suburbs of Bedford. Rural communities are also struggling and the crisis is only exacerbated as the costs to build housing and infrastructure is more expensive in rural NH. Existing housing infrastructure and rules are not built around affordability in rural communities.
It starts before builders have laid the foundation. Here’s what happens: Zoning regulations and lack of infrastructure like water and sewer make multi-family houses in rural areas more expensive. Developers can offset those costs with federal tax credits, but those often require projects with more units, which don’t always meet community needs or budgets, and funding is harder to get in rural areas.
When it comes to smaller starter homes, there is a more basic problem. In rural areas, building luxury homes are typically more appealing and lucrative for small construction businesses, says Harrison Kanzler, executive director of AHEAD (Affordable Housing, Education and Development), a nonprofit focused on creating affordable housing throughout Coös, northern Grafton, and Carrol counties.
“If I’ve got someone coming to me saying, ‘I want you to build this small starter home. It’s not being sold for that much and it’s going to cost you a decent amount to build it, and you’re going to need to do six or seven of these over the course of the summer, or you can do this one big home and take all summer long to do the project in your margin,’ what are you going to do?” Kanzler says.
To build a single-family home, housing developers must consider the cost of land as well as infrastructure, Kanzler says, adding that bringing contractors from out of town due to a lack of available workers can increase the project price. Covering the cost to build a 900- to 1,100-square-foot ranch, he says, will require the home to be sold for $450,000 to $500,000. “And that’s breaking even. We’re a nonprofit. So, if we wanted to make money, we’d have to mark it up from there,” he says. “But those prices are out of the grasp of most people and that’s especially true in rural areas like Coös.”
This results in housing prices that are too expensive for many rural residents, which is why inventory is low and demand is high even in rural communities. The median household income in Coös County is $58,439. Making purchasing or renting a home affordable would require mortgage or rent, along with utilities, to be no more than 30% of gross income, or about $1,450. Rentals with multiple bedrooms, or homes costing about $300,000 with a 20% down payment and a mortgage with 7% interest, would exceed that amount.
Mounting Challenges
In mid-December last year, the 90-day average number of active single-family listings in the state was 1,913, well below the 90-day average of 5,319 active listings recorded in December 2019. Low inventory has resulted in skyrocketing housing costs and a housing shortage of 23,500 units across the state with tens of thousands more needed by 2040, according to NH Housing’s 2023 Statewide Housing Needs Assessment.
The lack of housing inventory in Coös County, where home prices have increased 103% since the start of the pandemic, and in other rural areas, is due in part to people purchasing real estate to use as second homes or short-term rentals, says Kanzler.
To spur the creation of affordable workforce housing, NH has created programs like InvestNH, a $100 million investment to create more housing funded through the state’s allocation of American Rescue Plan Act State and Local Fiscal Recovery Funds. The federal Low Income Housing Tax Credit (LIHTC) program also helps to offset the costs of building affordable housing for many developers. (See sidebar on page 43.)
The problem is that these programs are not well adapted to rural areas. Tax credits don’t always apply equally to smaller projects in rural areas that need single family homes and housing units on a smaller scale, says Kanzler.
“Building affordable housing in rural areas of the state is tough and requires subsidies from multiple sources,” says Kanzler. At the state level, he explains, discussions often revolve around the creation of multi-family housing. “But in the North Country and other rural areas of the state, multi family has a different meaning. For a lot of our communities, adequate multi-family development might be four to eight units as opposed to 20 or 30 units. And historically the housing model for rural areas is homeownership, it’s single-family homes.”
When it comes to building affordable single family homes, the challenge is sometimes less about zoning regulations and more about available land ready to build on. “We don’t have the same density challenges as other places. We do have infrastructure issues, and we need housing models that work for our area,” he says. “Having space is why people come to these areas and now we’re seeing a fair amount of outflow to the south because the opportunity to own a home is becoming harder and harder for people to achieve.”
While NH nonprofits work with businesses and the state to address the housing crisis, the development process—from planning to completion—can take three to five years, Kanzler says. That’s time people looking for homes don’t always have, and this can mean lost job opportunities. “There’s clearly a problem here,” he says.
Building at a Loss
Ben Southworth, owner of Garland Mill, a design and build company in Lancaster, says he typically doesn’t build affordable housing projects. But when a 150-year-old building in Lancaster came up for sale last year, Southworth says Garland Mill bought it “with the intention of making a community impact by upping our game a little bit.”
The company, which Southworth took over from his father and uncle about 20 years ago, is celebrating its 40th anniversary this year. Over the past 20 years, Garland Mill, which employs 14 people, has done eight renovations on units that rent between 60% to 80% of the area
median income.
Southworth’s most recent project will be four one-bedroom apartments, which is a much bigger building than what they’ve worked on in the past, he says. “It’s not a lucrative thing but more mission oriented,” he says, adding the project was discussed with employees at the company’s annual meeting last year. “One thing everyone wrote down at the meeting was the need for more affordable housing. That was cool, but what that means is that we’ve spent a lot of time finding funds to do it and when we’re done, we’ll likely be underwater.”
Funding for the project came from a Coös Economic Development Corporation loan with the Woodsville Guaranty Savings Bank serving as the community lender. “We’re also investing money from our capital reserve fund, Lancaster’s business development fund is loaning money to the project, and I’m putting in personal money with other impact investors,” Southworth says. Other grants for the project include $22,000 from the USDA for solar panels, $79,000 from InvestNH for demolition, and $30,000 from AHEAD through the Tillotson fund for planning and design.
Even with all that investment, Southworth says the building will be worth less than the cost to build it—and that is typical. “It’s part of a systemic problem. Without significant subsidies, private capital is not incentivized to invest in affordable housing,” he says. “We’re looking at this as a long-term investment in ourselves and the community. The town of Lancaster, the CEDC [Coös Economic Development Corporation] and the state of New Hampshire have all chipped in and have been wonderful to work with. They can’t change the structural problem though. We either need real wages to go up or we need costs to come down significantly or be subsidized.”
Rich Lapalme and his wife, Amy, face a similar funding puzzle as they build rental housing in Colebrook. The couple also own an apartment building in Berlin. The couple is creating six rental units in a commercial space in Colebrook with the help of the Coös Economic Development Corporation and the Tri-County Community Action Program (Tri-County CAP). Lapalme says finding the resources to cover the costs of renovation as well as predevelopment costs, which include thousands of dollars in site assessments and other expenses, can be daunting. “I’m just a little guy. I’m not a large investor who can get financial help quickly,” he says. The couple is renovating one unit at a time to cover costs.
To pay his bills, Lapalme relies on a commitment from Tri-County CAP to supply tenants who are at risk of being homeless and seeking homes through the federal Section 8 vouchers. To qualify, applicants must have incomes below 50% of their area median income. “Using tax credits for a little guy like me is a lot of work. I go through the private sector and I also have Tri County CAP helping me by supplying my tenants,” Lapalme says. “Whether to develop more properties in the future comes down to financing. I would love to develop more, but I need to show the banks I can sustain these projects with rents.”
Lapalme’s Colebrook project started in 2024 with the help of Coös Economic Development Corporation (CEDC) and the Community Development Finance Authority’s Micro Assistance Program. The program provides business coaching and assistance with financing. The Lapalmes initially received a $10,000 down payment grant to purchase the $150,000 Williams building as well as an additional $4,500 for an environmental review and $50,000 in energy audits from the NH Saves Home Energy Assistance Program. The project was helped by the CEDC’s Affordable Workforce Housing Revolving Loan Fund, $250,000 from NH Housing, InvestNH, and the NH Tillotson fund, which supports communities in Coös County and other rural communities.
Partnering with banks to help fund projects at low interest rates is crucial, says CEDC interim director Lise Howson. “The revolving loan fund allows the developer to renovate older buildings that were empty or almost empty and they are being renovated for apartments,” she says. “And it’s allowing the developers like Rich to offer 100% affordable rents.”
Funding is also coming from donors. Ben Amsden, initiative leader for the NH Charitable Foundation, says he is seeing an uptick in donors interested in supporting housing initiatives.
“I would say most of the energy from our donor base is in wanting to understand the housing issue and learn where they can help. This isn’t the number one call we get but the tenor has shifted,” Amsden says.
A Pathway to Home Ownership
AHEAD’s home ownership division offers home-buyer education courses for a small fee and other free programs that help first time home buyers get into homes. “We’re trying to make sure our classes are filled with folks who are ready to buy a home,” Kanzler says. “The idea is for them to learn a bit more about the process, about how their credit impacts their mortgage. This is their first time buying a home and so often they don’t really know what happens if the boiler breaks. You don’t just call your landlord.”
Once people complete the course, they are eligible for free one-on-one counseling with AHEAD’s HUD-certified home ownership counselors and are qualified for down payment assistance. “It’s a pretty simple process,” says Kanzler. “It’s just making sure they make 120% of the area median income or less and have proof
of employment.”
The assistance provided through the program, which is supported by the Tillotson fund and $1 million in federal funding, provides a 5% down payment with a $15,000 cap in Coös County and a $20,000 cap in Grafton County, which roughly equates to the median sale price of homes in those counties. The program also works alongside NH Housing’s down payment assistance program as well as another program offered through the Federal Home Loan Bank of Boston. “One family who went through the program ended up getting a combined $48,000 on down payment assistance, which ended up being over 20% of a down payment for them,” Kanzler says. “With that down payment their mortgage is going to be less than their rent.”
Sonya Solanti, who manages the Tillotson Fund, which distributes more than $4 million annually to support economic development, education, and community safety programs in Coös County and the surrounding areas, says the program in Coös County is working. “I’m excited to see where it goes,” she says. “People have a hard time believing they’re getting free money.”
Solanti says the housing challenges in the North Country are mostly related to a lack of supply, which exacerbates workforce challenges. “The big issue with solving workforce challenges in the North Country in particular is there’s nowhere for people with medium to low incomes to live,” she says. “Wages haven’t kept up with inflation and some people may have a good income but no cushion. There’s no way to do housing without philanthropy as well as state and federal subsidies. That’s just a reality.”
The Struggle to Build
Affordable Housing
In the Lakes Region, zoning regulations and a lack of infrastructure, particularly water and sewer systems, make it costly to build multi-family buildings, says Carmen Lorentz, executive director for Lakes Region Community Developers, a nonprofit developer of affordable rental housing throughout the Lakes Region that owns and operates a $60 million real estate portfolio comprising 365 affordable apartments in Ashland, Gilford, Laconia, Meredith, Tilton, and Wolfeboro.
“Often the density table only allows two units per building, which can lead to the need for a variance,” Lorentz says, adding that navigating the land-use codes in these cases can be difficult for small towns. “Most of our towns up here don’t have a professional staff for land use functions, making it hard to move a big project forward even if it’s only for a 40-unit project, which is not big in the grand scheme.”
Cody Morrison, executive director of the Monadnock Economic Development Corporation in Cheshire County, says NH Housing is working with planning and zoning boards throughout the county to help educate them on land use regulations. “We had a housing navigator out here recently working with towns,” he says. “Important groups to engage with are the select boards and budget committees. They are the ones who will decide whether to expand public water systems and other infrastructure.”
For every project Lakes Region Community Developers builds, 60% to 70% of the funding comes from the federal Low-Income Housing tax credit program (LIHTC), which requires that a minimum number of rental units are occupied by tenants with low incomes. (See sidebar)
The point scoring system for LIHTC is highly competitive, especially for rural developers who find it hard to do high-unit projects, Lorentz says. “Our applications can be less competitive,” she says, explaining that the LIHTC application requires such amenities as walkability, transportation and infrastructure to be in place. “We’ve been able to make up for that by including supportive housing units, but one point can make a difference.”
In rural areas, Lorentz says, developers often receive lower prices for their tax credits than in urban areas where there are multi-state or national banks. On a recent project, LRDC received 83 cents on the dollar from tax credits, which create equity in a project. In a more competitive urban market, an investor seeking to buy those credits may have offered 85 cents on the dollar, Lorentz says, which can make thousands more dollars available for a project.
To illustrate how this works, for the Ames Brook Apartments, a 40-unit apartment complex located on Ledgewood Lane in Ashland, LRDC was awarded $552,835 in tax credits to sell. “In the case of Ames Brook, we got 86 cents on the dollar. This means that our award of $552,835 in LIHTCs yielded us $4.75 million in equity that we used to pay for most of the
renovation costs.”
In urban markets with higher rents and property values, there is more incentive for investors to take a risk and purchase tax credits at a higher cost, Lorentz says. Even though tax credits sell for less in rural areas, they are still essential for funding affordable housing projects. “We’re a largely tourism-based economy and there are a lot of single-parent households. We typically see people with a $35,000 per year income and we can’t charge enough rent to support a lot of debt on that property, which makes tax credit equity important.”
Funding gaps can also stop housing projects from being completed, says Lorentz. She describes a project for 20 single-family homes in Wolfeboro that has been ongoing since 2018. “When we went out to bid, the cost was $450,000 per house but the market could only bear $250,000. We pivoted to a rental project on the same site with subsidies from NH Housing and when the bids came in, we were still 20% over budget. You think you have enough money and then bids come in high. It’s a maddening cycle,” she says.
Morrison of Monadnock Economic Development Corporation says similar housing challenges exist between Sullivan, Grafton, Coös, Cheshire and other rural areas across the state. Building the infrastructure needed to attract and create new development requires regulatory reform, he says. “If the infrastructure is not there for new developments they can’t happen,” he says, citing the potential for the development of over 600 developable acres of land in Hinsdale off Interstate 91 in the southwest corner of the state that is being slowed by inadequate electrical and water treatment systems.
“This would be an ideal location to build affordable housing,” Morrison says. “The problem is funding for infrastructure. If the town is ever able to partner with a developer, there will be a gold rush to Hinsdale.”
Monadnock Economic Development Corporation has started a housing development fund that can provide flexible capital to developers, Morrison says, adding it would help if banks were willing to take more risks. “Developers are going to the banking community and finding some support, but it’s the degree to which they are involved.”
In late January, the NH Senate Ways and Means Committee voted unanimously in favor of a new legislative proposal to ease the housing crisis by expanding available resources in a community development program. The program which awards approximately $5 million in tax credits annually in a competitive grant round, is administered by the NH Community Development Finance Authority.
Businesses with NH tax liability can support projects by purchasing the credits, resulting in the nonprofit receiving a donation and the company receiving a 75% state tax credit against that contribution that can be applied against the Business Profits Tax, Business Enterprise Tax or Insurance Premium Tax or charitable contribution.
Senate Bill 158 would raise the state investment tax credit cap from $5 million annually to $10 million effective July 1, which Kanzler says would add more available money to revitalize the North Country’s downtowns and allow local employers to support more housing projects. “We have to navigate a complex landscape of funding sources and regulatory barriers to develop the housing our communities need,” he says. “CDFA’s Tax Credit Program is easy-to-use, deeply impactful for the North Country and a phenomenal asset to the State of
New Hampshire.”
At a Senate Ways and Means Committee meeting in late January, Eric Chinburg, president of Chinburg Properties, spoke of his 30-plus years redeveloping old mills and other buildings and offered examples of properties that will remain vacant or under-utilized if additional incentives aren’t available.
After seeing the difference he has made in people’s lives, Lapalme says he’s not giving up when it comes to future projects. “I’m not one to take no for an answer,” he says. “I’ll keep digging.”
