Asheville rescinds $1.2 million affordable housing loan as developer makes Airbnb pivot

ASHEVILLE - A $1.2 million Housing Trust Fund loan for a West Asheville affordable home development was rescinded Feb. 13 by Asheville City Council after the developer, Ground Floor Properties, scrapped the previously approved affordable housing plan.

Now, Aaron Palmer from Ground Floor Properties said the goal is to "still make it affordable" for homeowners, though with a different approach — by including homestay units in the homes.

Homestay units are overnight dwelling units where property owners are present as short-term guests stay overnight. The units are often listed on rental websites like Airbnb or Vrbo.

"We wanted to try to find a way that someone can still move into the house and have a way to supplement their mortgage income," Palmer said. "We really latched onto the homestay guidelines."

Homestay units are allowed under Asheville's short-term rental ordinance, which bans whole-home short-term vacation rentals in all areas but zoned resort districts.

By leveraging Asheville's tourist economy, Palmer is hoping prospective homebuyers would be able to use the homestay units as income toward their mortgage.

For the 2022-2023 fiscal year, short-term rentals, which make up nearly half of the yearly lodging demand for the region, had an average daily rate of $115 a night, according to AirDNA data reported by the Buncombe County Tourism Development Authority.

With AirDNA reporting an occupancy rate of 59.7% for last year — roughly 217 days — the "average Airbnb" for the region made $24,955.

Two homes are currently under construction, with one hitting the market soon, Palmer said. Owners would be able to rent out the top or bottom unit of their home — both full apartment units — to substitute income.

"We feel like that would give someone the opportunity to come in and supplement their mortgage income, still make it maybe affordable for them, and still allow them to find a house in Asheville," Palmer said.

Project financing challenges forced pivot

Approved for a $1.2 million Housing Trust Fund loan in 2020, the development at 101 Arline Henry Way would've brought 12 condos to West Asheville.

The condos would've been for sale, where Palmer said one-bedroom units would've sold for $199,000 and two-bedroom units for $239,000 during a 2020 city council meeting on the development. The sales prices fell in the range of those earning 80% of the area median income, Palmer said.

In 2023, the area median income for a two-person family was $54,400, according to the U.S. Department of Housing and Urban Development.

Since the 2020 approval, a lot has changed.

Construction costs have increased, along with changes in the housing market, Palmer said. Since 2020, Asheville's median home sale price has increased from $355,000 to $485,000 — a 36% increase in just a few years.

"The construction costs are definitely higher, which makes building houses affordably problematic," Palmer said. "Main costs are so high, too, for anything new. Those two combinations really are a challenge."

At the same time, rent has rapidly increased in the region, where fair market rent for the region is currently $1,448 — increasing 78% since 2019.

Ground Floor Properties amended some elements of the project in 2021, shrinking the project size to eight small footprint homes ranging from 800 to 1000 square-feet.

Yet, the construction costs still would have left the company with nothing in terms of financing, Palmer said.

Where do affordable housing loans go?

No fiscal impact will be had on the city, where the money will be again available for investment into affordable housing projects, according to a presentation given during the Feb. 12 city of Asheville Housing and Community Development Committee meeting.

The Housing Trust Fund was established by the city of Asheville in 2000 to help fund "approximately 1300" affordable units in the area, according to the city of Asheville website.

During the Asheville Housing and Community Development Committee meeting, a presentation on rescinding loan was given to city council members.

Council Member Sage Turner noted some have expressed struggles to find financing for projects.

"From the environment we are hearing, it's hard to get financing on some of these larger projects," Turner said of affordable housing projects during the meeting.

Yet, the project's pivot may demonstrate another aspect of the market: the types of affordable housing that are able to find financing.

"I think affordable homeownership is much harder than rental," said city of Asheville Affordable Housing Officer Sasha Vrtunski during the meeting. "I think that's actually the hardest piece of this."

Affordable homeownership approved: Asheville affordable housing development approved by planning board; 75% to be affordable

Recent Airbnb coverage: Illegal Downtown Asheville Airbnb report took years, Citizen Times article, to see change

Will Hofmann is the Growth and Development Reporter for the Asheville Citizen Times, part of the USA Today Network. Got a tip? Email him at WHofmann@citizentimes.com. Please help support this type of journalism with a subscription to the Citizen Times.

This article originally appeared on Asheville Citizen Times: West Asheville affordable home project falls through; pivots to Airbnb