Potential new construction of multi-family residences in McMinn County is facing certain conditions, according to a study.
Several of McMinn County’s governing bodies funded a recently-completed housing needs assessment, which was conducted by Hodges & Pratt Co. — a Knoxville-based real estate appraisal and consulting firm.
The McMinn County Economic Development Authority’s (MCEDA) Housing Task Force was formed to develop recommendations to help expand McMinn County’s current housing stock. The study will help inform these recommendations, as well as provide detailed analytics for use by potential property developers.
Appraiser Nelson Pratt reviewed the study at a recent MCEDA Board of Directors meeting attended by a cross-section of community leaders.
The study identified that McMinn County has a limited supply of new multi-family dwellings, as well as a 98% occupancy rate and below average rental rates.
Pratt called the high occupancy rate “a very good indication for the market. … Anything in excess of 95% would indicate there is pent up demand without even creating new household formation.”
Below average rental rates are largely due to the age of the county’s existing rental properties, according to Pratt.
“Most of it has been in place for a while and doesn’t have a lot of amenities and finishes are not up to par on what you’d see for new construction assets,” he said.
The challenges facing the county, according to the study, include the rents required for new construction, low to moderate household growth, and its proximity to other markets.
Pratt described the rents required to justify new construction as “one of the biggest barriers to entry for new construction.”
In the last decade, Pratt’s firm has been contacted by several developers to do market studies of Athens.
“The conclusion at the end of each one of those conversations was we’ve got to get $1,000 or $1,200 — whatever the number is based on what they’re going to build — to justify the construction,” he said. “If you can’t get that number, that’s the reason you’re not seeing any new product being delivered in this market and many other markets, particularly as construction costs have risen so much in the last few years.”
A sampling of four of McMinn County’s multi-family complexes revealed monthly rental rates between $511 and $641. According to Pratt, the desired range for new development is closer to $1,000 per month.
Pratt called McMinn County’s proximity to other markets “maybe one of the best attributes of this market (and) maybe one of its biggest challenges, as well.”
McMinn County’s location between major metropolitan areas along Interstate 75, as well as its job growth, may ultimately be a catalyst for capturing new growth in multi-family residences, according to Pratt. However, he added, the county’s proximity to other markets may also lead to more commuters entering the county for work, but not seeking permanent residency.
“If there is perceived to be higher quality housing options, schools and so forth (elsewhere), the commute time is not so significant to this area,” explained Pratt.
According to the 2015 Census, more than 50% of McMinn County employees live outside the county. A survey of 3,996 employees at six of the county’s largest employers showed 43.9% of those employees live outside the county and just 13.8% are renters.
Based on current trends, Pratt said this market could support between 175 and 225 conventional multi-family units over three to five years.
“That’s what the demand would say on the existing fundamentals of the market,” he said. When taking into account upward trending in the job market and potential incentives for developers, such as tax breaks and public land contribution, Pratt suggested the number of multi-family units this market could support may grow to between 300 and 350.
The study also concluded that this market could likely support between 200 and 250 affordable tax-credit units.