Feeling the Crunch

Some warn situation will renew bid to move capital

Posted: Sunday, July 10, 2005

Mary Sabon has abandoned her dream of buying a house in Alaska's most expensive city.

She drives a cab 10 hours a day and has lived in a two-bedroom trailer with her boyfriend and their 13-year-old son since 1989. A friend who lost his house in a fire stays in his car in her driveway.

"A bigger trailer is more realistic," Sabon, 52, said.

For many in Juneau, covering rent is tough and owning a home is almost impossible with just one income. Housing costs are higher in Juneau than in any other major city in Alaska.

People sometimes juggle two jobs to pay for rent or mortgages. Businesses have trouble retaining employees. Young people are leaving town. Some even warn that state legislators could use Juneau's housing shortage as an excuse to move the capital.

"Housing is a perennial problem in Juneau," Juneau Mayor Bruce Botelho said. "It is exacerbated by dramatic increases of property values, making most housing out of reach."

In the second half of 2004, the average rent for a two-bedroom apartment was $1,021 in Juneau - $100 more in than Ketchikan and $166 more than in Anchorage, according to a 2005 report by the Alaska Department of Labor and Workforce Development.

During the same time, the average single-family home cost $266,000 in Juneau, nearly $4,000 more than the state average.

Since then, the average cost of a home in Juneau has climbed to $310,000 and property values are swelling by 1 percent a month, Juneau City Assessor Jim Canary said.

Skyrocketing prices have made Juneau the most expensive city in the Pacific Northwest. Even Seattle lags behind Alaska's capital, according to a study by the American Chamber of Commerce Researchers Association, which surveyed 400 American cities in 2004.

But Juneau's salaries don't grow as fast as the cost of living.

The average annual salary in Juneau is $35,944, lower than the state average of $38,621 and Anchorage's $41,541, according to the Labor Department.

"The problem is that we don't have enough people making enough money," said Dan Austin, general manger of St. Vincent de Paul Family Center. The center houses displaced families with children.

Juneau's vacancy rate in 2004 was 2.31 percent, well below the 5 percent considered healthy by the Alaska Housing Finance Corp. Juneau also had the lowest rental vacancy rate in Alaska even with a population loss in 2004.

Houses often are sold in just one day.

While demand is driving prices up, new housing is limited by Juneau's lack of buildable land, high construction costs and complicated government regulations.

Economic threat

The shortage of affordable housing can hamper Juneau's economic growth, according to the Juneau Economic Development Council.

Businesses have difficulty recruiting employees. Entrepreneurs face the challenges of providing shelter for a family as well as starting a business.

JEDC predicts that Juneau's economic well-being will be threatened if it keeps losing residents between 20 and 35.

"This important age group typically adds vitality to a community's entrepreneurial and civic life," said Lance Miller, executive director of the Juneau Economic Development Council. "A significant problem for young Juneau residents is the lack of affordable housing."

Buying a house in Juneau with an entry-level job is difficult.

It takes 1.71 wage earners a household to buy an average house in Juneau, compared with 1.43 in Alaska and 1.52 in Anchorage, a 2005 state report said.

"An average wage earner in Juneau can't buy an average house," said Dan Robinson, economist of the Labor Department. "Either someone in the household has to help or the person has to take two jobs."

Squeeze on seniors

Housing costs also nudge seniors out.

Mark Burgoyne, an unemployment specialist with the state, said some of his friends had to leave Juneau after retiring from their teaching positions because they couldn't afford to live here on a fixed income.

In 2004, Juneau's population decreased by 280 people.

Chuck Ramage, who has been a real estate agent for 13 years, urges the city to increase density to make housing more affordable; otherwise, he warns, Juneau would have to fight another capital-move attempt.

"If the city fails to increase density where it can, then we will be risking a new capital-move effort because of a lack of housing for the Legislature," Ramage said.

Housing prices have gone up dramatically all over the United States during the past seven years due to low interest rates. City lands manager Steve Gilbertson said the low interest rate has opened up housing opportunities to people who could only afford to rent.

"With more demand, the prices increase dramatically," Gilbertson said.

Tricky topography

City Assessor Canary said Juneau's housing prices have always been high because about half of Juneau residents work for the government.

"Compared with many other cities in Southeast whose economy depends on fishing, timber or mining, Juneau's economy is more stable," Canary said. "With a steady income, people feel more comfortable about buying a house."

But Juneau's supply-and-demand imbalance is further complicated by the area's steep topography, isolation, small scale of economy and inadequacy of sewer infrastructure. With no way out by land, Juneau doesn't have outlying communities where people can live and drive to work. While other Southeast Alaska cities face challenges similar to Juneau's and have to build on steep hills, they are not as spread out as Juneau is.

"We have a shortage of affordable, buildable lots," said Larry Telfer, real estate broker for RE/MAX of Juneau. "Site preparation in Mendenhall Valley costs significantly less because it is flat and you don't have muskeg and mud that have to be exported. But there aren't many buildable lots left."

Building homes in North Douglas or out Glacier Highway generally costs more because these lots often don't have sewer service and are on a slope.

The average cost to buy and prepare a lot is $120,000 or more, Telfer said.

"If the lot is not connected to city sewers, it costs another $15,000 to put in an on-site septic system," he said.

Richard Peterson of Lowpete Construction said because of the lack of buildable land, he doesn't know what his next project will be after his company finishes developing 28 lots on Steelhead Street in the Valley.

Although the market is steaming hot, construction is slowing down.

The number of new homes built in Juneau dropped from 193 units in 2003 to 141 units in 2004, according to the city. The construction activity was well below the 1995 and 1996 peak, when more than 300 residential units were permitted for construction.

Leaping city hurdles

Developers said building subdivisions in Juneau costs too much to make a decent profit.

"Part of the difficulty is that the city has over a period of time put so many requirements on subdividing land. The cost of doing it is not worth the return," said Don Madsen, who has built more than 500 homes in Juneau. "We have to put in wider streets, street lights, paved roads, underground utilities, curb and gutter and sidewalks."

City Assessor Canary estimates that it costs a developer $1,000 per foot to install the required amenities.

"Many other cities in Southeast Alaska don't require developers to put in so many amenities," said Canary, who works as a real estate assessor in Southeast Alaska. "Some require underground water, sewer and telephone but they don't require curb and gutter and paved road."

Madsen and his partners said their application to subdivide 30 acres at Lemon Creek has been stalled because the city requires them to build another road to the subdivision from Glacier Highway and improve the water lines.

Madsen said two roads already exist in the neighborhood and the new subdivision can use either of them.

"That's $700,000 to spend before you can go in and sell the lots," said Tom Kohan, who owns the property with Madsen. The subdivision could create 100 residential lots.

Community Development Department Director Dale Pernula said having a second access from Glacier Highway for emergency vehicles is important.

Kohan and Madsen have put the land up for sale.

"If anybody wants it, I will sell it in a heartbeat," Madsen said. "I don't want to deal with the city anymore."

Wetlands also pose challenges for developers.

Peterson said his company needed to get permits from five different government agencies just for drainage of its new subdivision on Steelhead Street because part of the subdivision is categorized as wetlands.

"We are not saying the people we are working with are not cooperative," Peterson said. "It's just a lot of regulations and paperwork. It's also expensive to hire private consultants and legal staff to process them."

Peterson said construction labor has been high because Juneau's market is too small to have specialty crews that install only cabinets, windows or carpets.

"We have to pay 50 percent or more than the average to get the same work done," Peterson said.

The Juneau Chamber of Commerce said the sluggish speed of housing development has aggravated Juneau's housing shortage and hiked prices, forcing working families to leave town.

"We have a huge void in the work force," said David Summers, president of Juneau Chamber of Commerce. "It is hurting our economy. City leaders need to increase their sense of urgency on this issue"

• I-Chun Che can be reached at ichun.che@juneauempire.com.

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