Developing affordable housing is an issue in the Cape Region and for more than a year for the city of Lewes.

Officials struggled with how to address the issue in the comprehensive development plan after the state insisted the city have a plan in place.

Now, with a willing developer ready to build workforce housing on Savannah Road, city council is considering possible changes to regulations that would lower the cost for developers to build more affordable projects.

Council held a workshop Dec. 11 with officials from the Delaware State Housing Authority, Diamond State Community Land Trust and developer Preston Schell to discuss strategies to achieve workforce housing in Lewes.

“This is the first serious conversation this community has had about [affordable housing],” said Mayor Ted Becker. “There are going to be pitfalls in getting there, but we need to explore this.”

Schell owns a 16.45-acre parcel between Savannah Road and Kings Highway near city limits. The parcel was subdivided and rezoned in the fall.

For the Kings Highway side, Schell plans to build a 175-unit senior-living facility. On the Savannah Road side, he has proposed affordable workforce housing. He initially sought to build medical offices, but city officials and neighbors opposed that plan.

After meeting with neighbors, Schell determined his best option would be a big-house style of home with up to 10 units in a two-story building. The units would be offered for sale, he said. He proposes to build 104 units.

Schell said neighbors preferred the big-house style over rental apartments similar to Beach Plum Dunes, which Schell built a few years ago on the former driving range for Midway Par 3.

In order to offer an affordable unit, Schell said, he has to be able to build enough units per building to cover his costs.

“When you’re looking at that type of housing, you naturally gravitate toward the most efficient style of construction,” he said. “That’s a cost-per-square-foot or cost-per-unit basis because the lower the developer can get their costs, the more affordable that unit can be offered, whether for sale or for rent.”

If allowed to build a 10-unit big house, Schell said, he could offer a unit as low as $210,000. If Lewes officials allow only eight units in a building, he said, prices would likely increase by $25,000 per unit.

Each unit in a big-house design would have its own garage and its own private entry; a three-story apartment complex, like Beach Plum Dunes, does not offer these amenities.

Schell said he was willing to build a community similar to Beach Plum Dunes, but Lewes’ height limit would significantly affect the appearance of the buildings. Lewes’ zoning regulations also do not permit a multifamily building with that many units.

“At 42 feet, you can build a three-story building with a sloped roof,” he said, talking about Sussex County’s height limit. “At 30.5 feet, you can do a three-story building, but you’re going to have a pretty ugly roof.”

Schell described Beach Plum Dunes as a successful affordable workforce housing project.

“It was interesting to see the mix of demographics we have living there,” he said. “Fifty percent, maybe more, is what I would refer to as local workforce.”

Karen Horton, a principal planner with the Delaware State Housing Authority, said there are a number of ways to make a project affordable for the workforce. One option, she said, is for the developer to partner with Diamond State Community Land Trust.

Helen McAdory, associate director for Diamond State Community Land Trust, said her group would be more than happy to work with Schell.

“We help with risk reduction, and we can actually offset quite a few of his costs,” she said. “We have funding that’s outside of HUD and government sources. What we are really doing is bridging that affordability gap.”

If the developer doesn’t want to partner, Horton also suggested the city implement an affordable workforce housing program, so it’s easier for future developers to design a workforce housing project. Through the program, restrictions and other issues unique to affordable housing can be addressed.

“My concern is that if you don’t have some restrictions, that it’s going to be a big-time windfall for the first person who buys,” she said, whether on resale or flipping it to a rental property.

She said the rental market shows the units could be rented for as much as $1,500 per month.

“I’m all about rental restrictions,” Schell said, noting he puts similar restrictions in place in nearly all of his single-family communities. If long-term rentals were an option, he said, they could establish a mechanism where the renter must qualify through Diamond State Community Land Trust or a similar organization.

Schell said if too many requirements are placed on the project, he would be more than willing to sell the land to a nonprofit at a price he could break even. That nonprofit could then develop the land, he said.

“I think there are ways I can do it that I’m comfortable with,” he said.

One of those ways is through a targeted marketing campaign.

“The second I say this is for the local workforce … I’m not going to get a lot of 68-year-olds retiring to the area,” he said. “I can’t tell you that zero people will be retired. Some will be retired, but the guy who works 10 hours per week at Walmart, I consider him part of the local workforce.”

He said he would be willing to consider certain deed restrictions to better home in on the targeted buyer, but he would need the support of council to lift those restrictions if the units don’t sell.

“I can’t be sitting there $5 million or $6 million into a deal with units that can’t sell,” he said.

City Manager Ann Marie Townshend said it comes down the city’s willingness to trust a developer. She said they can take a leap of faith that the project will be constructed and marketed for affordability or they can do a little more through Diamond State Community Land Trust and Delaware State Housing Authority to restrict the project to guarantee affordability.

“I think the idea is that we want to allow a little more diversity in our population,” Townshend said. “If we do something to bring workforce housing, we don’t want [buyers] to be second homes for people who live in Pennsylvania, Maryland, New Jersey or even Wilmington.”

Schell said there are reasonable restrictions that can be put in place to deter or entirely prevent just that situation, such as require the buyer to have lived and worked in Sussex County for at least a year.

Another way to make the project affordable, Schell said, is for the city and Board of Public Works to waive fees.

“I will say definitively every one of those fees that’s waived you will see a direct relationship in the price reduction of either a select few units or all the units,” Schell said. “You won’t be waiving any fees for me to put more money in my pocket.”

Deputy Mayor Fred Beaufait said significant changes to the city’s code will have to be considered in order to allow affordable workforce housing.

“There’s an old saying, put your money where your mouth is,” he said. “Well, I think we have to put our ordinances where our comp plan is. If we’re not prepared to do that, then I think we need to take two steps backward. I personally support what Preston is trying to do. I greatly appreciate it. I know it’s some sacrifice on his part to take this task on. My challenge for the council and planning commission is to put our ordinances where our comp plan is.”