It's not uncommon for cities to offer developers tax breaks to build affordable housing. But Danville, Virginia, needs homes so badly for all the new workers moving to town that it is providing incentives to construct market-rate houses.
The Southern Virginia city on the North Carolina state line was a manufacturing hub for many years with one textile company, Dan River Inc., employing 18,000 people at its peak in the 1950s. But those jobs gradually disappeared and Dan River closed altogether in 2006. Danville's population fell as well, from 53,000 in 1990 to its current 43,000 residents.
Danville has come up with a long-term plan to try to replace the lost manufacturing jobs with new ones. In mid-November, Microporous, a company that makes battery parts used in electric vehicles and energy storage, broke ground on a plant near the city that's expected to create about 2,000 high-paying jobs as part of a $1.3 billion investment.
Microporous is set to receive $100 million through the federal Infrastructure Investment and Jobs Act for its Danville investment. Danville is one of a number of former industrial cities across the U.S. using federal funds meant to kick-start American manufacturing to revive their economies.
While Microporous' decision to pick Virginia over North Carolina for the project was welcome news for local stakeholders, the influx of new workers could dramatically increase Danville's existing housing shortage. The 14th-largest city in Virginia completed a study in 2022 that estimated it needed to build more than 3,000 housing units to meet existing demand, including 840 single-family homes. At the time, the city and neighboring Pittsylvania County estimated that 3,900 new jobs would be coming to the area soon. The figures didn’t account for the potential impact of a large new business like the battery parts maker.
“It’s now gotten a little more urgent to get some development here,” Susan McCulloch, Danville’s housing director, said in an interview after the Microporous announcement. “The new thought is that housing is economic development.”
Luring developers
The city’s housing strategy centers on luring developers by offering free marketing assistance and various incentives, including tax breaks and help with building infrastructure like roads and water and sewer lines that are essential to any new development. Danville is trying to find developers who will build market-rate housing as well as starter homes that are hard to find these days across the country.
Many U.S. cities have adopted tax incentives as a way to get developers to build affordable housing, though not every city frames its housing strategy as an economic issue. Often the incentives are for apartments, and cities expect developers to designate a portion of the new homes for people in their area with incomes below 80% of the median, or the point where half earn more and half earn less.
McCulloch said her city’s offer of tax breaks for market-rate, single-family homes is unusual; when she talks with developers from Virginia and North Carolina they tell her they’ve never heard of such a program.
Until recently, the city had seen limited new housing construction for decades, and much of what existed was too small for an average family. In 2010, just half the 22,000 houses in the city had three or more bedrooms, according to the city’s comprehensive plan. The median year that houses were built in Danville is 1961. The median sales price in Danville in September was $210,000, according to Virginia Realtors.
The 2022 study found a significant demand in the market for new homes priced under $300,000. Given today’s construction costs, the study said developers aren’t likely to supply such homes without financial incentives.
“You’re not seeing single-family development at the level it’s needed, and a big part of that is the cost of building a home and realizing some sort of profit that incentivizes the developer to do it. It’s very challenging to do that and meet an entry-level price point,” said Brent Cochran, a developer based in Roanoke, Virginia, who is planning a mixed single-family and apartment project in Danville.
The ”sweet spot” at the $300,000 price point is not traditional single-family homes but townhouses, McCulloch said, and developers are building some in Danville now. A group of 34 owner-occupied townhouses is planned in the Monument-Berryman neighborhood, an area near the city’s downtown, with eight completed so far.
From the Homes.com blog: Condo vs. townhouse: Which is right for you?
As the city plots ways to grow its housing stock, it also is dealing with a different problem in some neighborhoods: older homes beyond repair. In recent decades the city tore down more than 100 empty and deteriorating bungalow homes in the Monument-Berryman area that had once housed workers in the downtown textile factories.
Downtown factories
Danville’s housing revival started in the most recent decade in the former downtown factories, also called the River District, with some being converted to apartments. More recently, city leaders have expanded the scope of revitalization into other neighborhoods, such as Monument-Berryman and the West Main Street area, where a Caesars Virginia casino opened its doors this year.
The city started offering tax breaks for housing in 2023. Over a period as long as 15 years, single-family developers can get grants valued at 100% of the increase in taxes on their properties in year one, and 50% of the increase in subsequent years. The incentives pass on to whoever buys the property. The city also considers developers’ requests to be reimbursed for fees they pay to the city during the construction process, and for infrastructure needs such as widening a road for a left-turn lane into a subdivision.
The incentives for single-family developers are offered based on a commitment to invest at least $5 million and build a minimum of 50 homes. Starter homes priced below $300,000 are one goal, but an even bigger need is for “move-up” single-family homes that cost between $300,000 and $450,000, according to the 2022 study. The city also expects developers to build homes that can accommodate growing families.
“We want to see at least 50 homes because we want to see real neighborhoods,” McCulloch said. “We want to make sure the recommendations in the housing study are followed, with homes that have three bedrooms and two bathrooms, garages, a public space such as a clubhouse, and quality materials.”
The city created a mapping tool on its website that enables developers to quickly identify properties for sale that are large enough to accommodate substantial new developments. In some cases, the city’s economic development authority is buying land, installing water and sewer lines and other infrastructure and then marketing the property to homebuilders. The information the city provides, combined with the land improvements and tax incentives, makes Danville an unusually receptive place to build housing, said Cochran.
“They say, 'here’s a piece of land I can acquire, here’s their program with detailed numbers that I can plug into my pro forma without guessing what’s going to happen.' It just accelerates the decision-making around whether to do a project,” he said. “In other places it’s often bureaucratic, and I feel like whether they’re trying to or not, they’re putting up roadblocks.”