- Associated Press - Thursday, March 20, 2014

HOUSTON (AP) - For Krishnan Iyer, moving downtown meant a lot of things: Not having to use his car in auto-dependent Houston, being able to walk to work, to restaurants, to the movies.

The 34-year-old consultant left The Woodlands two years ago for a one-bedroom apartment in the Post Rice Lofts at Main and Texas and hasn’t looked back. Iyer expects many others to follow him in the coming years.

“I think for sure the rising oil prices will have an effect on people moving inward to a place near where they work, and there is a trend of renting among younger people rather than buying,” Iyer said. “There’s going to be demand to live here. It’s not going down.”

With people like Iyer in mind, developers are proposing six residential projects for downtown Houston that could add more than 2,200 new apartments to the urban core, fueled by a $15,000-per-unit city subsidy program that officials now want to expand.

The new projects include a 40-story tower just off Market Square Park and a 12-story complex with more than 500 apartments on two blocks near Toyota Center. Counting several apartment buildings already under construction thanks in part to the subsidy, the amount of downtown housing could more than double within the next several years.

If the Downtown Living Initiative program is expanded from its original cap of 2,500 apartments or condos to a proposed 5,000 - opening the door to up to $75 million in subsidies - all of the new projects and potentially many more could benefit from the program.

“We have a crest going on. Let’s be opportunistic and take advantage while we can right now,” the city’s chief development officer, Andy Icken, told the Houston Chronicle (http://bit.ly/1gKyUpI ). “This is Development 101: Rooftops lead retail, they lead to street-level activity. We start from a principle that Houston as a city will benefit from a denser downtown core.”

University of Houston economist Steven Craig said there’s little doubt the subsidy will attract residents, but he questioned whether favoring downtown is a prudent use of resources, noting Washington Avenue and the Galleria became attractive without such programs.

“If you subsidize it, it will happen. People love to be subsidized. But how does it make the people that paid the subsidy - the taxpayers of Houston - better off? That’s a very hard argument to support,” Craig said. “Are we using our money for the highest and best use? Our roads are costing us a lot of money on car repair.”

Today, there are more than 2,600 residential units in downtown Houston, and officials cite a study that suggested a good target would be about 10,000 units. Though many more eventually could be developed, that would mean expanding the subsidy program and could see the city subsidize half of all downtown apartments.

The program has offered developers up to $15,000 for each unit they build in a multifamily complex of at least 10 units, provided they meet design guidelines focused on how the project looks at street-level. The idea is to lessen the hurdles to developing downtown, chiefly high land costs and the complexity of construction, and to draw in retailers to serve the new residents, creating a more vibrant street scene.

Of the six projects proposed, three have been approved for the incentive program, and agreements are pending on the others. Those approved include a 33-story tower planned near Market Square Park, a 38-story building by Discovery Green, and a 10-story structure on the southern end of downtown.

“The hardest thing about building residential downtown is it’s a real challenge to make the numbers work,” said Philip Schneidau, president and CEO of BMS Management, which is considering building a 40-story rental tower off Market Square. “Between construction cost and projected rental rates, it’s much more of a challenge than doing activity outside the downtown area. The rates you’re going to get for residential are not the same you’re going to get for high-rise office.”

Schneidau said a desire among white-collar professionals to live closer to work and entertainment options in the urban core is driving the development, not the subsidies alone.

“At what point should they say, ‘We’ve done our job to be the catalyst,’ and after that market forces should continue on their own? I don’t know,” Schneidau said. “It’s got to be several thousand units. You’ve got to have that core other people can work off of.”

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