LEBANON — The future of a city-owned workforce housing development is uncertain with project costs proving too expensive to move forward as planned.
In 2024, city staff and the City Council identified two vacant lots on Barrows Street near Exit 18 off Interstate 89 the city has owned since 1947 as a prime spot to build affordable workforce housing for city and school district employees to help address a growing need and put the land back on the tax rolls.
“…The idea was, number one, to try to get under-utilized city property back on the tax rolls, two to create some affordable housing and, three, to do that in the form of a pilot project that would hopefully then give the commercial sector some incentive to move forward with similar projects,” City Councilor Tim McNamara told the council at a Wednesday night meeting.
Since 2024, the city has secured a $440,000 grant from the state, started site work on the lot, put the project out to bid, partnered with Claremont-based developer Preferred Building Systems to design the modular units and secured a construction permit from the Planning Board.
The approved plan includes a clustered neighborhood of five small cottages, each with about 930 square feet of living area plus a full basement. The units would have a shared green space and parking lot off the end of Barrows Street.
But, when the city sought contractors for the site work this fall, costs came back at more than $500,000 per cottage, McNamara said, forcing the project team to take a step back and reevaluate.
While the modular homes themselves proved to be a relatively affordable option at under $200,000 per cottage, McNamara said the estimates for preparing the “very challenging” lot for construction, building utilities and infrastructure and completing finishing work on the homes drove up costs.
Even after redrawing the plans to reduce the size of the homes to six two-story cottages each at about 770 square feet plus a small front porch, the homes would cost about $430,000 each.
“That, I am concerned, is also not workforce housing,” McNamara said Tuesday.
Based on his own research, McNamara said there have been market-rate homes available for the same price in Lebanon and around the Upper Valley this year.
“Our goal here, as I say, is not to be a market-rate developer,” McNamara said. “If we were going to do this project we want to do this project as an affordable project.”
The goal in the project’s early days was to keep the homes “well below market rate,” such as in the range of $300,000 for a three-bedroom unit, McNamara told the Valley News at the time. On Wednesday he said a target price would be below $400,000.
The median sale price for homes in Lebanon in January was $550,000, according to the New Hampshire Association of Realtors.
The project team is now looking at other options.
“We want to use this property. We’d like to see it used for infill housing one way or the other and we want to see it generating some tax dollars,” McNamara said.
One option would be selling the project to a developer as it is currently permitted, which might result in a cottage neighborhood still being built.
“It wouldn’t be affordable housing, I can almost guarantee you that, but it would be six houses on a site that currently has none,” he said. McNamara estimated that the development would generate about $30,000 to $40,000 a year in property tax revenue.
Another option would be subdividing the property and building three houses. This might reduce site costs by allowing the city to build each property closer to the street and existing water and sewer infrastructure, and would eliminate some of the site features such as walkways included in the cottage project.
“We don’t know yet whether that would get us to the magic number of under $400,000 or not, but it probably won’t take us an awful lot of research to determine if in fact it would.”
“If all else fails,” the third option is subdividing the property into three lots and selling each to a private developer, McNamara said. Doing so would help recoup some of the costs already put into the project.
The city has spent $209,000 of grant money so far for planning, design, permitting and site work on the property, according to meeting materials. There has been no general fund or property tax dollars used for the project.
McNamara requested more time to look into the options and expects to come back to the Council with a plan possibly in early April.
“It’s disappointing,” Assistant Mayor Devin Wilkie said Wednesday. “It feels like admitting defeat that this isn’t something that’s feasible, but I think that’s where the market is right now and the plan that you’ve outlined sounds good to me.”
The basic research the city will do to determine costs for building three single-family homes could be useful no matter what, Councilor Karen Zook, who also sits on the Planning Board, said Wednesday.
“Seeing this and hearing what you’re saying about it is echoing a lot of what we’re seeing with private developers on planning where they come for approval for things that are going to be affordable and then at some point it comes back and it’s less affordable,” Zook said. “As you’re looking into this if there’s anything you come across that could be informative in a general way, I think the Planning Board would be really interested to hear that.”
Building modular homes has proven to be a popular way to bring more single-family development to the Upper Valley, but costs vary dramatically from project to project.
The Upper Valley Habitat for Humanity delivered its first modular home build to a site on Nutt Lane in White River Junction in December. The three-bedroom, 1.5 bath home is expected to be move-in ready in summer 2026.
Just this week, Dartmouth College unveiled a $15.2 million neighborhood of 21 modular-homes for college employees. The cost per building is almost $724,000.
The development, called Sugarwood Circle, differs from the Barrows Street project in that it included driveways, a street through the neighborhood and consisted of larger homes with full basements and garages.
Without having to prepare a lot for development, such as by flattening and clearing land or building new infrastructure, project costs can be much lower.
Early this month, Windsor-based Blanchard Construction placed two 900-square foot modular homes on foundations on National Street in Windsor inside the Connecticut River floodplain.
Windsor and the nonprofit Windsor Improvement Corporation have owned the two lots for about 10 years and took on the project to try to boost tax revenue, according to a notice from the town. When renovating the properties proved too expensive, they shifted to demolishing the existing homes, building higher foundations above flood levels and placing modular units on the lots.
The “all-in cost” of the project is $225,000 per home. The town plans to rent the homes at market rates to recoup project costs and eventually they may be sold at market value.
Town Manager Tom Marsh is currently looking into what a reasonable rent might be for the homes that will be move-in ready by April 1, he said Thursday. Marsh said the town would like to charge around $2,100 a month in rent if possible.
While the town would like to sell the units, he said doing so would be unlikely to cover the cost of the buildings. Other homes in the neighborhood cost in the range of $150,000 to $175,000, Marsh said.
The town will work with a real estate agent and property management company to handle the rental processes, Marsh said. Applications will not be reviewed by the Selectboard or town staff and there will be no special considerations or requirements for tenants.
The Selectboard is expected to discuss the rental details at a meeting next Wednesday, Feb. 25 at 6:30.
‘The town can’t afford to let an important neighborhood slide into disrepair,” the notice said. “We need the housing units, and we need the tax and utility revenue they generate. Improving housing here benefits every Windsor taxpayer.”