The City of Lebanon is accepting applications through Oct. 5 for a lottery to purchase one of five new homes planned for Barrows Street.

It’s the latest step in a project that has changed shape — and grown pricier — since the City Council approved funding for it in July.

The city plans to build five roughly 950-square-foot homes, each on a lot of at least 4,000 square feet. The target purchase price is about $425,000, though the city says it won’t lock in final pricing until closer to the lottery drawing, tentatively set for Oct. 7.

That’s up from the $2.05 million funding package the council approved in July, which was expected to produce homes priced just under $400,000.

City Manager Andrew Hosmer said interest in the lottery “has been lower than we anticipated because many middle-class families think, ‘Is this affordable?'”

City Councilor Timothy J. McNamara, who has led the project alongside city staff, confirmed the price has climbed further still. Asked what the original $300,000 target now looks like, he said:

“Oh gosh, it’s way north of that. The target we’re telling potential buyers to expect is up to four and a quarter.”

McNamara said he still believes that reflects the market:

“I think it is pretty reflective of a house of this size in this market, assuming this size house existed, and there are few, if any, new construction homes of this size on the market.”

Hosmer said the project reflects a demand he’s hearing about beyond studios and one-bedrooms.

“People have been talking about the missing middle. The one-bedrooms and studios are great, but I think there is a desire for people who want to put roots down here in the community,” he said.

The homes were originally designed as a cluster of two-story cottages — four on one side of Barrows Street and one across the road. The city shifted earlier this year to five separate small lots.

“We actually made that move to save site construction costs,” McNamara said.

“The site construction costs of the cottage option were going to push it way beyond where we wanted it to be. So we did a retrenchment in February or March of this year, redesigned for the small lot option, and that’s what we’re proceeding with.”

City Engineer Rodrick Finley described the shift in more technical terms. The original design fell under the city’s cottage cluster regulations, which required a shared courtyard, sidewalks, dedicated parking and lighting — features that drove up site costs.

The city instead used a newer zoning category, a “pattern zone subdivision,” which allows lots as small as 4,000 square feet without road frontage and requires only a driveway to each home.

“The site work costs were much lower,” Finley said. “We’re able to get the project to a more acceptable budget.”

Hosmer said cost pressure isn’t unique to this project.

“One of the challenges is figuring out how to get the land, labor and lumber to build the project,” he said.

Both officials said the project has shaped how the city will approach similar developments going forward.

McNamara said the cottage-cluster model likely isn’t viable at this scale:

“You probably are going to have to have a project of at least 10 units if you’re planning on doing a cottage project, and I would say 10 to 12 units.”

Finley put the number even higher:

“It would be beneficial to have a larger piece of land where you could have a greater density of homes, so you can share the costs with a larger group of homes and keep the [prices] down. So, 15, 20 homes instead of five.”

To qualify for the Barrows Street lottery, applicants must have been Lebanon residents as of July 15 and must show mortgage pre-qualification for at least $425,000 or documented ability to pay in cash.

The drawing will select five buyers and up to seven alternates. Selected buyers will learn the final purchase price before a $10,000 deposit is due Oct. 19.

Applications can be submitted through the form at the bottom of the city’s Barrows Street project page, LebanonNH.gov/BarrowsStreet.

McNamara said one neighboring property owner has raised concerns. The city is addressing that by adding a privacy fence between the property and city land, he said, but there’s been no broader pushback.

Lebanon has built more housing than surrounding towns in the last 10 years, McNamara said. He pointed to Hartford, Enfield and Newport as other towns doing their part but said the solution can’t fall on “a handful of towns” alone.