Rhode Island’s budget challenges, Part One

Home prices surging beyond the reach of most Rhode Islanders

Posted 4/17/24

Housing affordability has become one of Rhode Island’s most serious challenges. Home prices are so high that ownership is out of reach for many Rhode Islanders. Nearly half of all renters spend …

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Rhode Island’s budget challenges, Part One

Home prices surging beyond the reach of most Rhode Islanders


Housing affordability has become one of Rhode Island’s most serious challenges. Home prices are so high that ownership is out of reach for many Rhode Islanders. Nearly half of all renters spend more than 30 percent of their income on housing. It’s been estimated that the state needs 24,000 more affordable units to meet demand. Unfortunately, the problem appears to be worsening. In the last year, home prices in Rhode Island have increased 7.5 percent, and rents have jumped dramatically, with Providence reportedly having the highest rent increases nationwide. 

Rhode Island’s housing affordability problem has resulted primarily from a lack of housing production over a long period of time. The Ocean State ranked 38th among states in per capita housing production between 2012 and 2021, and in 2021—the most recent year for which data are available — we ranked last in the nation. In terms of affordable housing production, Building Homes Rhode Island, the state’s primary affordable housing program, built or maintained an average of only 215 affordable units per year from 2006 to 2020.

Historically, Rhode Island has invested relatively little state funding toward affordable housing compared to other New England states. The Building Homes Rhode Island program has been exclusively funded through four separate general obligation bonds, issued beginning in 2006, and collectively totaling $190 million, or roughly $9.5 million a year. Along with a modest second Housing Production Fund, the bonds  have amounted to an investment of $145 per capita per annum. This puts Rhode Island next to last in New England (ahead of only New Hampshire) and well behind its neighbors Connecticut ($607 per capita) and Massachusetts ($858 per capita).

Rhode Island’s restrictive land use regulatory environment has also hindered development. Over the last 10 years, we had the lowest rate of total housing permits issued per 1,000 residents in the country, and we’re ranked 9th worst in terms of land use regulations. The problem appears to be getting worse. Building permits for multifamily homes have declined 66.9% since 2018. Some communities appear committed to slowing housing production. Tiverton recently passed a six-month moratorium on the approval of multifamily homes and Narragansett passed a series of land-use changes to preempt modest land use reforms passed by the General Assembly last session.   

Despite these challenges, to its credit, the General Assembly made a historic investment in affordable housing starting in 2021. Capitalizing largely on one-time federal pandemic relief funds, the Assembly allocated $361.2 million to help produce affordable housing. This amount is nearly double the $190 million in affordable housing bonds issued by the state over the last 20 years. The state also made increases to the Housing Production Fund, created a new state low-income housing tax credit, and provided funding for a separate Department of Housing with 21 new full-time equivalent positions. The Assembly also instituted some land use reforms, mostly around streamlining the permitting and appeals processes for developments.

While these initial steps are moving us in the right direction, they won’t be enough to make up for decades of underfunding and over-regulation. One-time federal funds will be exhausted soon, and there is no robust plan to replace them. Governor McKee has proposed a $100 million housing bond, which if approved by the voters, would be the largest housing bond in Rhode Island’s history. However not all of those funds are proposed to be used for affordable housing production. Rhode Island is in danger of returning to the same pattern of underinvestment that produced very few units over the last 20 years.

Without greater state investment, Rhode Island is unlikely to see much progress. Increasing costs of construction, complicated mechanisms for financing projects, and local land use restrictions have led to declining returns on the state’s investment. The total cost of developing one unit of affordable housing is approaching $500,000.  According to our recent analysis, once the one-time federal funds have been exhausted, the state will have produced only 2,340 net new units of affordable housing — less than 10 percent of our estimated need. If the state pursues the same strategies with the newly proposed bond, even if the entire allotment was dedicated to production, RIPEC estimates an output of only 832 additional units.

We can do better. The state needs to make larger investments in affordable housing, which will likely require a permanent, consistent source of funding outside of additional borrowing. At the same time, the state should explore alternatives to the current model for constructing affordable housing, including direct subsidies to private developers. The state should pursue more aggressive land-use reform to stimulate the production of market-rate housing to stabilize rents and to increase supply to make home prices more affordable. Finally, given the limitations of using capital to subsidize rents, the state should consider a rental assistance program. 

If Rhode Island is going to continue to be a place where people live, work, and raise a family, we need a collective effort to make sure that all Rhode Islanders have an affordable place to live. 

Michael DiBiase is the president and CEO of the Rhode Island Public Expenditure Council, a nonpartisan, nonprofit public policy research organization. This is the first in a four-part series on Governor Dan McKee’s proposed fiscal 2025 state budget.

op-ed, housing


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