Nantucket’s presence as an idyllic summer destination is contingent on a solid backbone of year-round workers. In 2023, the town of Nantucket employed 709 full-time employees across its many branches, with these locals earning a median wage of $85,571, and an average wage of $90,516. Within a year, median sales prices fell overall in Nantucket by $160,000. Still, the median sale price of a condo in Nantucket was $900,000 for a condominium and $2,950,000 for a single-family home, far beyond what is affordable for a significant portion of year-round islanders. According to Cape Cod Five Bank, under the assumption of no outstanding other debts, buyers would be recommended to earn a minimum Qualified Income (QI) of $175,000 per year to purchase the median condo and a minimum QI of $473,000 per year to purchase the median single-family home. So, it is unsurprising to hear reports like those of Housing Nantucket, who claim that homeownership is cost-prohibitive for 90% of Nantucket’s residents (Beth 2024). 

Nantucket’s covenant homes program gives an exemption to zoning codes, allowing for more than one residential dwelling to be placed on a single lot of land under the guise that the second dwelling can be sold at a permanently affordable price going forward. The Covenant Homes Program in Nantucket was established in 2001 when it was passed into law at the 2001 Annual Town Meeting, and to date, it has had a profound impact on the island’s subsidized housing market. In the past 23 years, 115 units of housing have been created, thus making it the most significant source of affordable housing on the island (Housing Nantucket 2024). 

Nantucket’s formula for dictating the maximum resale value of homes in its Covenant Homes Program stymies the supposed freedom it intends to create. With its heavily interest rate-dependent formula, there is little reliability in the year-to-year value of these homes, making families within the program vulnerable to unstable economic conditions as the resale value of these covenant homes likely falls in coincidence with pinched conditions that would make it difficult for participants to retain the capital from their investment in a covenant home. Housing Nantucket, the largest source of subsidized housing on the island, dictates that “the maximum resale price on a covenant home is $702,465 in 2024. The Max Sales Price formula takes 30% of the gross annual income of households earning 125% of Nantucket’s Median Family income to determine an affordable monthly housing payment. The Maximum Sales Price depends on the Prevailing Interest Rate from local banks for a 30-year fixed “jumbo” loan. If the rates differ between banks, the higher rate is chosen, leading to a lower Maximum Sales Price (Meehan 2024).”

An alternative and less volatile method for determining the resale value of Nantucket’s covenant homes can be borrowed from Martha’s Vineyard and their Island Housing Trust’s covenant homes program. Rather than factoring in interest rates, their resale price is determined solely by median household wages and is increased proportionally to match changes in this wage over time. Because wages and household income are sticky compared to interest rates, the resale value of covenant homes in Martha’s Vineyard is less vulnerable to fluctuating economic conditions in the short run, and in the larger scheme of things, an increasing resale price that tracks with wage growth preserves the viability of the investment in the long run. Also, their formula gives buyers the liberty to make improvements to their homes as “any improvements over and above normal maintenance, as approved by IHT, would see an appreciation for the period of time the improvements were put in place until the time of resale. For example, if a homeowner invested $10,000 in improvements over a time in which median household income rose 10%, then that $10,000 would be marked up to $11,000 and added to the total resale price. To preserve the affordability of these homes while allowing improvements to be made, the Island Housing Trust uses a Maximum Affordable Cost (MAC) formula “determined by multiplying the prevailing median household income at the time of resale by 1.6 (160%) and then multiplying that figure by 2.5” to prevent these improvements from phasing renovated covenant homes out of affordability (Town of Nantucket 2021).  This figure was derived under the premise that “lenders often use 2.5 times a potential buyer’s annual household income as a multiplier to estimate how much a borrower could qualify to borrow to buy a residential property (Town of Nantucket 2021).

The constraints posed by an undersupply of affordable housing are worsened by the rising cost of construction and the scarcity of land on Nantucket further exacerbate the crisis. While admirable, local efforts face significant hurdles in terms of resources and regulatory challenges. The island's geographical isolation also inflates costs for building materials and labor, making the development of new housing even more expensive. Furthermore, the influx of seasonal visitors and the island’s booming short-term rental market drive up property values, leading to increased competition for available housing stock. As a result, many year-round residents are forced to live in overcrowded or substandard conditions or are pushed off the island altogether. Without coordinated, large-scale intervention, such as zoning reforms or expanded investment in affordable housing initiatives, Nantucket's economic and social fabric risks further erosion, with essential workers bearing the brunt of the housing crisis. This situation threatens the sustainability of the island’s year-round community and undermines the essential services that residents and visitors alike rely on. Such changes to Nantucket’s system would make the covenant home system more secure in its economic viability while providing homeowners more autonomy over their living situation by supporting improvements to these homes.

References 

Housing Nantucket. (2024). Covenant homes. Retrieved November 16, 2024, from https://www.housingnantucket.org/covenant-homes/.

Meehan, B. A. (2024). Mortgage services. Cape Cod 5. Retrieved November 16, 2024, from https://www.capecodfive.com/mortgage.

Town of Nantucket. (2021). Nantucket Housing Production Plan 2021. Retrieved November 16, 2024, fromhttps://nantucket-ma.gov/DocumentCenter/View/40859/Nantucket-Housing-Production-Plan-2021-PDF.