The economic downturn has created a buyer’s market for housing on the Island, and for the first time in decades there are homes selling for under $500,000, and even under $400,000.

These shifts in the market have prompted new questions about a number of projects in the pipeline that are backed by a network of affordable housing groups, including the Island Housing Trust’s project at 250 State Road in West Tisbury.

The questions center on the definition of affordability.

The 250 State Road project was targeted last month by the West Tisbury selectmen, who found the reported project cost of $400 a square foot to be extremely high. The town has a stake in the project and has agreed to put some $570,000 in Community Preservation Act money into it.

Last week leaders at the Island Housing Trust defended the cost of the project, noting that it was planned as a highly efficient green building project with solar panels and other state of the art energy efficient materials.

This week the trust sought to clarify its construction costs.

In a series of e-mails housing trust executive director Phillipe Jordi said there are misconceptions about the construction costs for the West Tisbury project. Although the figure of $400 per square foot of construction was batted about at the annual town meeting last month, he said the actual cost is much if you separate out green energy amenities which are being funded by outside grant money.

“The cost of building high-performance houses at 250 State Road, not including the Cape Light Compact grant funding to install solar energy systems and rebates for insulating super insulated homes, are approximately $205 a square foot,” Mr. Jordi wrote.

“The Cape Light Compact’s investment of approximately $65,000 per house will result in approximately $1,500 per house in annual energy savings at today’s prices, and will help stabilize homeowners energy costs for the next 25 years as energy prices continue to rise.

“Had it not been for the Green Affordable Homes Program grant funding from Cape Light Compact, these investments in solar electrical systems and energy efficiency upgrades would not have been possible,” he also wrote.

Mr. Jordi also addressed the broader question of affordability.

“The Island Housing Trust creates home ownership and rental opportunities for Island residents who are not able to afford to purchase market rate houses, even in the current real estate market. Affordability is defined as spending no more than 30 per cent of a household’s gross income on housing,” he wrote, adding: “Struggling single parent families with lower incomes earning between $35,000 and $40,000 annually certainly can’t afford to purchase houses even at the very low end of today’s market, and although double income earning families with moderate incomes earning $80,000 to $90,000 might be getting close to purchasing houses in the depressed market, they typically can only find deeply troubled fixer-uppers that become money sinks.”

Sharon Purdy, owner of Sandpiper Realty in Edgartown and also a member of the Edgartown Affordable Housing Committee, agreed with Mr. Jordi’s premise. Mrs. Purdy searched her database and found 116 properties selling for under $550,000 on the Island. But she said many of these homes need repairs and some are not suitable for year-round occupancy.

She found 23 properties selling for under $400,000, and five selling for under $350,000.

Mrs. Purdy agreed there are less expensive homes available on the market for the first time in years, but she said buying one could result in added expenses. She too has heard rumblings about whether buying a home through an affordable housing group that sets a cap of four per cent equity on the resale of the property, was a good value. She said in fact the comparison is not that simple.

“A year ago you couldn’t have posed the question of buying a home on the open market or going through [the housing trust], because you couldn’t find anything for under $500,000, never mind $400,000. But people should be careful to put all the pieces together before answering that question . . . the buyer should be aware of all the costs — starting with the down payment,” Mrs. Purdy said. As an example, she chose what she called a “nice little house” in Oak Bluffs currently on the market for $399,000. If a buyer came up with a $40,000 down payment, and received a 30-year mortgage at five per cent, they would need to secure a loan for around $360,000.

The monthly mortgage payment would be around $1,900, she estimated, with taxes bringing the average monthly cost to around $2,100, not including insurance. “And remember to make that work, you need to come up with a substantial down payment, and a lot of people have a hard time coming up with that out of pocket,” she said.

Mr. Jordi said homes purchased through the trust also require a down payment, but usually much less than what is required to buy a home on the open market. The trust requires at least a five per cent payment.

He said homes at 250 State Road will require a much lower monthly payment than anything on the open market. One of the homes in the project will be built by Habitat for Humanity, and will be sold for around $160,000, which will require a monthly mortgage payment as low as $660. Habitat offers zero per cent 20-year mortgages.

A similar house sold by the trust for an estimated $170,000, with an interest rate from a local bank of six per cent, will require a monthly mortgage payment of $960, Mr. Jordi said. Homeowner association fees for 250 State Road and other affordable housing projects range from $25 to $50 per month.

Mr. Jordi said there is a big different between what is available on the market and what you get from the trust.

“Many of the 30 families and individuals who have purchased houses from the trust have described a renewed sense of security and hope. These homeowners who have been fortunate enough to purchase an affordable house from the trust will not only see a modest rate of appreciation on their investment (no more than four per cent annually), but a place for them and their children to call home season after season, year after year,” he wrote.

He said another advantage is the homes remain affordable in perpetuity.

“When a trust homeowner wants to sell their house for whatever reason, they can be assured that they won’t have to wait months or even years as many homeowners in the current real estate are experiencing, because the trust will likely exercise their option to purchase the house in order to resell it to another qualified family, maintaining the perpetual affordability for generations of Islanders to come,” he wrote.

Mr. Jordi plans to visit with Island selectmen in the coming months to explain the trust’s new goals, policies and guidelines. He will meet with the West Tisbury selectmen on May 20 to answer questions about 250 State Road.

Meanwhile, discussion about who is getting the affordable housing contracts is a hot topic among Island contractors, many of whom have seen their work slow to a trickle. Contracts for a number of the trust’s building projects, including 250 State Road, have gone to South Mountain Co. of West Tisbury, whose founder and co-owner is a member of the trust board of directors. Because it is a private nonprofit, the trust is not bound by public bidding laws.

Island builder Tucker Hubbell, former owner of Good Houses Inc., which specialized in building low-cost housing, said until recently many contractors were not interested in building affordable housing projects.

“To be fair, there weren’t a lot of people out there who wanted these projects, so a company like South Mountain stepped up and did the work. When the economy was really high a lot of builders wanted no part of this . . . now that it’s low there isn’t a lot of work to go around . . . and they want in,” he said.

But Mr. Hubbell, who was hired by the trust to build affordable projects in the past (and is not a member of the board), suggested it might be time for the trust to be more inclusive.

“This is not a shot at the trust or South Mountain Company or anyone. But I believe affordable housing should be affordable, and that means keeping construction costs low. In my opinion, you can easily build a 1,100 square foot home for $200 a square foot. And I’m talking high-quality, energy efficient homes,” he said.