A new affordable housing project is underway in Madison that’s designed to ease the area’s housing crunch.

The 18-units will help provide housing for workers at local businesses such as shoe-maker New Balance and TImberHP, which makes wood fiber insulation.

Gov. Janet Mills and local leaders attended a groundbreaking on Friday, although work began five days ago, said developer Sam Hight.

Hight, Kara Wilbur and Brian Eng spent more than 18 months working with the Somerset County town of Madison and the state to bring the public/private partnership to life.

“Madison and the greater central Maine community are in special position as the shining star in rural economic development with a housing-based initiative leading the way,” Hight said.

The project, called 55 Weston Avenue, benefited from state funding through the Rural Affordable Rental Housing Program, a $20 million initiative that’s part of the governor’s jobs and recovery plan.

Dan Brennan, head of MaineHousing, said the funding enables his agency to work with developers on smaller projects in rural areas. He said an additional $35 million approved by lawmakers this year will allow even more projects to get off the ground.

The Madison project will be built using modular construction, with much of the building taking place at a company in South Paris. If all goes as planned, the project will be finished in the spring.

“Modular construction in Maine has to be part of our future if we are ever going to get out of this affordable housing crisis,” he said. “The foundation has just started and before the snow melts next spring this building will be up. That’s a speed we don’t see in this state.”

The building will sit on the site of a former school that was torn down in 2013, which led town leaders to spend the next eight years trying to entice a developer to build housing on the site, said Tim Curtis, former Madison town manager and current Somerset County administrator.

He said the units — which will be a mix of studios, one bedroom and two-bedroom — will not only serve as workforce housing but as a place for those who are downsizing from larger homes.

“It allows older generations to downsize, thus freeing up a three-and four-bedroom house for a new family to move into,” he said.

The project — which developers hope to expand with an additional 18 units in the future — follows the announcement in June that New Balance, based nearby in Skowhegan, is expanding. The company plans to add 200 jobs as part of a $65 million factory expansion.

Then in July, TimberHP started production in a renovated mill in Madison. The company employs nearly 70 people and plans to sell three products nationwide by the end of this year, according to the company’s website.

It also plans to hire an additional 120 workers in the next few years, Mills said.

A study released earlier this month shows Maine needs to build more than 84,000 new homes by 2030 to address underproduction and expected population growth.

That could include new homes and the rehabilitation of existing homes that are vacant, in disrepair or in foreclosure, according to the State of Maine Housing Production Needs Study.

The need for affordable rental units is especially acute, the report notes.

Although rental costs remained consistent from 2016-2021, they spiked in 2022 and 2023 “and exceeded wage increases, which has likely increased cost burden rates since 2021.”

In her remarks, Mills referenced the study and the housing shortage that’s affected many of Maine’s largest businesses, including Bath Iron Works, Bigelow Lab in East Boothbay and Jackson Lab in Bar Harbor.

“No business should be held back because of a lack of housing for their employees,” she said. “The strength of those businesses and the strength of our economy depends on building workforce housing, in rural Maine especially.”

Mills said state and federal funds have resulted in the construction of 600 new homes since she took office, with more than 1,000 more under construction and 2,000 in the pipeline.

“We need affordable housing that minimizes sprawl and preserves the local communities,” she said.