Metro area affordable housing issues
From:
Jack Cann
Date:
Aug 25 14:32 UTC
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I’ve been asked to share some thoughts on affordable housing issues in
Minnesota. I’m an attorney with the Housing Preservation Project (HPP), a
non-profit law firm focused on preserving and expanding the supply of
affordable housing. We work nationally as well as locally. I’ve been working
on these issues since 1968, when I was a founder of the Minneapolis Tenants
Union. I’ve been a developer of non-profit housing; put together the
successful environmental challenge to the Cedar-Riverside New Community project
in the mid-70s; developed the financing and City/developer profit sharing
agreements for a number of downtown projects in the 1980s (including the
convention center hotel and Target Center); negotiated the settlement agreement
in the Hollman public housing desegregation lawsuit in the 1990s; and have
basically been suing HUD on affordable housing preservation issues for the last
10 years.
Over the last few years, HPP has been working on strategies to increase the
supply of affordable housing in the metro area. A quick look at the numbers
indicates that simply expanding the current sources of funding for affordable
housing isn’t going to be enough. HUD data indicate that at the 2000 census,
there were over 139,000 households whose incomes were at or below 50% of the
area median income, or AMI, (adjusted for household size) who were paying more
than 30% of their incomes for housing, or living in housing that was
overcrowded or without basic facilities. These households were 67.9% of all
households with incomes at or below 50% of AMI. In contrast, only 9% of
households with incomes greater than 80% of AMI had similar problems. A 2003
study, "The Next Decade of Housing in Minnesota" projected the need during the
current decade for new metro area housing affordable to households with incomes
at or below 60% of AMI:
New low income households added 2001-2010: 60,478
Housed by private market (24,350)
Need for new affordable units 36,128
Produced with current subsidy programs (13,865)
Projected increase in unmet need 22,263
Recent projections by the Metropolitan Council show the area similarly falling
further behind by 2,000-3,000 units every year for the coming decade
(2011-2020). Even doubling funding for current subsidy programs (highly
unlikely) would only slow the growth of the backlog by about half.
To start off a discussion, here are some suggestions for additional strategies
to make a dent in the problem:
1) Increase the density permitted on developable land. It is very difficult to
produce affordable housing at densities that do not at least permit townhouses
(say, 10 units/acre and above), and, better yet, higher density wood-frame
construction. Very little suburban land permits development at these densities
despite the requirement in the Metropolitan Land Planning Act that cities guide
sufficient land to meet local and regional affordable housing needs.
It is not just affordable housing that is at issue here. A recent DNR report
indicated that developing job centers in the metro area would experience half
the area's projected population growth through 2030. Less than half that
growth could be accommodated on land currently available, and not currently
environmentally protected, if new development occurred at current densities.
The shortfall amounts to an area greater than the current size of Minneapolis,
St. Paul, and Bloomington.
2) Inclusionary zoning and Regulatory Flexibility. One potentially very
effective strategy for permitting the development of affordable housing is
readily available to cities: much greater flexibility in land use and
development controls regarding densities permitted, minimum lot size, street
widths, parking requirements, city fees, processing time for zoning requests,
etc. Our research suggests that new housing affordable at least to households
in the 50%-60% of median income range can be developed without additional
subsidies through density bonuses and regulatory flexibility. Hundreds of
cities around the country then take the next step and require that developers
actually produce a reasonable percentage of units (in the 20%-25% range) at
affordable prices or rents in exchange for this flexibility. Only a few cities
in the metropolitan area of done this, and generally only on an ad hoc basis.
We suggest the following four basic principles in every city's comprehensive
plan: a) sufficient developable land at higher densities - such that
development of 20%-25% of that land as affordable housing would meet the
Metropolitan Council's affordable housing goals for the city; b) sufficient
regulatory flexibility to make 20%-25% of the units developed in those areas
affordable at least to households at 50% of median income; c) requiring
developers who receive this regulatory flexibility to actually produce
long-term affordable units; d) a commitment to support proposals for housing at
even lower incomes and to produce local resources (e.g. tax increment
financing, HOME funds, tax abatements) for such units.
3) Mismatch of rents and incomes in the existing supply – increasing non-profit
ownership. The 2000 census data indicates that there were about 122,600 rental
housing units available at rents affordable to households with incomes from 30%
to 50% of AMI. But over half of these units were rented to higher income
households. If non-profit (or other public interest) entities could get
ownership of a significant number of these units and increase the lower income
occupancy as turnover occurred, it would be possible to significantly increase
the number of affordable units available without producing new units. Two
other advantages of this strategy: approximately half of the rent typically
goes to debt repayment, which does not increase over time so that rent need
only increase about half the rate of inflation of operating costs; holding the
units over time without speculative increases in rents results in units with
much lower rents than the market. In addition, responsible public-interest
ownership is more likely to prevent many of these buildings from becoming
problem properties in the future.
4) More tax exempt debt for responsible rental housing. One tool that could
substantially facilitate this strategy is the use of tax exempt debt, which
brings with it low income housing tax credits for rental housing. The tax
credits, in turn, attract substantial amounts of investor equity.
Unfortunately, Minnesota has devoted much of its federal allocation of tax
exempt bonding authority to homeownership. The result is the failure to take
advantage of tens of millions of dollars of private equity available from the
tax credits if more bonding authority were focused on rental housing. A
significant additional problem is that too much of the bonding authority which
is used for rental housing simply produces developer fees to for-profit buyers
who would have purchased the property anyway without the public assistance.
5) Make the best out of the foreclosure crisis. The current crisis is largely
the result of an orgy of unregulated greed on Wall Street. If there is to be
any upside to this debacle at all, it will have to come from efforts to direct
foreclosed vacant properties into the hands of responsible buyers who will
preserve them as a lower income housing resources.
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