Minnesota Cities Magazine
More from Nov-Dec 2018 issue

The Ongoing Quest for Affordable Housing

By Mary Jane Smetanka

In Montevideo, city officials aren’t worried about jobs. They’re wondering where to put all the people who fill those jobs.

The city of almost 5,500 is home to a turkey processing plant, recreational vehicle and modular home manufacturers, and several small high-tech companies. More jobs are coming: Montevideo will soon add a school that will need 35 new teachers, and 110 employees will staff a new state veterans home that will open in 2021.

But where are all those people supposed to live? City Manager Steve Jones calls housing the top issue his city faces.

“Every day I see people on Facebook and social media asking about housing,” he says. “We don’t have people living in tents in the park, but with less than a 2 percent vacancy rate in town, if a suitable house or apartment comes up, it’s snapped up right away.”

State task force recommendations

Cities all over Minnesota face a housing crunch, especially in affordable and low-income housing. The Governor’s Task Force on Housing, which released its report in August, estimates that more than 25 percent of all Minnesotans and more than 45 percent of renters are burdened by housing costs, paying more than 30 percent of their income toward a place to live.

As personal incomes languish while the cost of living increases, the report said figuring out how to supply affordable housing to all Minnesotans is “the smartest investment we can make in our state’s future.”

The task force recommended that the state create dedicated permanent funds for affordable housing, work on preserving existing homes, build 300,000 homes of all types around the state by 2030, help more people stay in their homes, and support and strengthen home ownership.

It also urged cities to encourage affordable home development through tax abatement, bonuses for high-density projects, housing trust funds, and alternative or modular housing. (Access the task force’s full report at www.mnhousingtaskforce.com.)

Developer incentives slim in Greater MN

Where development is booming, as it is in the Twin Cities area, cities can require private developers to include affordable housing in projects if they want city help like tax increment financing (TIF). But in the rest of Minnesota, economic conditions make building and preserving housing a challenge.

Among the casualties of the 2008 recession were construction firms. Many remaining firms are working in regional centers where business is brisk. Some are limited in how much work they can take on because skilled construction labor is in short supply.

The cost of building supplies is going up around the state, but in larger cities, higher rents and home prices make housing projects financially feasible for developers. In smaller cities, lower wages mean rents and home prices must be lower too, even though the cost of materials is the same as it is in Minneapolis. For developers, that formula doesn’t work.

Nonprofit partners with small cities

Rick Goodemann, CEO of the nonprofit Southwest Minnesota Housing Partnership (SWMHP), works with smaller communities to put together financing to preserve and create affordable housing. SWMHP works primarily in southern and western Minnesota and owns and operates rental properties in 27 counties stretching from the Wisconsin and South Dakota borders, into Iowa and as far north as Crookston.

Goodemann calls the economic realities of housing in rural areas “a witches’ brew that makes our job extremely difficult.” Federal funding for housing programs has been frozen or cut, impacting state funding.

“Right now, we are struggling to deal with the demand for services,” Goodemann says. “The problem has gone to smaller and smaller communities even as federal and state resources are drying up and incomes stagnate.”

About half of SWMHP’s work is housing preservation, including buying and rehabbing aging apartments that are on the verge of falling apart. The organization, which owns about 1,700 units of affordable housing mostly in Minnesota, develops housing for cities and other government units and generally “solves problems and finds resources,” Goodemann says. Ninety percent of the projects are tied to housing for working people. Most of the rest is for seniors.

“The whole idea that people who need subsidized housing are sitting back and waiting for handouts is false,” he says. “Many are working more than one job.”

Focus on lower-income workers

SWMHP has been working with St. Peter since 1998, when a tornado destroyed or damaged 1,800 homes. Housing “remains at or near the top of our concerns,” says City Administrator Todd Prafke. “The issue keeps evolving; it’s never really solved. It’s what keeps employers and employees here. If we don’t have it, they will leave.”

As St. Peter grew—the population of about 12,000 is 2,500 more than when the tornado hit—city officials wanted to make sure that people who worked in St. Peter could afford to live there. “There are teachers and state hospital workers and college professors here who don’t make a lot of money,” Prafke says. “That’s what we tried to focus on.”

Since 2003 the city has added 12 multi-family developments with about 300 units, almost one-third of those subsidized for lower-income residents. Some of those are interspersed with new single-family homes so multi-family housing isn’t segregated. “It allows efficient development and inclusive housing,” Prafke says.

He calls Goodemann “the Yoda of assembling housing financing” and says SWMHP’s help was invaluable in tapping grants and money that could help pay for projects and help people with their mortgages.

One of those projects is Park Row Crossing, a 40-unit townhouse-style building. The city supplied the land, tax-increment financing, and development guidance, and SWMHP assembled financing from state sources.

The $6.5-million building, which is aimed at low- and moderate-income working families, is owned by an SWMHP subsidiary. Residents include people like young teachers who would be house poor if they had to pay for market-rate housing.

A couple of units are reserved for families who were formerly chronically homeless. “It was a very good value for the city,”

Prafke says. “We’ve made tons of progress and I think made good choices, but the target continues to move. People still say we need housing for both high- and low-income residents.”

Senior housing and help with financing

Montevideo is another city with a longterm relationship with SWMHP. “They have been our chief partner and they will be the first ones we call in the future,” says City Manager Jones.

One of the city’s recent projects was Brookside Manor, a 78-unit senior building that includes affordable housing and memory care. Jones says the nonprofit building, which was privately developed with bonds from another city, is an important tool in helping turn over single-family homes, freeing them up for young families.

The city uses revolving funds to assist qualified homebuyers with down payments that don’t have to be repaid until the house is sold. Using grant money from the state that’s awarded to small cities, Montevideo also offers grants and loans for life safety home improvements.

If a homeowner borrowed $21,000, for example, one-third would be a grant, one-third would be a loan, and one-third would be a forgivable loan if the owner holds onto the property for a certain amount of time. “That way we avoid flippers,” Jones says.

Last year, Montevideo’s Economic Development Authority wanted to build six duplexes on land it owned, but failed to get the necessary grant for the project. The city may offer the land to developers at a discounted rate.

“We want to be the spark, not the owner,” Jones says. The development authority also intends to sell a 16-unit apartment building and two duplexes next year, and then use those funds to build a similar development.

Affordable housing requirements for developers

In St. Louis Park, a suburb that historically had plenty of affordable housing, city officials have moved to preserve housing access as home prices escalate and the city adds higher-end, multi-family developments.

When developers didn’t respond to city pleas to voluntarily add affordable housing to their projects, in 2015 the City Council offered a big carrot: if they wanted help through TIF, they had to include affordable units in their projects.

“We are not going to be able to maintain our vitality if we only cater to the upper end of the populace,” says Councilmember Tim Brausen. “We want people who work in the West End [a part of the city with retail and new multi-family housing] to be able to live in the West End. We don’t want to create a gated community through the size of the rents.”

If a new development of more than 10 units seeks TIF, the city requires that 20 percent of the units be rented to residents who make no more than 60 percent of area median income. That rent must be capped at 30 percent of income.

If the developer opens units to residents making 50 percent of area median income, they can dedicate 10 percent of units to those residents. Rent restrictions linked to TIF help last for 25 years.

So far, St. Louis Park has added more than 50 affordable units, and 17 more will be added in a new senior residence. After seeing tenants in a large, formerly affordable apartment complex lose their homes when new buyers renovated the buildings and raised rents, the city now requires landlords to pay a relocation fee to low-income tenants if they decide to raise rents, rescreen tenants, or not renew leases in the first three months they own the property.

St. Louis Park continues to investigate creative housing policies, because the problem of affordable housing is not going away, says Michele Schnitker, city housing director.

“Housing costs just keep going up,” she says. “We don’t want to end up like the East and West coasts, where housing costs are astronomical.”

Mary Jane Smetanka is a Minneapolis-based freelance writer.

Read the Nov-Dec 2018 issue of Minnesota Cities magazine

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