December 2001

Planning

Copyright by American Planning Association

Moving Minnesota

The Twin Cities face a regionwide crisis: the lack of affordable housing.

By Sam Newberg

This September, the city of Minneapolis moved a step closer to addressing an affordable housing crisis: It witnessed a dedication ceremony for East Village, a 179-unit, mixed-used project on the southeast edge of downtown.

Housing advocates applaud East Village not only because it is affordable, but also because it is being so carefully woven into the fabric of the surrounding neighborhood. East Village is an example of "a project (that) should be placed all over the Twin Cities," says Kirk Moorhead, the East Village project manager.

Eight years in the making, East Village was developed by the Central Community Housing Trust, a nonprofit housing trust located in Minneapolis. This is the most recent affordable housing project built in the Twin Cities, and it came about partly because the city is pushing for housing of this type.

Still, the seven-county Twin Cities area, with a population of 2.65 million, has a long way to go before affordable housing units catch up with regional demand. Numerous studies have assessed that demand and offered solutions, and the state legislature has pondered a number of recent bills to address the issue.

"There is no silver bullet solution for the affordable housing crisis," says Maura Brown, coalition organizer for the Alliance for Metropolitan Stability, a local advocacy organization. Instead, Brown's group and others suggest that several elements are needed: private-public partnerships, laws that make affordable units a mandatory part of any development, community support for affordable projects, developer subsidies, quality design, and a mix of incomes and uses.

The players

The Twin Cities Metropolitan Council — the regional planning authority — estimates that one in five households there pay more for housing than they can reasonably afford. Housing vouchers go unused as landlords raise rents. Teachers qualify for a mortgage, only to find there are no homes in their price range.

The need has been obvious to local communities for many years. According to Monique MacKenzie, former planner for the city of Minneapolis, "beginning in the early 1990s, production of new housing units in the city of Minneapolis had declined significantly from the rates of the 1970s and 1980s." The city recognized this, and in 1995 developed a set of housing principles to promote greater choice and a wider range of affordability levels; the city's policy "departed from tradition by stimulating production of affordable and subsidized as well as market rate housing."

The Family Housing Fund, a housing intermediary based in Minneapolis, estimates that 185,000 households with incomes below $30,000 per year pay more than 30 percent for their housing. Remarkably, all seven counties in the metro area are on the list of the top 25 counties in the nation with the lowest rental vacancy rates.

Statistics show that 125,000 new housing units were built in the Twin Cities in the 1990s. Only a small fraction of the units built were affordable, despite substantial programs such as the federal tax credit housing program (which has helped build 7,000 units of affordable rental housing in the Twin Cities since 1986); the Minnesota Housing Finance Agency, created by the state in 1971 to help Minnesota residents buy or improve housing; and the Minneapolis Community Development Agency, a city entity that finances affordable housing development through site cleanup, land donation, and tax increment financing.

Another asset is the Metropolitan Council, an appointed governing body that works with cities, counties, private developers, and neighborhood organizations to provide a more livable region. Among its tools is the Livable Communities Act, created in 1996 to help fund affordable housing and other developments. This law has contributed to many successful developments, but its effectiveness is limited because municipal participation is voluntary.

Still another tool are the inclusionary housing ordinances in effect in both Minneapolis and St. Paul. Under these provisions, developers looking for financial assistance from either city must allocate at least 20 percent of their residential units for affordable housing. East Village is an example of such a project.

The McKnight Foundation, the charitable foundation of 3M, funds nonprofit organizations such as the Family Housing Fund and the Greater Minnesota Housing Fund, a nonprofit developer based in St. Paul. Countless neighborhood groups, faith-based groups, and political activists are raising funds for individual projects — and pushing for affordable housing legislation.

Defining the need

What, exactly, is "affordable housing"? The Mayors Regional Housing Task Force, in a 2000 publication entitled Affordable Housing for the Region, defines affordable housing as "the availability of quality housing and dignified living conditions" for all segments of the population. Affordable Housing for the Region says that the economic health of the region depends on the construction of affordable housing.

A study issued this year, entitled Workforce Housing: The Key to Ongoing Regional Prosperity, focuses on matching housing supply with the needs of moderately paid workers. Initiated by the Family Housing Fund, the study was contracted by Maxfield Research Inc., and performed by lead contractor Thomas G. O'Neil of Market Research Partners and by GVA Marquette Advisors, all of Minneapolis.

The report estimates a current shortage of nearly 10,000 workforce housing units across the Twin Cities and predicts a need for nearly 32,000 units over the next five years. It also concludes that these units are necessary to the continued economic vitality of the region.

"Workforce housing" is defined in the Maxfield/GVA study as housing for individuals earning $15,000 to $50,000 annually, or $7.25 to $24 per hour. It found that nearly 90 percent of unfilled jobs in the Twin Cities pay less than $18 per hour. Allocating 30 percent of workforce income towards housing (the parameters used by HUD), this equates to owner occupied units of less than $125,000 and rental units of less than $1,250 per month.

One of the study findings is that private developers would lose an average of $31,000 to $43,000 per unit if they were to develop workforce housing on their own. In the aggregate, a subsidy of $1.5 billion is needed if the needed units are to be built.

On the up side, the study notes that construction of the needed workforce housing units would attract $12 billion to the economy over the next 15 years, an eightfold return. "If we do nothing, we are hurting ourselves economically to the tune of several hundred million dollars per year," says Thomas O'Neil, the leader of the study. "If we do something about it, we stand to receive a great return on our investment."

More ammunition

Two recent studies point a finger of blame at regulations, among other things. Affordable Housing, released in January 2001 by the Minnesota Office of the Legislative Auditor, blames a lack of affordability on steep price increases for single-family homes and rentals, zoning and subdivision ordinances, financing issues, and community opposition.

A 2000 study by the Builders Association of the Twin Cities and the Center for Energy and Environment found three culprits: low densities, current zoning regulations — which prevent cities from building a diversity of housing — and regulatory barriers and fees that increase housing costs.

In the final analysis, it was determined that differences in plat fees, infrastructure costs, zoning regulations, and allowed densities can affect the price of a particular housing unit by as much as $10,000. In the Twin Cities, every $10,000 in additional costs to a single-family home eliminates 40,000 potential buyers, according to statistics compiled by the National Association of Home Builders. Housing for entry-level workers is crucial for a metropolitan area to thrive, and the Twin Cities region is no exception.

Subverting opposition

Community opposition is yet another reason for the scarcity of affordable housing in the Twin Cities and elsewhere. Opponents often pack public meetings, persuading officials to back away from mandatory affordable housing legislation.

However, a Family Housing Fund study done last year refuted fears of NIMBYs. In researching owner-occupied housing located near tax-credit housing, the study found that property values performed normally in the years after construction of the affordable developments, partly because these developments have better "curb appeal" than their predecessors.

New developments tend to be smaller scale, townhouse style, lower in density, and designed to fit in with surrounding neighborhoods. The study concludes that there is "little or no evidence to support the claim that the tax-credit family rental developments . . . eroded surrounding home values." Indeed, it is contextual design that has proven to bring acceptance of affordable housing across the country.

In the suburbs

While all this energy is being put into studies, a few bold developers, both for-profit and nonprofit, are forging ahead with affordable housing in the Twin Cities. Habitat for Humanity, an international nonprofit that uses volunteers to build owner-occupied housing for low-income families, says that the Twin Cities chapter is one of the largest in the U.S., with 350 housing units built since its formation in 1985, and 80 homes per year scheduled by 2003.

Smaller developers have built units as well. Two examples are West Ridge Market in Minnetonka, a western suburb of Minneapolis, and East Village in Minneapolis itself. Both projects involve private/public partnerships, density bonuses, quality design, mixed-income housing, mixed-use development, and location near public transportation.

With 418 units of housing, West Ridge Market is one of the largest mixed-income projects in the Twin Cities suburbs. The project occupies 53 acres in northeastern Minnetonka. West Ridge Market includes market rate, upscale condominiums; townhomes, both market rate and affordable; market rate and affordable senior housing; a park with a bandshell; and a large retail component. Nearly one-half of the total housing units are affordable to individuals and families with less than either 50 percent or 80 percent of the metropolitan area's median income.

The project began in the mid-1990s, just as affordable housing was becoming a hot topic in Minnetonka. Ron Rankin, Director of Community Development, was the city's lead planner for the project. He felt the city was beginning to accept the need for this type of housing because many residents realized that their own children couldn't afford to live there.

The project began as a major retail development located on an interstate highway but had evolved into a mixed-use project by the time it was completed in 1999. This happened after the developer, CSM Corporation of St. Paul, pursued tax-increment financing from the city of Minnetonka and the city stipulated that the project must include affordable housing. CSM went along with the idea, and brought in CommonBond, a nonprofit housing developer based in St. Paul, and Rottlund Homes, a residential developer based in Roseville.

Some $14 million of the $80 million project cost came from public funds. Contributors include the city of Minnetonka, the Metropolitan Council, the Family Housing Fund, the Hennepin County Housing and Redevelopment Authority, federal housing tax credits, HUD, and the Minnesota Housing Finance Agency.

CommonBond developed a 45-unit senior building, called Boulevard Gardens, using the HUD 202 program. CSM developed a 64-unit general occupancy building using tax-credits. CommonBond has since taken over the 64-unit complex, called Crown Ridge Apartments. These affordable units were rapidly absorbed, and have enjoyed nearly full occupancy ever since.

A share of the for-sale units, developed by Rottlund Homes, includes two-story town homes reserved for first-time home buyers. Originally priced between $95,000 and $140,000, the units have resale prices indexed in a city-run program and will remain affordable for 30 years.

Ron Rankin helped organize the funding and served as the liaison between developers accustomed to working with one type of real estate. Design and community acceptance are key to the success of an affordable housing project, Rankin says. Both are "very important from the outset," he notes.

In the city

East Village contains 179 units of rental housing, with 119 at market rate, 42 affordable to households making 50 percent of the Twin Cities' median income ($37,350), and 18 units for households earning 30 percent of the median income ($22,410).

The project's total development cost was $29 million. Of that amount, $500,000 came from the Metropolitan Council's Inclusionary Housing Account of the Livable Communities program. The Neighborhood Revitalization Program provided $600,000. Other sources of funding include the Family Housing Fund, the Greater Minneapolis Metropolitan Housing Corporation, the Minneapolis Community Development Agency (MCDA), the Minneapolis Foundation, and the Wells Fargo Housing Foundation.

Designed as a mixed-use project by Miller Hanson Partners, a Minneapolis-based architecture and planning firm, East Village includes not only housing, but also retail space at ground level, underground parking, and a greenway connecting to the neighborhood. Brick facades and other architectural features echo surrounding buildings.

East Village is located in the Elliot Park neighborhood of Minneapolis. It was the first new housing built in the neighborhood in 70 years. The neighborhood is generally low-income and has many minority residents.

The site for East Village was chosen because of its proximity Elliot Park itself, and to both downtown Minneapolis and the University of Minnesota. The project now provides another anchor for the neighborhood.

Alan Arthur, the CEO and president of the Central Community Housing Trust — the developer — says that the aim was to make all residents and neighbors feel good about where they live, not to remind everyone about the site's affordable units. "This is just a micro community that has been designed to be part of the greater community," says the trust's Kirk Moorhead.

Legal muscle needed

Density bonuses are certainly one way to encourage affordable housing. This tool allows developers to build more units, enabling them to offset the costs of substituting affordable units for market rate units. Montgomery County, Maryland, awards a 22 percent density bonus for affordable units that account for 15 percent of the development's total. This system led to the construction of more than 10,000 affordable housing units between 1974 and 1996.

Few Minnesota communities rely on density bonuses, and most of them are in the Twin Cities. Instead, they have been waiting for the Minnesota legislature to pass bills that encourage or mandate affordable housing through other means.

Various bills have been bandied about in the legislature, including tax reductions that ultimately may not encourage this type of housing. A bill that proposed a mandatory inclusionary housing law did not survive the 2001 legislative session. It would have given developers a 30 percent density bonus for making one-fifth of the units in new housing projects affordable.

Many housing advocates would prefer mandatory measures. "Inclusionary housing is the policy that achieves the greatest number of new homes without requiring public investment," says Maura Brown of the Alliance for Metropolitan Stability.

But, as the workforce housing study notes, incremental projects — "chipping away" at the need — will be necessary in the meantime.

Sam Newberg is a research analyst with Maxfield Research, a real estate consulting firm in Minneapolis.