Housing Experts Agree: Rochester Proposal is too Weak

I received feedback from many state & national experts on the affordable housing proposal. They were not positive. Neither were mine. We deserve a solution that respects the seriousness of the situation. This did not. For obvious reasons the names have been removed. These are mostly unedited, however a few were changed to protect the identity of the author.

I especially concur with the statement that some of the data presented was intellectually dishonest.

My next post will be presenting a more complete housing policy.

There’s a huge need for affordable housing in Olmsted County and Rochester. According to work done by Maxfield Research and Greater Minnesota Housing Fund, keeping pace with the need for affordable housing would require producing over 4,500 affordable homes in Olmsted County by the end of 2020.

All financing and policy tools should be used to further the shared goal of creating as much affordable housing as possible.

According to the report by Grounded Solutions, a mixed-income housing policy in Rochester that requires 10% affordability in new rental and for-sale housing – both with some offsetting financial incentives including TIF, fee reductions, density bonuses, and other tools – would create approximately 70 affordable homes in Rochester every year (a total of 280 affordable homes from 2017 through 2020). This needs to be the minimum starting point for the discussion.

The staff proposal for leveraging TIF to create affordable housing is one approach, but it doesn’t go far enough.

The affordability requirements should be triggered any developer request for City assistance: TIF, zoning change, conditional use permit, non-conforming use approval, incentive or restricted development process, or other requests. As proposed, they would only be triggered by a developer seeking TIF or an incentive or restricted development process.

The affordability requirements should apply to both multifamily and single-family development. As proposed, they would only apply to multifamily development. Participating in efforts like First Homes is valuable and worthwhile, but the City of Rochester should be willing to programmatically require affordability in single-family development.

The staff report suggests that the cost of requiring affordability will be passed along by the developer to the market rate renter or homebuyer, or to the City of Rochester in the form of reduced fees, or to landowners in the form of lower prices.

Grounded Solutions demonstrated that incentives including TIF and density bonuses can offset the cost of affordability requirements to the developer.

The market rate renter or homebuyer is making a market-based decision to rent or purchase their housing.

The City of Rochester could revise its fee structure to be revenue neutral, if affordable housing has reduced fees.

The staff report suggests there are limited examples of mixed-income policies in Minnesota. Grounded Solutions identifies 8 cities that have mixed-income policies, and provides a full case study for several of them, including the City of Edina.

In Edina, multifamily development requires 10% at 50% AMI or 20% at 60% AMI affordability. That’s consistent with the staff proposal but is also triggered by other developer requests for assistance, not just the use of TIF.

In Edina, single-family development requires 10% at 110% affordability. That’s a greater requirement than the staff proposal, although at higher incomes.

The City of Edina has flexibility to help developers meet their affordability requirement with tools such as density bonuses, parking reductions, building the affordable units off-site, or a fee-in-lieu of producing the affordable units.

The City of Rochester should implement the recommendations of Grounded Solutions, adding the potential option of a fee-in-lieu if developers would prefer to pay a fee rather than producing the affordable units.

The City of Rochester could capitalize an affordable housing trust fund using the fee-in-lieu and the affordable housing portion of non-housing TIF that staff proposed. This local, dedicated resource could leverage the creation of a lot of affordable housing.

  • The staff report suggests that more than half of the single-family homes in Rochester are already affordable at 80% AMI, based on “the best available tax information”, and that these homes will be a resource for lower-income households in the future.
  • For the community to grow, more housing is needed at all price points.
    Many homeowners are aging in place and unlikely to move up in the market because there are limited options at more moderate price points.
  • In a hot real estate market, assessed values lag market values, so it’s likely that many of those homes won’t be quite as affordable if they turnover.
  • It’s critical to use CDBG and other tools to encourage rehabilitation, to preserve the stock of older homes.
  • It’s critical to use financing and policy tools to create new affordable single-family homes, to serve households with lower incomes and few options.

I must say, it struck me as strangely defensive, excuses heavy, and at times intellectually dishonest, especially in comparing St. Louis Park’s new TIF policy results with the entirety of what Rochester does for affordable housing.

Terry recommend a TIF standard of 20% affordability, and that incentive developments getting extra units would be required to make 10% of the bonus units affordable. But NHC’s national scan of policies in 2014 did not turn up a single place in the U.S. with such low affordability expectations when providing bonus units. Rochester, was cautious in recommending 10% overall affordability. A 100-unit development receiving a 20% density bonus would provide 1.7% affordability. If the building were allowed to double in size to 200 units, it would provide at most 5% affordability.

A comparable program structure to what Terry is proposing is Arlington County, VA. There they require 20-35% of bonus units to be affordable in designated (under-invested) corridors. Given Rochester’s comparable land costs, and given that density bonuses offset the cost of land for the market and affordable units, you should be able to support at least 20% of the bonus units made affordable.

Based on the land costs reported in the prototypes section of the report (which were minimally $43k per unit in peripheral areas of the city), I’d calculate that you could completely cover at least 1 unit’s affordability gap for every 4 units that get free land via the density bonus. 25% affordability.  I would ask staff at the very least to show their financial numbers for concluding that 10% of bonus units is the most one could ask.

Lastly, regarding 5% of TIF reimbursements from commercial developments going to affordable housing: not a bad start. But most, if not all, jurisdictions set aside a bigger share if they’re going to both. 20% is common. Portland just recently increased their overall share to 45% (previously 30%).

One comment

  1. So many flaws in all of the analysis, starting with the entirely useless, “gosh we built xxx units over 30 years!,” and carrying on to the “it’s the federal / state obligation to provide means to solve our local IMMEDIATE and severe affordable and ACCESSIBLE (not one word on this!) housing crisis.

    The entire AMI discussion was baseless since Rochester’s AMI is skewed by a disproportionate highly paid minority (white males). Any assessment of affordability needs to be based on the average median income for white women (80% of white men’s income), and 60% for non-white other people.

    And yes, to then use the property value as assessed instead of current “market” value — despite massive property tax increases and valuations over the last year or two — compounds the lie of how much of Rochester housing is actually affordable in any real sense.

    Toss in heavily financed speculators who outbid mere mortals and convert single family dwellings and condos from ownership to rental status, and more and more people are permanently shut out of home ownership by profiteering rental prices that increase beyond the cost of living every year forever.

    People on fixed incomes, elderly and people with disabilities, do not receive a 1%, 3%, or 5% increase every year. These are the amounts the Olmsted County is proposing for their HRA properties. So rental housing DOES NOT WORK for people on fixed incomes.

    The big drive for percentages of rental mixed used multi-family housing to have an affordable component masks the fact that RENTAL housing will always be a problem compared to home ownership.

    A 30-year fixed mortgage is a known fixed payment that can be budgeted for and does not increase greater than income every year. Frequently such a mortgage costs LESS per month than any rental unit, “affordable” or “market” rate.

    This is why allowing speculators to buy available somewhat affordable housing up and exploit it as overpriced rentals must be curtailed for the common good. It was acknowledged that the presence of rental single family homes in an otherwise owner-occupied home was known to have negative impact on both the neighborhood generally and the home values in particular by the Planning Director.

    The “staff” memo asserted that the city cannot force developers to build tiny homes, smaller homes, cluster housing, but there must be plenty of developers who are willing to build for a smaller profit percentage if they were given a level playing field. The realtor party line is that developers and builders find building affordable housing too “risky” because they are afraid it will not sell! That anyone can say that with a straight face when it is outrageous to assert there is NO DEMAND for affordable homes, tiny homes, smaller home, ACCESSIBLE homes deserves to be denied any building permits at all.

    We could use special housing developments like other cities have built: for example, a cluster housing for people with multiple sclerosis that provides a concierge type service in exchange for a discounted housing unit or other compensation method to provide help with small tasks and possibly other things. Maybe the MS cluster could also have a communal van that could provide transport as needed as part of a FIXED COST association fee (again, budgetable). A shared cleaning service might be another benefit of an association fee reducing the cost by any given owner.

    The material in the packet presented to council for “discussion” on Monday almost appeared to deliberately ignore any actual aspects that could be used to create an actual affordable (and accessible) housing policy. Maybe someone should teach them how to use Google to find examples from all over the place on INCLUSIONARY ZONING, and all kinds of other actual implemented affordable (none I have found address accessibility; we could be the first!) housing policies.

    Staff failed entirely to respond much less grasp the reality of the existing affordable and accessible housing crisis. Worse, they did their best to produce false analysis to make the situation look better than it is in reality.

    The city should not have to provide taxpayer money to guarantee private developers’ profits. via TIF. Build affordable/accessible or don’t build at all.

    The tax incentive housing credit system is a cash giveaway because they are converted to financialized bundled products that are sold to investors. These are also ONLY AVAILABLE to building RENTAL units. We do not want a city full of rental units instead of owner-occupied units. That is literally Medieval.

    The TIF system that requires 20% of rentals be priced under the falsely inflated market values that, by Minnesota State Statute, have NO LEGAL CAP possible compounds the affordability in the long run. The administrative cost to administer and oversee and check qualifications and such like for 20 years is a burden and causes a cost that someone has to pay and has a number of unintended consequences.

    Well, I will stop now, but I will be continuing to follow and advocate for affordable and accessible housing. Please check out my new blog with pages full of links to sites on housing issues and posts covering local housing actions (and transit in the future) at https://rochmn.wordpress.com

    There is no help coming from the state or the federal government. We must act locally. We must find a way to build what is need, not what will maximize builder and developer profits to the detriment of the common good of city residents.

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