Planning for Affordable Housing in the Twin Cities Metro
Introduction:
In 2006, the Metropolitan Council (Met Council) released the results of its new fair share affordable housing allocation formula in a report entitled, “Determining Affordable Housing Need in the Twin Cities 2011-2020.” In this report, the agency provided a basis for a set of affordable housing need numbers that aim to fulfill local municipalities’ housing responsibilities toward state requirements for regional land planning. The Met Council requires cities to include affordable housing need numbers in their 2030 comprehensive plans. The McKnight Foundation asked our group to study cities’ comprehensive plans to determine whether cities are actively working to meet their affordable housing needs.
Our group reviewed a sampling of comprehensive plans and requested interviews with staff from each city selected. Our report offers a review of the responses of cities in the Twin Cities region to these affordable housing needs numbers. Analysis of the current 2030 comprehensive plans, both final and draft, and interviews with city planners revealed a wide variety of responses. Some cities actively accept the new formula’s need numbers and demonstrate a deep understanding of the subsidy and non-subsidy means at their disposal to work toward meeting them. Some cities rejected the affordable housing needs as too high and argue that the Met Council is overstepping its bounds. Others did not even mention the affordable housing need that was assigned to them in their plans and could not recall the number at the time of their interview.
Methodology:
Two primary sources were used to analyze the production of affordable housing in the past and future: the comprehensive plan and interviews with city planners. Though 36 cities were identified to be reviewed for their affordable housing production and plan, the cities of Carver and Dahlgren were combined due to consolidation of their plans. Thus, 35 comprehensive plans were reviewed. Although the deadline for submitting updated comprehensive plans to the Metropolitan Council was December 31, 2008, only 24 of the 35 cities reviewed have submitted their comprehensive plan, and merely 7 have been approved by the Metropolitan Council as of April 17, 2009.
Affordable Housing Development Tools:
There a number of tools and incentives cities can use to develop affordable housing. The following is a list of the best practices for affordable housing development including developer incentives, planning and zoning tools, and financial tools.
Developer Incentives:
Density Bonuses:
Density Bonuses are used for projects where the developer agrees to include a certain number of affordable housing units in exchange for increased density in the project. The increased density of market rate units allows the developer to make up for lost costs of producing the affordable units. The cost to local government is typically zero.
Impact fees:
Impact fees are a one-time fee charged to developers during development to pay for new infrastructure that will be required to serve the new residents. Cities use the fees to pay for water, sewers, roads, sidewalks, or public amenities. Impact fees are passed on by the developer to the homeowner, thus raising the cost of the housing. As an incentive to developers to build affordable housing, cities can waive these fees.
Financial Tools:
Low-Income Housing Tax Credits (LIHTC):
Low-Income Housing Tax Credits (LIHTC) were created by the Tax Reform Act of 1986. Cities can issue LIHTC for acquisition, rehabilitation, or new construction of rental housing for low income households. Multi-family housing developments are usually the recipient of
LIHTC and the sale of the tax credits creates equity which then reduces the property’s mortgage.
Tax Increment Financing (TIF):
Tax Increment Financing (TIF) is a tool to finance real estate development. TIFs use the extra property taxes that result from development to fund a portion of the development costs. Market values of properties rise as a result of the development and thus facilitate the extra property taxes. TIFs are used as incentives for developers and can help facilitate the development of affordable housing.
Mortgage Revenue Bonds:
Mortgage Revenue bonds are used by state and local governments through housing finance agencies to fund below-market-interest-rate mortgages for first time homebuyers. They help to provide homes to individuals or families living at below 115 percent of the median family income.
Conclusion:
Overall, comprehensive plans reviewed do not include many of the “best practices” to the development of affordable housing. Because Forest Lake’s plan includes every goal and implementation “best practices,” it is a model for other cities as to what should be included in the comprehensive plan to plan for affordable housing development. In addition, there was a steep drop off in the quality of the plan after Forest Lake’s plan.
Although many cities include replacement/preservation policies and rental housing goals in their comprehensive plans, many plans lack goals related to culturally sensitive housing, transit oriented developments that include affordability requirements, and the allowance of accessory units. With regards to implementation tools, tax increment financing is included in most plans, along with density minimum and PUDs that incentivize high densities. Very few plans include expedited approval processes or set aside land programs.