Cracked crumbling asphalt is an unusual site in the more affluent suburbs of the Twin Cities. In fact the number of areas that would be considered distressed across the metro is pretty slim in relation to its size. So it’s a bit of a puzzle why the Four Seasons Mall in Plymouth, a relatively wealthy third tier suburb, has been left unused for the past twelve years.
First Wal-Mart purchased the site, but the neighbors said ‘no.’ It would draw too much traffic off the well traveled State Highway 169 which connects the Minnesota River Valley with the far northern points of the state, where the outfitter town of Ely serves as a portal to the boundary waters. That whole thing took a handful of years.
Then the city spent some time on getting a mixed use project approved on the sixteen acre site which included upwards of several hundred affordable units. Not bad for a fairly wealthy area of town. Here’s a news clip Plymouth Approves Four Seasons Mall Redevelopment – CCX Media explaining the project, and here is a commercial real estate synopsis on the site.
Just recently the whole project came apart because the tax credits were allocated to another project by the Fed’s scoring system. Two years after the community said ‘yes’ to welcoming a housing product that is often rebuked, a chart put together by bureaucrats says ‘no.’ Although I’ve been unable so far to find out where the subsidies were put to use, the feeling seems to be that the funding went to an area with greater need. Which I assume means an area with a higher density of people living in poverty.
Sure enough, according to a study on Low Income Housing Tax Credit, by the Urban Institute:
The program structure can promote the concentration of units in poorer places. Although the program only requires that 40 percent or more of the total units in the property be set aside as affordable, most properties are developed with affordability restrictions on all units to maximize the equity investment because only the affordable units qualify for tax credits. The allocation structure also provides an incentive to build in low-income communities designated as Qualified Census Tracts or Difficult Development Areas.
On the one hand political units like the Metropolitan Council maintain pressure on the greater metro to come up with their fair share of affordable housing unit, on the other hand the means of financing such rehabilitation and new construction can by politically allocated to neighborhoods already carrying more than their share of disadvantaged citizens.
If I were to house people who needed a little extra help in life, I would make the argument that it is sensible to do so in a community with a little extra time and expertise on their hands to help out. But I can’t choose where to house folks as I am not able to purchase tax credits along with friends and neighbors of similar minds.
The process simply isn’t that simple. Here’s a visual that is helpful.
Needless to say the multiple layers of bureaucracy add cost to the process.
LIHTC is an economically inefficient method for producing affordable rental housing. The process
of allocating and awarding tax credits is time consuming and complex. A study produced by the State of Washington found that it frequently takes twice as long to put together a LIHTC-financed project than one that is market rate, in turn contributing to higher legal and other transaction costs (Keightley 2017; Mitchell et al. 2009). Costs are also driven by the complexity of some LIHTC deals. A GAO (1997) study found that the process of syndication (pooling resources from multiple investors) can claim between 10 and 27 percent of project equity. LIHTC projects also have few incentives to keep costs low because reducing development costs would result in not using the full tax credit issued for the project (Mitchell et al. 2009).
From what I gather, low income tax credits are sold to any corporation who wants to invest in them. There is no mission, there is no sense of service. It is a pointy penciled transaction sketched out by a corporate CPA. Does it make more sense that a scoring system by the Federal government with a tongue twisting list of acronyms (CDBG,HOME,AMI, and 60% of this and 30% of that) be the mechanism for matching supply with demand rather than a neighborhood saying yes to affordable housing?
Honestly– the serpentine system seems to be more about keeping people out of the conversation than in it.
Home Economics 