Tag: Affordable Housing

The Municipal Housing Toolkit: Where the Money Comes From and What It Does

Cities and counties working on affordable housing don’t write checks directly to struggling families and call it a day. The reality of municipal housing assistance is considerably more complex — and more interesting. Local governments operate simultaneously on two fronts: the demand side, helping individual households afford housing that already exists, and the supply side, creating or preserving the affordable units those households need in the first place. Understanding the distinction between these two fronts, and the specific tools deployed on each, is essential for any honest evaluation of whether a city’s housing strategy is actually working.

What follows is a plain-language guide to the most common tools in the municipal housing toolkit, organized by function, with an explanation of what each tool does and where the money originates.

Demand-Side Tools

These tools help households afford housing by subsidizing the cost of renting or owning, rather than directly creating new units.

HCV — Housing Choice Voucher Program Commonly called Section 8, this is the largest federal rental assistance program in the country. An eligible low-income household receives a voucher that covers the difference between 30% of their income and the fair market rent for their area. The household finds a private landlord willing to accept the voucher, and the local housing authority pays the landlord the subsidy directly. The program is funded entirely by the federal Department of Housing and Urban Development (HUD) and administered locally by a public housing authority — in Plymouth’s case, the HRA. The city’s role is administration; the money originates in Washington. The primary constraint is not eligibility but supply: waiting lists of hundreds or thousands of applicants are common because the number of vouchers is fixed by congressional appropriation.

DPA — Down Payment Assistance Homeownership is out of reach for many moderate-income households not because they cannot afford a monthly mortgage payment but because they cannot accumulate the lump sum needed for a down payment and closing costs in a high-price market. Down payment assistance programs provide grants or deferred loans — often forgiven after a period of occupancy — to bridge that gap. Funding typically comes from CDBG allocations, state housing finance agency programs, or local HRA levies. Plymouth’s program currently offers up to $35,000, which against a median sale price of $616,000 covers roughly 5.7% — meaningful but increasingly strained by price appreciation.

LAHA — Local Affordable Housing Aid A relatively new Minnesota-specific tool, LAHA is an annual appropriation distributed to eligible cities and counties from a regional sales tax collected across the seven-county Twin Cities metro area. Payments began in 2024. Unlike federal programs, LAHA dollars come with relatively flexible use rules — eligible activities include construction, acquisition, rehabilitation, rent assistance, interest rate reduction, and gap financing. The funds must be committed within three years and expended within four. Plymouth had received approximately $1.3 million through early 2026. Because LAHA is locally controlled and flexible, it is one of the more strategically useful tools in Plymouth’s current toolkit.

BITH — Bring it Home A Minnesota Housing Finance Agency rental assistance program that allocates vouchers to local housing authorities for distribution to income-qualified households within a specific geography — meaning, unlike portable HCV vouchers, these cannot be used outside the city. Plymouth received 36 vouchers through this program, expected to be operational by spring 2026 at a cost of approximately $535,000 annually. Funding originates with the state of Minnesota through Minnesota Housing. The geographic restriction is both a limitation and a feature: it keeps assisted households in the community rather than allowing the subsidy to follow them elsewhere.

Supply-Side Tools

These tools create, preserve, or rehabilitate affordable housing units — addressing the stock itself rather than individual households’ ability to pay.

TIF — Tax Increment Financing TIF is the workhorse of municipal development finance and the tool Plymouth has used most aggressively for affordable housing. When a city creates a TIF district around a development site, it freezes the assessed value of that property at its pre-development baseline. As the development increases the property’s value and generates higher tax revenues, the incremental increase — the difference between the old and new tax bill — is captured and redirected to finance the project rather than flowing to the general tax base. This increment can pay off bonds that funded upfront infrastructure or gap financing for the project. TIF money is not an appropriation from a budget — it is a pledge of future tax revenue. For affordable housing, TIF is typically used to cover the financing gap that makes a project financially viable when rents must be kept below market rate. Plymouth has used TIF to generate over $6.5 million in affordable housing financing across multiple projects. Up to 35% of increments from redevelopment districts can be pooled and used for projects beyond the original district boundaries when applied to qualifying housing.

LIHTC — Low Income Housing Tax Credit Pronounced “lie-tech,” this is the primary federal tool for financing the construction of affordable rental housing and is responsible for the majority of affordable units built in the United States since its creation in 1986. The federal government allocates tax credits to state housing finance agencies — in Minnesota, that is Minnesota Housing — which then award credits competitively to developers. A developer who receives a LIHTC award sells the credits to investors (typically banks and corporations seeking to reduce their federal tax liability) in exchange for equity capital. That equity reduces the amount the developer needs to borrow, which in turn allows rents to be set below market rate while the project remains financially viable. Units financed with LIHTC must remain affordable — typically at 60% AMI or below — for at least 30 years. The money does not flow from government to developer directly; it flows from the federal treasury to investors through reduced tax liability, and from investors to developers as equity. Plymouth has multiple LIHTC-financed projects in its affordable housing inventory including Element, Cranberry Ridge, and West View Estates.

HRB — Housing Revenue Bonds Cities and counties can issue tax-exempt bonds to finance residential rental housing. Because the interest earned on these bonds is exempt from federal income tax, investors accept a lower interest rate, which translates into lower borrowing costs for the developer. The savings on debt service allow rents to be set below what a market-rate project financed with conventional taxable debt would require. The city is not on the hook financially — these are conduit bonds, meaning the city serves as the issuing vehicle but the developer is responsible for repayment. In exchange for the tax-exempt status, developers are typically required to set aside a portion of units at affordable rents. Plymouth has used housing revenue bonds extensively, with 846 rental units across city properties financed this way. The money originates with private bond investors; the federal subsidy is the tax exemption.

CDBG — Community Development Block Grant CDBG is a federal block grant program administered by HUD that flows to cities and counties for a wide range of community development activities, with housing rehabilitation being one of the most common uses. Unlike categorical grants with narrow use restrictions, CDBG gives localities considerable flexibility in how funds are deployed, subject to the requirement that activities primarily benefit low- and moderate-income persons. Plymouth uses CDBG for its First-Time Homebuyer Program, its Owner-Occupied Housing Rehabilitation Program, its Emergency Repair Grant program for seniors, and funding for social service agencies. The money originates entirely with the federal government. Plymouth receives approximately $250,000 annually plus program income from loan repayments. Importantly, CDBG administration requires significant staff capacity and reporting, which is why Plymouth is considering whether to transfer administration to Hennepin County — freeing staff time but losing some local control over how the funds are directed.

HIA — Housing Improvement Area An HIA is a Minnesota-specific statutory tool that allows a city to finance common-area improvements to townhome or condominium developments by levying the cost against the individual property owners in the affected association, collectible through property tax statements over time. It functions like a special assessment but for private common property rather than public infrastructure. The tool is particularly useful for older attached housing developments where the homeowners association lacks the reserves or borrowing capacity to fund major capital repairs — roof replacements, siding, windows, elevators — that if deferred would accelerate deterioration and reduce the affordability and habitability of the units. Plymouth adopted an HIA policy in early 2026. No public money is permanently expended — the city essentially extends its credit and taxing authority to enable a private association to finance improvements, recovering the cost through the levy. This makes it a powerful preservation tool with relatively low fiscal risk.

4d — Local 4d Affordable Housing Incentive Program The name comes from Minnesota Statute 273.128, which establishes a reduced property tax classification rate for rental housing where at least 20% of units are income and rent restricted at or below 60% of AMI. The reduced rate — from 1.25% to 0.75% of assessed value — lowers the property tax bill for qualifying landlords, improving the project’s operating economics and making it more feasible to maintain affordable rents. A city or HRA triggers eligibility by providing nominal financial assistance and entering a development agreement with the property owner that records the rent restrictions against the deed. Plymouth adopted a local 4d incentive program in early 2026. The money for the tax reduction does not come from the city budget directly — it comes from the tax base, meaning other taxpayers effectively subsidize the reduced rate for qualifying properties. The tool is most valuable for preserving NOAH properties that are already charging affordable rents but might escalate without an incentive to maintain restrictions.

IHP — Inclusionary Housing Policy An inclusionary housing policy requires or incentivizes developers of new market-rate housing to include a percentage of units affordable to lower-income households as a condition of receiving city financial assistance or land use approvals. The mechanism varies — some policies mandate inclusion, others offer density bonuses or fee waivers in exchange for voluntary compliance. Plymouth adopted an IHP in 2024 that applies to projects receiving city financial assistance, requiring developers to choose a level of affordability appropriate to their project. Affordable units produced under an IHP are financed by the market-rate portion of the development — in effect, market-rate tenants cross-subsidize affordable tenants through the blended economics of the project. No direct public dollars fund the affordable units, though the city’s financial assistance (often TIF) is what triggers the requirement. The tool only works in markets where development is actively occurring and margins are sufficient to absorb the cross-subsidy.

HTF — Housing Trust Fund A housing trust fund is a dedicated pool of public money that can be deployed flexibly to fill financing gaps in affordable housing projects that cannot be fully financed through other sources. Unlike categorical programs with rigid use restrictions, an HTF can provide grants, loans, or equity contributions depending on what a specific project needs. Funding can come from a variety of sources — developer fees, bond proceeds, general fund appropriations, fines and penalties, or dedicated tax revenues. Plymouth established its Housing Trust Fund in 2025 with an initial HRA allocation of $100,000 — a meaningful first step but a very small pool relative to the financing gaps in typical affordable housing projects, which commonly run into the millions. The value of an HTF grows over time as loan repayments recycle back into the fund and as additional revenue sources are dedicated to it. Cities with mature housing trust funds — Minneapolis being the clearest regional example — use them as the primary local matching tool for LIHTC applications and other competitive state and federal programs.

NOAH Preservation Programs — Naturally Occurring Affordable Housing Preservation NOAH properties are privately owned rental buildings that charge rents affordable to lower-income households not because of any subsidy or restriction but because they are older, smaller, or less amenity-rich than newer buildings. They represent the largest source of unsubsidized affordable housing in most cities and are also the most fragile — when they sell, rents typically increase to market rate and the affordability is permanently lost. NOAH preservation programs use a combination of acquisition financing, rehabilitation loans, and affordability covenants to intercept these properties before or at sale and lock in affordability for an extended period. Funding comes from a patchwork of sources: LAHA, pooled TIF, HTF, state programs through Minnesota Housing, and federal programs including the HOME Investment Partnerships Program. Plymouth’s 4d program, HIA policy, and LAHA funds are all oriented in part toward NOAH preservation, though a dedicated acquisition fund does not yet exist.

Land Assembly and Disposition Cities and HRAs can use their powers of eminent domain or negotiated purchase to acquire strategic parcels — often underutilized commercial sites, former motels, or obsolete retail — and either hold them for future affordable development or sell them at below-market prices to affordable housing developers. The land write-down reduces the developer’s total project cost, which in turn reduces the financing gap and the level of subsidy needed from other sources. Plymouth has used this tool at the Four Seasons Mall site and the former Red Roof Inn on Annapolis Lane. Funding for acquisition comes from HRA levy dollars, LAHA, or pooled TIF. The tool requires patience — assembling land, conducting environmental review, and finding the right developer and financing package can take years — but in high-land-cost markets like Plymouth it is one of the most powerful levers for enabling deeply affordable development that the market would never produce on its own.

These tools are rarely used in isolation. A typical affordable housing project in Plymouth might combine LIHTC equity, a city TIF note, an HRB for conduit financing, LAHA gap funding, and an IHP covenant — each piece filling a specific layer of the financing stack. Understanding what each tool does, where the money comes from, and which household archetypes it ultimately serves is the prerequisite for evaluating whether a city’s housing strategy is coherent, targeted, and producing results commensurate with the public investment behind it.

Real Estate Books

There aren’t many. There’s the ‘how to get rich in real estate’ type of literature, which is only vaguely helpful to those with no real estate experience and, in equal measure, misleading. There are books developed to help salespersons pass the required testing to obtain a real estate license. There’s material on all sorts of financial instruments used to finance property. But I’m not talking about that type of thing.

I’m talking about the manner in which real estate features in people’s lives.

Judith Martin, a former professor of geography at the University of Minnesota, wrote Past Choices/Present Landscapes: The Impact of Urban Renewal on the Twin Cities. This project spotlights some of the effects I like to talk about. It focuses on the massive slum-clearing and subsequent redevelopment of large sections of inner-city property. In hind site Martin points out:

Much has been written about the ideas and the implementation of the urban renewal program in the United States during the 1950s and 1960s. Most of this literature views urban renewal as a program that: (1) worked to the disadvantage of people most in need of improved housing -a great deal of substandard housing was removed, but a relatively small amount of low-income housing was constructed;(2) was a boondoggle for developers-they were able to acquire land inexpensively from city authorities, and often made large profits on the projects built on this publicly acquired land; and (3) focused on
economic development issues C’let’s fix up downtown”) at the expense of housing and neighborhood concerns (Anderson 1964; Hartman 1964; Gans 1965).

Viewed in retrospect, much of this criticism is valid, but it does not tell the whole story. Critics have portrayed planners who developed and implemented urban renewal programs as heartless beasts who turned a deaf ear to the real needs of “the people.” But it is hard to see most renewal officials as greedy and profiteering, or as consciously
trying to exercise their power over helpless city residents. There are, for example, no notable cases of renewal officials growing rich working on these programs. If anything, the views of those who implemented urban renewal programs in the Twin Cities and elsewhere can be considered somewhat naive. They assumed that renewal could be
accomplished quickly, that private developers would clamor for the opportunity to build in available areas, and that the renewal process could be carried out with relatively few snags. None of these assumptions proved to be true.

Real estate is a tricky wicket. If people want to follow along, they need to, as Judith indicates, read the whole landscape and not cherry-pick a brief situation in the misty flow of time.

The Cascade Effect: Unlocking Housing Affordability

Housing markets often seem mysterious, but at their core they operate as a cascading system shaped by wealth, supply, and lending rules. A recent model by Abramson and Landvoigt highlights how rising wealth inequality and slow housing supply interact to push prices upward. Their framework divides housing into quality tiers, from luxury to starter units, and shows how households with different levels of wealth compete across these tiers.

A central insight is that prices at the very top do not stay isolated. Luxury buyers are a small share of the market, and in some sense they simply bid against one another for exclusivity. One might argue that they are “fools” for paying such large premiums, while the rest of the market should remain relatively affordable. But in practice the tiers are linked. When supply of luxury units is restricted, affluent households who cannot find space at the top tier shift down into the next-best homes. That displacement triggers a chain reaction: middle-income households face stiffer competition, prices at their tier rise, and the pressure filters all the way down to lower-income renters. Economists call this the filtering or musical chairs effect, and it means that adding supply at the high end can improve affordability across the board.

This cascading dynamic is exactly what makes the market work. New supply at any tier frees up units that can be occupied by someone else, allowing households to sort themselves according to means and preferences. The danger arises when either end of the ladder is blocked. If new high-end supply is not built, the wealthy bid down-market and crowd out others. If older or more affordable stock is neglected, the bottom rungs collapse and low-income households are left without viable options.

At the same time, credit standards shape who can actually buy. A household that cannot afford the payments will not receive a loan, which protects individuals from becoming dangerously over-leveraged. But this underwriting filter does not stop prices from rising overall; it only determines who gets excluded. The clearing price is still set by those wealthier households who can obtain financing. Those priced out of ownership often remain in the rental sector, where demand pressures drive rents upward as well.

Taken together, the picture is less about a simple split between the rich and poor and more about a tightly connected cascade. Housing affordability depends not only on overall supply but also on how well each rung of the ladder is maintained and allowed to expand.

More money, better conditions

That’s the conclusion of a recent article by the Minneapolis Federal Reserve research team.

In a recent paper co-written with researchers from the University of Wisconsin-Madison and the University of Illinois-Chicago and initially published by the Minneapolis Fed, we measured the evolution of housing quality for low-income households over the past several decades across the United States. We found broad and generally large increases in housing quality and smaller but still important increases in living space.

So, it’s not surprising that the data show fewer low-income people living in squalor.

I like this part too. It’s a great example of how headlines can suggest misleading information. Although gross rents have increase, they have hit people’s monthly budgets at a much lower increase.

As housing quality and quantity are getting better, how much more are households paying for it? According to the AHS, for below-median-income Twin Cities area residents, real monthly spending on housing increased by 32 percent from 1998 to 2021, from $1,008 to $1,333. Around half of below-median-income Twin Cities households remain housing-cost-burdened (spending 30 percent or more of their income on housing) and a quarter remain severely housing-cost-burdened (spending 50 percent or more of their income on housing). For many families that spend a large fraction of their income on housing, findings about general housing improvements may be tough to appreciate.

However, our analysis indicates that greater housing spending reflects not only higher housing prices but also Twin Cities area residents’ ability to afford housing that is larger and nicer. Overall, the average housing budget share only increased by 4 percentage points from 1998 to 2021, from 36 percent to 40 percent of income, which indicates that most of the growth in spending on housing is driven by higher incomes, better quality, and more spacious homes, as opposed to needing to allocate a greater share of income for the same, unimproved housing.

Some combination of private money, public efforts, and community involvement is improving living standards for those with lower incomes. And it’s not clear at all that the burden is falling on the most vulnerable.

Circuits and Tariffs

At least a couple of decades ago, when I’d help a client purchase a home that happened to be along an open field, I’d remind them that the view may not always stay that way. The Twin City metro was growing and fields just like the one adjoining their new home were being plowed in and repurposed into neighborhoods of single-family homes. They would nod in acknowledgement and yet still feel a loss when a crop of dwellings soldiered up outside their windows.

There are more situations like that– where the surrounding circumstances change and present residents feel like a cost is imposed on them. Take that lightning rod word: gentrification. In certain circles, it is spit out with as much vehemence as the title capitalist. In reality, gentrification implies that a neighborhood is getting cleaned up, crime is being brought down, structures are being fixed up, and truancy is being pushed out. But when you spruce up the place, more people want to live there. This is distressing to longtime residents who don’t want to see rent prices rise in response to higher demand. The situation is changing around them without their consent!

Or consider an elderly couple who own a large, beautifully situated parcel of land on Flathead Lake. In the years they moved to northwestern Montana, it was remote. Desolate even. Over time, others discovered their paradise and passed the word along to still more people who appreciate views of the rugged snow-capped Rockies. As people arrive, more services are necessary which pushes up property taxes. Is it fair for the elderly to endure the increases? They did nothing to give rise to these new obligations, and now the expense may make their living choice beyond their reach.

Tariffs are a response to the same issue. When the pool of labor is opened up to a global market, should the loss of work in the Midwest manufacturing industries fall solely to die-cutters and assemblymen? They did nothing to change the circumstances, yet they bear the burden. Wall Street profits, labor abroad profits, and they are told to adapt.

What is the proper cycle of protection for the renter affected by gentrification? How long would the elderly be eligible for lower property taxes? Is there a natural circuit for these things to enable an easing of the effects of changing circumstances to all involved?

Transaction action and Institutions

Does affordable housing vary in quality based on location? Or is it simply a category of housing no different than a category of a car or a type of breakfast cereal? If you can use the home to shelter a household whose income falls below an acceptable level, then the property adequately meets its intended value.

A group of black pastors, led by Dr. Alfred Babington-Johnson, thinks location does matter. They are suing Minnesota Housing, an agency responsible for the allocation of public funds to subsidized housing, for exacerbating a household’s access to success by predominantly building in areas serviced by weak institutions.

A prominent voice among Black Twin Cities ministers, Babington-Johnson sued Minnesota Housing and the Metropolitan Council last year, arguing that state and regional efforts to build affordable housing effectively have backfired, increasing racial segregation while concentrating poverty in poor neighborhoods.

“Whether that’s done with proven intentionality, the outcomes clearly indicate none of the disparities go away,” Babington-Johnson said in an interview Wednesday. “The educational gaps don’t close. The economic opportunities don’t materialize.”

In this quote, Babington-Johnson refers to two institutions: schooling and the workplace. Efforts to develop educated people are regarded as the path to improved employment. Yet when people reside in areas where 40-50% of the residents live below the poverty level, it is easy to imagine that the lack of informal networking and time resources available to nurture these institutions is not at hand.

The Minnesota Housing Commissioner counters:

In a letter to the state advisory committee last month, Minnesota Housing Commissioner Jennifer Ho wrote that “in the last several years, 63% of the new rental units in the Twin Cities metro area that have been awarded funds through the Agency’s Consolidated Request for Proposals have been in the suburbs while 37% have been in the central cities of Minneapolis and St. Paul.”

Which seems to contradict what people on the ground are feeling. My question, as a casual follower of the issues, is why are the numbers so hard to come by? Every time I’ve gone down the rabbit hole to try to nail down the numerical facts of these conversations, time has not allowed for a successful outcome. As public information, it seems they should be accessible. Attorneys for the pastor group put out these numbers.

Attorneys for Stairstep noted that in the Twin Cities, more than 23,000 affordable housing units received subsidies that began between 2017 and 2021. Of them, 56% — or 13,000 units — were subsidized by Minnesota Housing, the Met Council or another form of state funding.

Note the difference in verbiage between ‘new’ units versus all subsidized units. Two thirds of the new units may go to the suburbs. However, this clouds the issue, which is that most subsidies, by the structure of aid distribution, flow to neighborhoods of high poverty. The Housing Commissioner proposes work to be done to create the ideal institutions in place.

“For example,” she said, “the only avenue for lower-income parents of color to access well-resourced schools should not be making them move to a white, wealthy community, which may lack other opportunities that they value. Rather, we should invest in disinvested communities and ensure that all schools are well resourced, allowing people to achieve equity in place.”

The implications that folks could be giving up support groups in a move is a valid one. But who would be in the best position to provide voice to whether it is more feasible to relocate or to enhance institutions in high poverty areas? The pastors, or the residents if given the choice to move, or the government who holds monopoly on dictating where the housing units are located? Shouldn’t residents have a choice?

It’s not the structure-

Allison Shertzer takes issue with the headline’s cryptic economic message. If there is enough housing, then the price for occupancy should settle to the price each resident can afford. If there are fifty homes in a settlement and fifty households, then those who can pay the most pick first, and down the line, the pricing match shuffles until the last match of the least desirable to the household to those with the least resources. This simplified balance market omits nuances like how two homes are tied up when people transition from one property to another. Or that when major renovations are underway, it is difficult to live on the property, so it is vacant.

The basic premise, however, is that when there are sufficient structures to shelter every household, the price to live in those structures is pushed through the system to reflect consumers’ ability to pay. After all, even at the lowest end of the scale, it would be better for the property owner to receive some income from a less advantaged person than to let the property sit vacant.

Or is it?

It is refreshing to see a study confirming that dwellings are, in the big picture, available in
sufficient numbers. “The numbers showed that from 2010 to 2020, household
formation did exceed the number of homes available. However, there was a large
surplus of housing produced in the previous decade. In fact, from 2000 to 2020,
housing production exceeded the growth of households by 3.3 million units. The
surplus from 2000 to 2010 more than offset the shortages from 2010 to
2020.”

This article tries more than most to zero in on what is concerning. It’s not affordability in general. When ten parties are bidding on a house, that tells us there are plenty of households who find the price within their range of acceptability. When houses are selling, and apartments are rented, then folks have the funds to make those arrangements work.

What is of concern, and has always been of concern, is sheltering those at the very lowest of means. This brings us back to the question: If there are open units to occupy, is there a reason why they would be left vacant instead of settling for some cash flow? Yes, there is a reason. In some cases, the net monthly cash flow is negative. The issue is being talked about as if it concerns the building, but it’s really about the necessity of support services.

It would be even more refreshing if the conversation went in that direction instead of
hammering away about building affordable housing, which is another cryptic
economic fallacy.

What I like about this paper

A recent paper, Houston, you have a problem: How large cities accommodate more housing, by Anthony W. Orlando and Christian L Redfearn, offers a new reading of real estate data.

Consider the stylized fact that unmet demand is most-inexpensively delivered on low-cost land at the periphery of the commuting shed, known as a “greenfield” site. This type of development uses low-cost, low-density construction methods. However, in productive and desirable urban areas, low-cost land—especially close to jobs and retail—is quickly consumed, pushing single-family home builders farther away from the amenities that make these urban areas attractive. Eventually, this progression reaches a limit in which commuting back to these amenities is too costly. At this point, the greenfield land is effectively “built out,” and developers are forced to look inward to more expensive land closer to the core where spatial amenities are valued by renters and buyers. When this “infill” development becomes a larger share of new housing supply, the marginal cost of supplying a new housing unit will increase, and the elasticity of supply will fall. Thus, even in the absence of different regulatory regimes, an MSA with more population and more density will appear to have a steeper supply curve because large and growing urban markets naturally progress in this direction.

Real estate has a history of being talked about in static numbers. Orlando and Redfearn discover a dynamic in their research. A city grows along the fringe where the developers can build over large parcels of undeveloped land. This is the most consumer-friendly by meeting the desired structure for the lowest cost. But at some point, the authors observe that the commute to a central business district causes infill projects to gain in status. At that point, a city gains new units within the old infrastructure instead of in the greenfield.

Much of what we have learned in the two decades since DiPasquale (1999) first prompted the field to investigate housing supply is aggregate and static in nature. The goal of this empirical work is to document the location of housing stocks within several MSAs over a long time of growth. The results presented in the article are largely descriptive. It is abundantly clear that aggregate analyses miss the compelling dynamics we documented.

Why stop at the trade-off between low cost fringe housing versus commute time? There are many other interesting dynamics to expore.

Coalitions can’t forget about constituents

A coalition of diverse groups, it was reported, were all coming together for a housing bill. That was sixty days ago.

(KNSI) — The Central Minnesota Builders Association is throwing its support behind a piece of legislation aimed at addressing the lack of housing and the high cost of new construction.

A coalition of housing advocates and bipartisan lawmakers joined together at the State Capitol to call for an increase in access and affordability in housing through the Minnesotans for More Homes initiative.

The bill (HF 4009/SF 3964) legalizes missing middle housing and new starter homes across Minnesota.

KNSI Radio

From the builders association to affordable housing advocates, an unlikely melange of interested parties were looking for ways to reduce housing costs. How better to lower expenses then to reduce barriers to building by rolling back the rules. This bill brought authority over what can be built where to statewide control.

Once the implications of un-zoning the neighborhood hit local communities, residents weren’t impressed. Here are some of the changes proposed.

  • Sets a base level for density allowed on any residential lot by right (or without needing to go through a discretionary review processes) regardless of size at 2 units statewide and 4 units in cities of the first class. If certain conditions are met, 8 units are allowed in second-, third-, and fourth-class cities and 10 units may be allowed per lot in cities of the first class.
  • Forces administrative approvals of projects that meet the standards in the bill language and prohibits public input in the approval process.
  • Limits minimum lot size requirements to no greater than 2,500 square feet for first class cities and 4,000 square feet for all other cities except for Greater Minnesota cities with populations of less than 5,000.
  • Requires all cities to accept Accessory Dwelling Units on all residential lots regardless of size and allows property owners to subdivide their lots by right.
  • Prohibits off-street parking from being required close to major transit stops and limits off-street parking minimum requirements to 1 spot per unit in other areas.
  • Allows multifamily buildings to be built up to 150 feet tall on any lot in a commercial zoning district.
  • Broadly prohibits design standards for residential development and eliminates minimum square footage and floor area ratio requirements.
League of Minnesota Cities

The cities organized and alerted their constituents who must have followed thorugh with calls to their state representatives as the bills is no longer progressing through the chambers. I doubt constitutents will agree to handing over local property rights to the state. This seems like a heavy handed, top down approach.

So how does one encourage increased density? Why- the market of course!

The power of Zone control

A new bill is being introduced in St. Paul concerning zoning. An eclectic mix of backers from builders to affordable housing advocacy groups, from the National Association of Realtors to progressive politicians, are in support eliminating exclusive zoning of single family homes across the state of Minnesota. Here’s are some of the highlights of the bill as provided by Edina Realty’s president Sheri Schmid- who did a nice job of presenting all sides of the issue at today’s company wide sales meeting.

The first bullet point is interesting. The public is denied the right to speak to their city council. It seems to me that there is an effort to take the NIMBY’s out of the conversation. Yet aren’t many, many city council meetings filled with advocacy groups doing their best to talk the loudest? Are they to be muted as well? This might be a public service.

I am an advocate for missing middle housing. In a 50s built neighborhood, it is common to see nice looking duplexes mixed in with single family homes. They blend in well and come at all levels of housing from a modest one bedroom to significant four bedroom units. They are also the main means of aquiring investment property for those entry entrepreneurs who would like to give rental property a try. I just wonder if these multifamily buildings sync with people today. The buyers in the 50s were still feeling the effects of the depression and thought of a little rental income on the side as comforting. Also families would buy a two unit property for siblings to live side by side, for instance. You just don’t hear those same demands anymore.

Let’s leave the next few points about building heights and parking for another time. Here are the points given that necessitate a shift of control from the very local level of the municipality to the state level.

The first bullet point in valid. There are too many regulations in the building process. But regulating by zoning is only one of the areas in question. Even after this is removed, said building would need to meet a whole host of other building regulations and set backs and still fit on the lot. Furthermore, these plans need to go through a planning approval process. It seems like whenever a change goes into effect on complicated process it takes the bureaucracies years to smooth out their systems.

Last I heard, considering the second bullet point, the production of new housing was on track to meet the Governor’s Task Force recommendation of 300,000 additional dwellings by 2030.

Do we need more affordable housing? Sure- the most disadvantaged in society will always, simply on a comparison scale, need to be accomodated to catch-up to the average. Minnesota has a poverty rate of just under 10 percent and folks in that income bracket have real and pressing needs. But what are the best housing opportunities for these families, and more importantly where are they?

Building more housing brings down the overall cost of housing. But helping people in need of housing as well as all the other components to a good life is a multidemential problem. I don’t think we’ve tackled all of the aspects involved. But I do think cities are at a much better vantage point to connect people to housing than the state.

Goal publishing perks

The Minneapolis Fed created a housing dashboard and set three regional housing goals in 2020. Apparently, things are going well.

Article Highlights

  • Twin Cities region met goals in new housing, new affordable housing, and Black homeownership
  • Housing in Twin Cities region remains affordable relative to peer regions
  • Continued progress requires policies that support housing production
Twin Cities Meets Ambitious Housing Goals fro Second Year

Whereas people in power are often capable of swaying voters by rhetoric, tangible goals help keep track of things.

Old Minneapolis Federal Reserve Building

The complexity of being affordable

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.

Affordable housing is not a product line

Some politicians don’t buy the idea that an additional supply of housing units, at any price point, will lead to more units of affordable housing. They do not accept that increasing the number of units overall, or greater supply, reduces costs.

What they see are swanky high end homes being built and swanky high income people moving in and absolutely nothing happening to the other end of society. So who’s to blame them?

In order to assist in smoothing out some of these misconceptions, it’s necessary to beg people to accept that housing is not an ordinary commodity, like clothing. Everyone needs housing and clothing, but that’s where the similarities ends.

Poli-types and activists talk about affordable housing as if it were one line of housing, like an evening gown is one line of a designer’s seasonal collection. If you only make evening gowns there’s nothing for the average Joleen to wear. We must sew up some practical shirtdresses! It’s that simple: Build affordable housing.

There are two conceptual problems with treating housing like clothing (just pick the right line for goodness sakes!) Housing is a good that is used and reused as opposed to being disposable. And secondly, in part due to this, over time (time is important) depending on how much maintenance it receives (maintenance is important) a home’s usefulness and hence value fluctuates.

When left unattended for too long, the structure depreciates and the land it sits on becomes disproportionately valuable.

Whereas a community doesn’t want too much time to pass with too little maintenance (which creates slums), this is often the scenario playing out for NOAH (naturally occurring affordable housing). A long time landlord may get to the point of not being energized by upgrades and flashy renovations. He or she may be riding out the property’s usefulness as long as the tenants are amicable.

But time never stops. And mechanicals get old. So these situations are only sustainable for so long. When left unattended for too long, the structure depreciates and the land it sits on becomes disproportionately valuable. Down comes the structure to make way for a swanky new one.

Since new is expensive, expensive people move-in. But as long as the new construction is adding units to the pool of housing, and not just being filled with newcomers, then homes are freed up for folks to stair step up through more choices.

Noah is building an ark

A handful of years ago a new term showed up in housing forums and real estate continuing ed classes. NOAH. The acronym stands for naturally occurring affordable housing. The Greater Minnesota Housing Fund explains:

The majority of affordable rental housing in the United States can be found in modest apartment buildings in every city and suburb.

These units are home to every stripe of renter and receive no federal or state subsidy at all. These Class B and Class C rental units comprise the bulk of affordable housing in the country today, but there is nothing to guarantee that they will stay that way.

Nationwide, this affordable rental housing is at risk. In prime real estate markets, this “naturally occurring affordable housing’ (NOAH) is often operated under poor management or in disrepair. Speculators are eager to snap up these developments, upgrade a few amenities, and convert these once-affordable homes to higher-market rents. This loss of affordability threatens the stability of individuals and families who are displaced, and even entire communities.

It was like a frosty burst of January air through an open front door. A much needed break from endless harping on ‘building’ more affordable housing. New construction is the most expensive form of housing and how it is in a community’s best interest pay top dollar for very few units is anxiety rising for any spendthrift.

It is equally refreshing to read that a real estate investor in Charlotte, Mark Ethridge, is building on the concept of NOAH. Here’s how he got started:

Ethridge had watched for years as properties like this were snatched up by big money investors who’d quickly renovate them, jack up the rents and then sell them off for a quick profit. With an estimated 120 people moving to the city every day and an economy on the rise, growth in Charlotte had put these kinds of apartment complexes in the sights of housing investors who saw them not as affordably priced homes for lower income residents but as undervalued assets.

Ethridge has attracted a bunch of like minded people to run up a $58 million fund for the purpose of providing housing at below market rates. The difference here is that his investors will receive annual returns on their investments, just at a reduced rate.

Bowles insists this is not philanthropy, and giving the fund a for-profit structure was a way to bring the discipline needed to ensure it would work for the long run. “We are capitalists,” he says. “We believe in capitalism. But if it’s going to survive, we have to make it work for more people. A lot more people.”

The city is still involved with help on the financing end of things and in return there is a twenty year deed restriction placed on the title of the property to ensure 80-100 percent of the units are rented to residents at the low end of the income scale.

Ethridge calls the effort “social impact capital,” and he says the Housing Impact Fund’s investors recognize that their investment can be both beneficial to society and profitable. “The nice thing about buying existing properties, unlike new construction, they cash flow the day you buy them,” Ethridge says. “So we will pay quarterly returns to our investors and we expect that cash flow to be relatively consistent.”

Who is NOAH anyway?

It was three to four years ago when the acronym NOAH (naturally occurring affordable housing) started appearing in presentations and in print. The sale of a 698-unit apartment complex in Richfield, a modest first tier suburb adjacent to South Minneapolis, and the subsequent fallout from tenants having to relocate in light of the new owners’ ambitions to rehab the ailing structure, brought this situation into focus. The term emerged from the realization that there can be a time when both landlords and tenants benefit by rents low.

Analysts talk about housing like it is a static product. How many units are for rent, with how many bedrooms, and how many square feet. People talk about housing as if the most interesting thing about it is its physical parameters. But properties change over time. What is brand-new, mechanically up-to-date today, becomes tired and dated in the course of a dozen years. People change over time too. A single adult transitions into married life and a family changing their housing needs.

Housing structures have a cycle. New means no repairs but new also means (relative to comparable used properties) the most expensive. As properties age they can become dated and repairs can start to be overlooked. Usually used properties are supporting some mix of these two: the roof is new but the furnace midcycle; the counters are granite but the appliances from a decade gone-by.

Wear and tear and maintenance can also vary depending on the tenants. A drive around any large University campus will show off some student housing that is a little worse for wear. And some landlords are better than others at keeping up on property demands. It can be that the owners are at a later stage of their investment and are happy enough to keep doing repairs instead of replacements, and ignoring the dated carpet runners in the hallways. As long as their renters are happy with stable rent, all parties allow the property to age.

Keep in mind the economics of the lower rent. The owner, by letting improvements slide and just getting by on minimal repairs, has in effect allowed the building to decrease in value. The lower rent is a transfer of building value to the renters. The decreased building value in the open market attracts an investor who is then motivated to do the renovations. And with this the new investor attracts renters who can pay for them.

This most probably describes the evolution of the large apartment complex in Richfield. Other expenses can also impact an owner’s decision to sell.

Dickens sees NOAH threatened across the region, and said landlords get no choice when property values — and thus taxes — rise. Maintenance costs and upkeep also climb, with costs typically passed to tenants.

Is it not beneficial to the community or the renters for a building to deteriorate to the point of condemnation. So the process of an investor rehabbing an aging building in and of itself is a good thing. The reality is that structures depreciate over time, and repairs can only be ignored for so long. NOAH wasn’t a discovery of something new, it just revealed a situation in the open market where both the provider of the housing and the residents found an agreeable equilibrium. For a time.

The biggest takeaway from the acronym is that there is no secret money tree that will appear and save the most vulnerable from their housing burden. NOAH occurs as a situation where an investor tolerates some devaluing of property which is then reflected in lower rent to tenants. But it cannot be sustained without the building becoming a teardown. In the end, when people can’t afford their housing expense, some other group will have to cover the difference.