Affordable Housing Options Reviewed

By Joan Bennett

A PRIMER ON AFFORDABLE HOUSING

Recent projects and development proposals have engendered renewed conversation about the right mix of affordable (or subsidized) and market rate housing in Downtown Minneapolis. Some argue that there is sufficient, or perhaps too much, affordable housing Downtown. Others argue that Downtown is in need of, and is in a good position to support, more affordable housing. There is a fair bit of nuance in within and between those positions.

Affordable housing comes in many forms. The purpose of this article is to support continued discussion by providing those who may be unfamiliar with the field with more information on the range of housing needs that affordable housing seeks to address. I am no expert, but I will strive to provide the high-level information.

Because the housing market often fails to provide a mix of housing that meets the needs of people across the income spectrum, the government provides direct housing assistance and creates incentives for developers to build low-income or workforce housing. Each year, non-profit and for-profit developers compete for a limited pool of subsidies that can be used to develop or remodel affordable housing. 

Affordable housing can be broadly categorized by the income-profile of the tenants it serves. This is measured in percentage of Area Median Income (AMI), which is set by the U.S. Census. Funding streams attached to a specific development typically dictate the income profile that would make someone an eligible tenant. Some buildings also serve people with special needs related to age, veteran status, tenure of homelessness as well as physical, mental or chemical health.

How is Affordability Defined?

As the threshold of affordability varies by income, policy makers tend to use the rule of thumb that housing is affordable when a household has to spend no more than 30% of its gross income on housing costs. Households above this threshold are considered cost-burdened. It is assumed that above this threshold, households will have a difficult time covering other non-discretionary expenses (i.e. food, transportation, healthcare). By tracking the number of cost-burdened households, policy makers are to identify gaps in the housing market and, ideally, tailor affordable housing policy and funding accordingly.   However, the Minnesota Housing Finance Agency will be the first to admit that the resources that are available to increase the affordable housing supply consistently fall far short of fulfilling the demand.

 “Naturally Occurring” Affordable Housing

Within Minneapolis, much of the affordable housing has been comprised of, what policy wonks term, “naturally occurring” affordable housing. This is housing that by virtue of its place in the market (i.e. less competitive neighborhoods, sufficient supply, deteriorating condition) is affordable. When demand for real estate increases, property owners raise rents or remodel/replace ageing buildings with upmarket apartments. While this type of investment improves the quality of the housing stock (no one should live in substandard housing), it often has the effect of eroding the supply of this naturally occurring affordable rental housing. A similar effect is felt in the owner-occupied market when households find themselves priced out of “starter” housing in previously modest neighborhoods. 

As housing costs increase, the income-level at which it becomes difficult to find affordable housing in a given market ticks upward.

Work Force & Artist Housing

From a policy perspective, there is no hard and fast definition of work force housing. The term may apply to housing for low-income workers. Other programs might consider work force housing to include moderate income individuals (up to 115% of Area Median Income). Workforce housing can “occur naturally” in a well-balanced housing market or the government can encourage it though a subsidy.

The most common subsidy developers use to build workforce is the Low-Income Housing Tax Credit (LIHTC), which can be used to develop rental housing for people who earn up to 60% of AMI (in any affordable project, developers piece together multiple funding sources to make the numbers work).

In Minneapolis, this means a single person earing up to $37,000 would qualify to live in a LIHTC building. The max income goes up based on the size of the household. For example, a household of four could earn up to $52,000. This same program can be used for very low-income individuals and people with special circumstances such as a disability, long-term illness, extended homelessness or age (more on that later).

Buzza Lofts in Uptown, A-Mill Artist Lofts in St. Anthony Main, the Broadway Flats in North Minneapolis and the Mill City Quarter, under construction in the Mill District, are local examples of housing that serve people near 60% AMI through the LIHTC program.

Though the rent is pegged to government-defined affordability measures, these buildings tend to only be affordable to those at the top of allowed income range (a one bedroom is about $800 -$950/month). These types of developments, which follow the letter of the law with regards to rent and income-guidelines, have come under criticism for serving only a narrow band of the low-income population as they remain out of reach for most low-income families.

There are very few programs that work to guarantee rental affordability for people who earn more than 60% of AMI, but not enough to afford market rents.  

Housing for Very Low-Income to Extremely Low-Income Households

A slate of funding streams is leveraged to build and operate affordable housing for extremely to very low-income community members. This economic group is considered to be folks who make under 30% or 50% of AMI, depending on the program. Affordable housing developments often utilize several programs to make the numbers work (including the tax credit program mentioned in work force housing section above). Depending on the operator or service model, these units may be paired very light to very intensive support services. The requirements and sources are often changing, so I will leave the details to the experts and cover just the high-level information. 

The most well-known example of this type of subsidy is Section 8, a Federal funding stream that is administered in Minneapolis by our own Public Housing Authority (MPHA). Tenants typically put 30% of their income towards rent. Section 8 picks up the remaining portion.  

Section 8 is rolled out in two basic forms, project-based and vouchers. With project-based assistance, the subsidy is attached to the building or a selection of units in a property that is owned and operated by a private entity. A Section 8 voucher travels with the individual or family. They can use this voucher to rent from any willing landlord within a specific geographic area (i.e. the City of Minneapolis, Metro wide) depending on the program. As landlords are not required to accept Section 8 and voucher amounts are capped, voucher holders often find themselves with limited options.  

In addition to administering Section 8, the Minneapolis Public Housing Authority also manages 6,000 low-income public housing units.

Waiting lists for public housing, project-based Section 8 and vouchers tend to be long and are often closed. An individual or family may bounce around the “naturally occurring” affordable housing market (or shelters for the more economically vulnerable folks) for years before securing housing through one of these programs.

Housing for Extremely Low-Income, Special Populations

Some affordable housing programs serve individuals and families who are considered to be the most vulnerable. For example, there are housing programs (which could take the shape of a bricks & mortar location or a housing voucher used in the open market) that specialize in serving low-income seniors, veterans, people who have experienced long-term homeless, people with serious and persistent mental illness or people living with HIV. These programs often pair housing with support services to help residents maintain housing stability.  

The policy decisions behind these programs are driven by a mix of values, from protecting vulnerable groups to cost-efficiency. Particularly for people who experience long-term homelessness, a host of studies have found that providing subsidized housing coupled with support services is more cost-effective than leaving people on the streets. The operating costs of a shelter are often more expensive per guest/per night than an apartment/night. Stable housing also reduces the frequency with which individuals use expensive emergency services.

Affordable Homeownership Programs

There are programs that strive to remove barriers to homeownership for moderate income individuals (typically considered to be 80% to 115% of AMI) through downtown payment assistance, direct subsidies or land trusts. These programs target households who could successfully manage a mortgage if provided with some upfront support or access to follow-up services to help them weather events that may temporarily compromise their ability to make mortgage payments (i.e. change in employment, significant unexpected repairs).

Mortgage Interest Deduction

Though not an affordable housing policy, the Mortgage Interest Deduction is a significant housing subsidy. This $70 billion dollar a year tax expenditure reduces the cost of home ownership by allowing homeowners to deduct mortgage interest from their federal taxes. This credit tends to benefit wealthier individuals with higher mortgages, as folks with more moderate homes tend to not pay more in mortgage interest than the standard deduction.

Policy wonks have begun to highlight the fact that this tax break far exceeds the total budget of the US Department of Housing & Urban Development, the agency that administers Section 8 and other key affordable housing programs.

Consult the Experts

Minnesota has a sophisticated affordable housing community. If you would like to learn more, pay a visit to Housing Link, Minnesota Housing Finance Agency, Minnesota Housing Partnership, Minnesota Coalition for the Homeless, City of Minneapolis Housing Policy and Development Division and the City of Lakes Community Land Trust to name a few. The Minnesota Legislative Reference Library has a great collection of links if you would like to dig even deeper. 

In addition to writing for the Mill City Times, Joan Bennett is on staff with the Downtown Minneapolis Neighborhood Association (DMNA) and Chair of the Corcoran Neighborhood Organization Board. The views expressed in this article do not necessarily reflect those of either organization.

Joan can be reached at joan@millcitymedia.org