Trying to get a handle on affordable housing

After 38 years of building low-income housing, nonprofit CommonBond Communities of St. Paul has a new problem: Thanks to the recession, it has many more applicants for housing than it can handle.

State and industry housing officials say CommonBond's problem -- 5,800 applicants for 5,000 housing units that are 97 percent occupied -- is just the tip of the iceberg in Minnesota. About 120,000 households in the state are estimated to be paying half their income for housing, compared with the 30 percent the federal government considers normal. And that means the growing backlog of applicants for subsidized lower-cost housing could turn into a flood.

The evidence can be found at CommonBond's Maplewood housing project, Trails Edge Townhomes, which opened last year.

"One of the new things we've seen there is a much higher percentage of people who have lost their homes due to foreclosure," said Paul Fate, president and CEO of CommonBond Communities, the state's largest affordable housing nonprofit, which specializes in below-market-rate housing for families, seniors and people with special medical needs. "These middle-class people who are having economic hard times just add to the demand."

Sky-high demand for affordable housing has forced CommonBond to make some changes in its successful business model, which in recent years has focused on building family townhouses and senior apartments in suburban locations and making an effort to have them "fit in" with local communities. (Gone are the days of high-rise apartment buildings with as many as 1,000 occupants.) It owns more than 100 buildings, 90 percent of them in Minnesota and the rest in Iowa and Wisconsin. They range in size from Success Family Housing, an eight-unit facility in Minneapolis, to Skyline Tower, a 504-unit dwelling in St. Paul.

CommonBond also traditionally has provided social services to residents, such as tutoring and summer programs for children and employment counseling for adults. It has 240 full-time employees, and this year has nearly 2,900 volunteers that are the equivalent of another 30 full-time workers.

Recent CommonBond housing developments in Robbinsdale and Maplewood have been aided by the organization's relationships with churches willing to sell some of their property for affordable housing projects, Fate said. CommonBond is a 1971 spinoff of the Catholic Archdiocese of St. Paul and Minneapolis.

But Fate said CommonBond's operations have been adjusted for the recession. Instead of focusing on the relatively expensive building new housing units, it is acquiring existing buildings in Minneapolis and St. Paul that can be converted into apartments. One project involves converting the Commerce Building in downtown St. Paul from office space into a 12-story apartment building. The top six floors have been completed, and renovating the bottom six is one of CommonBond's next tasks, Fate said. The organization also is paying more attention to locating affordable housing closer to public transportation and job sites, and trying to lower building operating costs through energy efficient windows and lighting.

Chip Halbach, executive director of the Minnesota Housing Partnership, a lobbying organization representing housing developers, investors and local governments, agrees with Fate's strategy.

"CommonBond has to slow down while they see what happens in the broader economy and the investment community." The investment community is the other half of CommonBond's financial picture. While demand for services is growing, support for nonprofit affordable housing projects is dwindling.

About half the cost of affordable housing construction is paid by federal tax credits, which are given to nonprofits such as CommonBond, then resold to investors such as banks and corporations to raise money for low-cost housing projects. But the recession has cut the resale value of those tax credits about 25 percent, Fate says.

In addition, there are significantly fewer investors willing to buy tax credits, which can offset taxes on corporate profits over several years.

"More and more corporations are either just barely making profits or experiencing losses," said Bob Odman, assistant commissioner for multifamily development at the Minnesota Housing Finance Agency. "They don't need the tax shelter because they don't have tax liability." In addition, government-backed organizations that once bought back 40 percent of all affordable housing tax credits, Freddie Mac and Fannie Mae, are no longer purchasers.

The federal stimulus program sought to help nonprofits such as CommonBond by providing $46 million to buy or supplement affordable housing tax credits in Minnesota this year and in early 2010. But state and housing officials agree it wasn't enough to go beyond funding this year's construction projects -- and no additional federal stimulus money has been authorized by Congress so far.

CommonBond received $8.9 million of federal stimulus money, earmarked for people with household incomes at or below $50,340 for a family of four, or 60 percent of the Twin Cities median income, Odman said. But underscoring the need for affordable housing, many of CommonBond's residents earn considerably less. The average household income for all residents is $14,000, Fate said. About 60 percent of CommonBond's housing is for families with low incomes, 30 percent is for seniors and 10 percent is for residents with special needs.

"We're planning on our revenue holding up, and feel good about our projections for 2010," Fate said. "But 2011 and 2012 are a little less predictable." Last year, CommonBond had revenue of $16.5 million, which comes from a combination of fundraising (including tax-credit sales) and fees it collects for housing it constructs and manages. Fundraising accounts for 21 percent of CommonBond's budget.

But even as CommonBond cuts back on new construction projects, there are also new fundraising efforts afoot. CommonBond and other housing nonprofits are seeking to create an "investment pool" that would spread the cost of an affordable housing project among several investors, each contributing a small amount of the cost.

Minnesota Housing Partnership's Halbach said: "The best way out of this is for the economy to recover. But in the meantime, we need more housing at a price point that matches what people with reduced incomes can pay."

Steve Alexander • 612-673-4553