A familiar scenario is increasingly playing out across the Twin Cities: Affordable housing being revamped into higher-end rentals with everything from dog spas to granite countertops, forcing out lower-income residents.

Now a new funding initiative, the first of its kind in Minnesota, is being created to help reverse that trend.

This week, Hennepin County approved $3 million to help finance the purchase of about 530 units of affordable housing in the metro area, warding off the large outside investors who are swooping in to snatch them up.

The county's investment is a major step forward for a $25 million metro-wide initiative — called the NOAH Impact Fund — being launched this fall by the Greater Minnesota Housing Fund, with the goal of preserving 1,000 affordable units in the seven-county metro area.

"We're hoping to make a dent in the problem in stemming the loss of this affordable housing," said Warren Hanson, president of the Housing Fund. "Our market is facing an enormous amount of risk or loss to our affordable housing stock."

While the threat to affordable housing ranges across the state and region, Hennepin County has about half the metro area's affordable housing rentals and 30 percent of all rentals in Minnesota. So far this year, the county has lost at least 1,300 affordable units.

Audrey Ryan had lived in one of them in Golden Valley for more than a decade before getting an abrupt notice this spring to move out of her two-bedroom apartment. Renovations had resulted in a rent hike of up to 40 percent.

"I had a month to pack up 15 years of whatever I had," she said. "It's very scary for people who cannot afford to move somewhere else."

While some residents moved to homeless shelters, Ryan found a one-bedroom apartment in New Hope, forcing her three adult sons to find other living arrangements.

"It's very difficult," she said.

A growing problem

The loss of affordable housing is a "crisis," Hanson told Hennepin County commissioners this week, adding that "the need and the urgency is very, very high."

The County Board, voting as the Housing and Redevelopment Authority, unanimously approved the measure.

"This is a really big deal here. It's a very smart way of going forward," Commissioner Peter McLaughlin said at the meeting. "It's the first fund of its kind in Minnesota."

Past efforts have focused on building affordable housing to combat its growing scarcity in the Twin Cities' tight rental market. But communities are still seeing a net loss when existing units go upscale.

The county's $3 million investment, scheduled to be paid back in 10 years, is the first major step for the new fund. It will provide 30 percent of the equity needed to finance housing purchases, with the rest coming from traditional mortgage financing.

So far, besides the county's funding, the McKnight Foundation has invested $1 million in the initiative and the Greater Minnesota Housing Fund, $2.25 million. Hanson said he hopes to get other agencies, banks, developers and foundations on board to raise the remaining $18.75 million.

Hennepin County has about 82,000 units of unsubsidized multifamily rental housing, with rents affordable to households with incomes at or below 60 percent of the county's average median income — $51,480 for a family of four.

Now, 1,000 units most at risk of being converted into higher-end rentals will be bought and fixed up. The focus is on Class B and C apartments, places built between 1940 and 1990 that usually come with rents from $550 to $1,100.

"There will be no granite countertops," Hanson said. "It might need a paint-up and fix-up … but we're not going upscale here. No pet spas."

With Hennepin County already losing more than 1,300 units this year, the initiative is "a good first step," said Eric Hauge of Home Line, a Minneapolis-based tenant advocacy group.

He called for more protections to be put in place for tenants, and for cities to get involved — such as Richfield, St. Louis Park and Golden Valley — that have seen affordable housing go upscale.

"It's a good example Hennepin County is setting," he said.

"The cities are sort of looking at each other and saying, 'Who's going to do something about this?' "

Renters at Fountain Terrace, a 72-unit apartment building in New Brighton, were facing rent increases of more than $200 until the Greater Minnesota Housing Fund and developer Real Estate Equities teamed up to test a pilot program last year.

For $6.8 million, the partners bought the brick building, replaced some appliances, did minor repairs and put a fresh coat of paint on the walls and new carpet in hallways.

Rents are $1,000 to $1,075 for a two-bedroom apartment, increases of about $25 to $50 a month.

The result: Fountain Terrace has a 3 percent vacancy rate and has maintained its affordability for people who need it, like Charlene Nolin.

The single mom and former surgical technician, who can't work due to a disability, moved there because it's affordable, safe and secluded for her and her 18-year-old daughter.

"People who have Section 8 have gotten a bad rap; we're often thought of as drug users and dirty," Nolin said, adding that the stereotype and decreasing affordable housing made finding a place difficult.

"I should be able to find housing," she said.

Kelly Smith • 612-673-4141