Two recent news items make it far easier to see why our region seems to make so little progress in filling the big hole we have in affordable housing.
First, the city of Minneapolis finally passed its “inclusionary” zoning policy, which requires developers to include a certain number of affordable units in residential projects. It was about when the developers of a proposed historic renovation at Fort Snelling that would create dozens of affordable-housing units confirmed that they don’t have the money they need to do the project.
Maybe the thing these developments have most in common is the good intentions of the people involved — and of course that is never enough.
The Fort Snelling project is one you have likely heard about before, a proposal to create 176 units of housing out of more than two dozen all-but-abandoned buildings at Fort Snelling’s Upper Post.
If the money didn’t really matter, it would be a great story. Finally, here’s a solid proposal to preserve and renovate historic buildings that go all the way back to the late 1800s. While once considered a cushy U.S. Army post, the Army moved on just after World War II, leaving the site lying fallow for decades.
But the money does matter. The money always matters.
It was obvious from the beginning that any redevelopment would need truckloads of subsidies. On their own nickel, no developer would so much as paint the porch on any of these buildings.
Tax-credit subsidies — a financial tool mastered by firms like Plymouth-based Dominium, developer of the Fort Snelling project — are generally how we finance preservation of buildings the community really values. Without tax-credit subsidies, it’s hard to imagine what else would have become of the old Jacob Schmidt Brewing property in St. Paul, among the high-profile projects Dominium has completed in the state.
The Fort Snelling project, however, seems to have catapulted into a category all its own.
The list of institutions involved in bringing this project forward in the first place says a lot about the priorities — the Department of Natural Resources, the National Park Service, Hennepin County, the Minneapolis Park and Recreation Board and the Minnesota Historical Society.
Here’s a thought: If the Minneapolis Park and Recreation Board really cared about seeing more housing get built, it might propose relaxing the parkland dedication fee charged to a new multifamily housing project.
Notably absent from the list behind the Fort Snelling project is any agency with affordable housing in its mission, like the Minnesota Housing Finance Agency (MHFA), which considered and then voted down $58 million in bonding authority for it back in 2017.
The Legislature later overruled the agency.
The problem for the Fort Snelling project, first reported by MPR News, is that all the money Dominium has rounded up is still not nearly enough. In round numbers it had been a $100 million project, for 176 units. The unfilled gap might be a third as much.
The Dominium firm is as skilled as any in the country at this kind development. If it says the project can’t be done on the old budget, it’s because it can’t.
Like a lot of businesspeople who work in heavily subsidized industries, the Dominium folks also know how to make their way around public officials. If they weren’t confident that some awfully influential people in government were still on board, they would have walked away from this one by now.
Hopefully, it occurs to everyone involved that this a project to save old buildings and no one even suggests going after more money from an affordable-housing program.
The notes from that pivotal meeting a couple of summers ago at the MHFA, when directors first refused the bonding request, clearly show what’s at stake.
The bonds then on the agenda could have instead financed projects around the state of 500 units, a staffer said, not just the 176 at Fort Snelling. The agency that month had proposals that could use $120 million in tax-exempt bonds to finance 1,400 additional units of housing.
There’s always a cost when making decisions, of course, not just of the choice you made but the cost of not doing something else. What was the cost, in additional apartment units not built?
How many new units won’t get built now that the city of Minneapolis is going ahead with inclusionary zoning isn’t easy to estimate, either, other than once again it’s not going to be zero.
As a refresher, this is a mandate that builders of market-rate apartments set aside a certain number of units with rents within reach of people at lower incomes, although the Minneapolis policy has several ways for builders to comply, including by buying their way out of the mandate.
This applies to Minneapolis, not across the city line.
To understand how that will work, let’s think instead about pickup trucks. Where Ram builds its vehicles there’s no mandate, but across the state line where the Fords are built, the state has insisted that five out of every 100 are sold as “affordable.”
Ford can’t sell them for more than $20,000, never mind that even without air conditioning Ford can’t build them for less than $25,000.
Charge the buyers of the 95 full-price Ford pickups more to make up the difference? That’s a great idea — for Ram, which just got handed a pricing edge.
The developer Kelly Doran has been outspoken in opposition, but not with the rhetoric of politics. It’s just that with the exclusionary-zoning mandate, what he’s called “the math” in a new project no longer adds up.
By that he means the numbers on everybody’s spreadsheets, his and the investors’ and bankers’. With construction costs inching up, financing a project is tough already, without having to provide some of the apartments at far below market rent.
That’s what he means by math. Now some projects in Minneapolis won’t make economic sense and won’t get built.
Think about it, at one end of the spectrum there are subsidies of hundreds of thousands of dollars per unit and it’s not enough, while on the other end a city demands builders deliver below-market-rate units with an effective subsidy of zero.
The math here isn’t that hard to figure out.