What can be done to alleviate the affordable housing crisis?
As the nation’s economy struggles to recover from the COVID-19 pandemic, Minnesota nonprofits, government agencies and some private stakeholders are mobilizing resources to address an unprecedented shortage of affordable housing. One of their objectives is to involve more for-profit actors in the acquisition of existing affordable housing or in the development of new housing.
Several recent trends have combined to worsen homelessness, including a historically low vacancy rate, job losses due to the pandemic and people displaced by civil unrest, said Sarah Harris, executive vice president of the United Nations. strategy, partnerships and production at Aeon, a Minneapolis-based company. non-profit developer, owner and manager of affordable apartments and townhouses. The Metropolitan Council predicted a need for 50,000 more affordable units over the next 10 years, she said.
Meanwhile, “we’re losing 4,000 to 6,000 affordable units a year,” Harris said. “We believe homelessness will triple” in the Twin Cities due to the events of the past year, she said.
Another issue is that the relatively healthy, market-rate housing market in the Twin Cities has attracted more local and national investment money from investors who are converting affordable housing into properties at market rates, Harris said, by cutting more affordable natural housing (NOAH). the market. Many of those affected are hourly workers who fulfill vital roles in local economies.
“For example, a property was sold in 2015 and 698 families were displaced,” Harris noted. “It affects the school system and the local workforce. It doesn’t just destabilize families; it is expensive for the public sector to stabilize.
In 2020, Aeon partnered with the Community Development Trust, a national investor in affordable housing, and the Minnesota Housing Finance Agency to refinance the 422 Seasons Park apartments in Richfield. The $ 42.5 million refinancing will help preserve long-term affordability for more than 1,200 residents.
While not yet ready to make an official announcement, another key nonprofit is gearing up to launch a new initiative. Warren Hansen, CEO and founder of the Greater Minnesota Housing Fund, said he is working with philanthropic groups to create a new $ 100 million housing fund in early 2022. The fund will provide low-cost capital for the acquisition of naturally affordable rental housing. (Class B and C properties) and the development of new housing for the construction workforce, without the use of low-income housing tax credits.
Hansen said GMHF “is currently testing interest in the new fund with dozens of developers and rental property owners across Minnesota.” The fund will add 4,000 more affordable housing units to the supply over the next five years, he said.
Several years ago, GMHF launched the NOAH Impact Fund, an investment fund that raised $ 32.5 million to acquire 1,000 affordable units vulnerable to market rates and high-end housing conversion. Of this amount, $ 25 million will be invested and $ 7.5 million will improve credit to private investors in the fund. Investors include Bremer Bank, Sunrise Banks, Western Bank, Minnesota Housing Finance Agency, McKnight Foundation, and Otto Bremer Trust.
Hansen said Minnesota has “an incredible affordable housing system that includes more than 50 various nonprofit development and management organizations committed to producing and preserving affordable housing. It is the best in the country and it has one of the best bipartisan backers.
Hansen said the next phase of the effort is to recruit more builders and developers at market rates to participate in the production and preservation of affordable housing.
“We need to tackle this challenge or opportunity in a way we may not be used to, which may be less familiar – by looking at the design differently and reducing the cost of capital.” His organization wants to work with more builders and developers, and impact investors in remote communities “that we don’t know as well. We will be raising hundreds of millions of dollars over the next few years working with institutional investors who have the same values and commitments to housing – traditionally the realm of nonprofit and government funded organizations. “
Due to the heightened awareness of the affordable housing problem, institutional investors are increasingly interested in making capital available at lower cost – “for a double net return,” Hansen said: “They want an economic return. modest and they want to have a meaningful social impact.
Sunrise, with $ 1.67 billion in assets, is one of some 140 banks nationally certified by the U.S. Treasury as a community development finance institution providing credit, investment capital and services financial institutions in struggling urban communities.
Sunrise has several major initiatives to promote affordable housing. Two years ago he started a community development company. The bank funded its CDC and solicited contributions from government, foundations and individual investors to increase it. CDC is making it easier for Aeon to access capital to acquire natural affordable housing – apartments – and keep it affordable, ”Sunrise Bank Chairman David Reiling said.
As a bank, “we can also do the underwriting and due diligence on these properties so they can acquire them before they are sold to for-profit investors.”
So-called impact investors who invest in CDC will earn returns ranging from 2% to 6%, getting their money back, on average, after seven years, Reiling said. Five foundations invest in the fund.
In its initial pilot effort, Sunrise “got a good response from high net worth individual investors and family offices interested in participating. Most of them are in Minnesota, but also have connections nationwide, ”Reiling said.
In 2020, Sunrise Banks partnered with Aeon, the Minneapolis Foundation, the Saint Paul & Minnesota Foundation and the Frey Foundation to create a pilot program that will preserve hundreds of affordable housing units in the Twin Cities. A $ 19.4 million affordable housing fund, when leveraged, will provide approximately $ 62 million to preserve affordable housing in the region.
Additionally, Sunrise is working with a West Coast FinTech company to create a payments app that allows landlords to provide tenants with payment options. In the wake of the pandemic job losses, “eviction is a looming problem, and evictions often happen for less than $ 1,000. More options could make it easier for tenants to make their monthly payments. For example, payments could be due before the first and 15th of the month, to match payroll, ”Reiling said.
Sunrise adds another fintech company to help the bank make small dollar loans for emergency purposes. Last year, the bank made more than 307,000 small loans totaling $ 190 million, many to help people pay their rent, according to Reiling. “It can also be used for credit building and repair, if they’ve been kicked out.”
To meet the growing need, nonprofits, government and individuals will need to work together, Reiling noted. “By working together, we must find ways to be more efficient in producing more affordable housing. “
Speaking of government, in August, Hennepin County Council agreed to use $ 46 million of its US bailout funds to increase production of affordable housing, invest in natural affordable housing, acquire properties for affordable housing and expanding home ownership.
County officials believe the investments will help “create or preserve” 2,000 affordable housing units and help 100 households buy homes.
In addition, the county plans to allocate $ 25.5 million to reduce homelessness with strategies that include reducing accommodation hours, securing shelters and eliminating “self-paying” contributions. to enter a refuge.
Meanwhile, Olmsted County has spent half of its US bailout money on affordable housing.
A federal bill signed last December will make it easier to finance low-rental housing, said Wayne Schiferl, construction and real estate partner at Baker Tilly’s office in Minneapolis. It set a fixed rate of 4% for the Low Income Housing Tax Credit (LIHTC) of 30% in present value, which had fallen to an all-time low of 3.07 in 2020.
For developers, the fixed interest rate “takes the guesswork out of what it will take to make a project work,” Schiferl said. “You will know what the construction costs will be. “
Particularly at the state level, “there is a bipartisan agreement that we need more and better affordable housing.”
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