Iowa City seeks revenue for affordable housing

Iowa City Administrator Geoff Fruin addresses the city council on June 21 during a presentation about expanding affordable housing. City council members plan to decide which strategies to pursue in September.  PHOTO/CHASE CASTLE

 

By Chase Castle
chase@corridorbusiness.com

Iowa City officials are considering ways to generate revenue for added affordable housing, which city staff have suggested developing through property taxes, TIF districts and possibly tax abatements.

At a Iowa City Council work session on June 21, city staff presented potential strategies for adding affordable housing, which included both annexation and new developments that may use tax increment financing (TIF), where a percentage of future tax revenues are reserved to pay for affordable housing units.

City Manager Geoff Fruin is prepared to draft an annexation policy that would require developer contributions for affordable housing, but warned the council that overly burdensome requirements could drive developers away.

“There’s a balance that needs to be struck,” Mr. Fruin said. “We don’t want to make annexation so onerous that people choose to build elsewhere in the community.”

The council’s consideration comes amid ongoing discussions about the availability of affordable housing in Iowa City, where rental vacancies are sparse due to student demand under the University of Iowa. According to American Community Survey estimates, Johnson County’s rental vacancy rate between 2010-2014 was just 2.1 percent, compared to about 6 percent in Iowa and about 7 percent nationally.

On June 1, the city of Iowa City closed the sale of the former St. Patrick’s parish hall, located on the southwest corner of Court and Linn streets, and used the proceeds to prime the city’s newly-created affordable housing fund.

The site’s coming development, RISE at Riverfront Crossings by Chicago-based CA Ventures, will hold 320 residential units, comprised of a mix of one-, two- and three-bedroom apartments. A total of 32 of those units, all of which will be one-bedrooms, will become affordable housing, as defined by the U.S. Housing and Urban Development (HUD) department.

The sale generated about $1 million – an amount city staff hope sets the benchmark for an annual fund balance of  $500,000-$1 million, which could be maintained through several possible sources.

 

Funding affordable

If the city opts to expand its use of TIF, Mr. Fruin said a provision in state law already requires TIF-supported residential developments to include a contribution to low- to moderate-income housing stock.

That provision could be applied to the area near Alexander Elementary School and McCollister Boulevard, a road the city plans to extend southeast to Sycamore Street as part of a $3.5 million project in 2019. Over a 10-year period, TIF in that area could generate more than $1.5 million, which could be applied to affordable housing stock elsewhere in the city.

“Certainly, if the council’s will is to spend those dollars within the housing development within the urban renewal area, we can do that, too, but that flexibility is pretty unique,” Mr. Fruin said.

The city may also opt for more aggressive use of TIF districts, which would be set for specific territories, especially downtown and in the Riverfront Crossings area, as opposed to being determined project by project.

City council members and others said municipal public safety departments, the Iowa City Community School District and others will be included in conversations about TIF expansion, which typically draws funds away from other local taxing bodies.

To incentivize affordable housing for developers, city staff are also investigating policies for tax abatement, which would exempt the value of specific improvements normally subject to property taxes.

Mr. Fruin said tax abatements typically are simpler than other developer incentives, in part because the parameters for the abatements would be set in advance by the council.

“Either you’re qualified or you’re not qualified, so it’s a pretty black-and-white process that can be attractive to developers,” Mr. Fruin said. “But we need feedback from the development community to see what level of abatement would really tip the scales for them.”

 

Economic landscape

Recent history will likely increase the need for additional revenue, city staff said.

Property tax reforms approved by Gov. Terry Branstad in 2013 have benefitted commercial and industrial landowners, but have also added to financial pressures for cities. Municipal data for Iowa City says there has been about an 11 percent drop in the taxable valuable of multi-residential properties since that time.

“Probably every meeting, we find a reason to mention property tax reform,” Mr. Fruin said. “But it’s a reality when we’re talking about potentially creating new revenue sources … We all just have to realize that the competition for dollars is going to be more intense in coming years.

Compounding funding issues is the decreasing availability of federal funding for affordable housing. Since at least 2002, funding through the Community Development Block Grant (CDBG) and HOME Investment Partnerships programs, for example, has steadily declined.

Unfortunately, that trend is unlikely to reverse itself anytime soon, Mr. Fruin said.

“Those traditional resources we rely on as a community are slowly dwindling away, and that’s going to be a big part of [the affordable housing] discussion,” he said. “If you want to get serious about affordable housing, you need to have resources and we need a revenue source.”

The city council is considering code amendments aimed at facilitating a FUSE (Frequent User Service Enhancement) program, the first of its kind in the state, according to city staff. The program would target “chronically homeless” individuals who are the most frequent users of high-cost public services, such as medical care, rehabilitation programs and legal services.

The city council at its June 21 meeting gave preliminary approval to an inclusionary zoning ordinance for the Riverfront Crossings District south of downtown. If adopted, the ordinance will require either on-site affordable housing, affordable housing on another district property, a contribution to the city’s affordable housing fund or a contribution of land in the Riverfront Crossings District.

Doug Boothroy, director of neighborhood development services, said implementing the ordinance will align the city with long-term goals for affordable housing.

“It does take time, but you need to get started and you need to take that first step and open the door to affordable housing, and I think the inclusionary housing ordinance is a good first step in the direction that we’ve been talking about,” Mr. Boothroy said.

 

Taking housing stock

Taz George is part of the community development and policy studies division at the Federal Reserve Bank of Chicago, and recently spoke at a conference organized by the Johnson County Affordable Homes Coalition.

Although cost-burden issues are more prevalent in Iowa City and among very young and older households, Mr. George said, the issue extends throughout Johnson County.

According to United Community Services of Johnson County, 55,000 or 26 percent of the county’s households are “cost-burdened,” defined as households that spend more than 30 percent of their income on housing costs. Among renters, about 42 percent of the county’s households qualify as cost-burdened.

Mr. George said access to mortgage credit will also play a key role in providing housing to low- and moderate-income residents, particularly due to the challenge of saving for a down payment while facing high housing-cost burdens.

“I feel that this is a very important part of the conversation,” Mr. George said at the June 17 event at the Radisson Hotel in Coralville. “It goes without saying that safe and sustainable access to mortgage credit is important for the health of the housing market overall.”

Roughly 16 percent of homes in Johnson County have an estimated property value of less than $100,000 – a market segment that’s particularly important for first-time and low- and moderate-income homebuyers. Between 2004-2010, the number of mortgages offered for those homes in Johnson County was relatively flat, but experienced a slight uptick between 2008-2010.

Since then, however, the share of new mortgages for homes valued at $100,000 or less has declined. In recent years, only 12 percent of Johnson County’s new mortgages were for low- and moderate-income homes, despite the larger market share those homes represent. By contrast, homes valued between $200,000-300,000 have steadily increased since 2009, having grown to account for about 23 percent of new mortgages.

“That represents somewhat of a gap in credit availability for low-cost homes, and that’s a really important issue that I think is emerging in a lot of low-cost markets – rural areas and other low-cost urban areas,” Mr. George said. “It’s really holding back a recovery, to some degree, especially in communities that are looking for these types of homes.”

Mr. George said the secondary mortgage market also impacts access, with new Qualified Mortgage rules implemented post-recession making small-balance loans less economical for many lenders.

“I think it’s an opportunity for innovation among mission-driven lenders to try and figure out a way to address this need, because it’s a clear-market need, and it’s one the current system seems to have trouble supporting,” Mr. George said.

City staff and elected officials said at the June 21 meeting that they will review strategies in more detail this summer. After collecting feedback from local housing groups such as the city’s Housing and Community Development Commission, the Johnson County Affordable Homes Coalition and others, as well as from local developers, the council plans to direct staff on which recommendations to adopt in September.