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Affordable housing faces headwinds in region

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TRAVERSE CITY — An empty lot near Traverse City’s Depot Neighborhood, the planned site of affordable apartments since 2015, will stay empty for now.

The Michigan State Housing Development Authority again passed over Woda Cooper Companies’ application for a Low Income Housing Tax Credit for one project, and also rejected its tax credit request for a new project planned in Traverse City, said Craig Patterson, a senior vice president with the company formerly called The Woda Group.

Both of the company’s submissions were outscored by other applications in the year’s first round, Patterson said.

“We’re not giving up on Traverse City nor these properties,” he said. “We think this last round, there were a lot of high-scoring applications, and so therefore we just missed out.”

Meanwhile, other developers are taking different routes to fund and build sorely needed housing for people who make less than average area incomes. Those routes include other MSDHA programs, a web of partnerships or both.

FELL SHORT

The Woda Cooper Companies submitted two projects, one a new building planned at Wellington Street’s south end. The company requested $1,109,000 in tax credits to build a 58-apartment building with rents starting at $491 up to $1,360.

MSDHA records show the authority has passed over Woda Cooper Companies’ applications for the second project, planned for land at Station Street and Railroad Avenue, five times since January 2016 — the company most recently sought $900,097 in tax credits.

The planned building has taken different shapes, starting in 2015 as a five-story, 64-unit apartment building for those 55 or older or with a certified disability. The latest version was a 46-unit, four-story building with no age restrictions and rents ranging from $411 to $1,221.

Both projects included rent and income restrictions on some or all of the units to be built — a requirement to get Low Income Housing Tax Credits.

Woda Cooper Companies could apply for the credits again this year if company employees believe the projects have a good chance of succeeding, Patterson said.

PILOT CONCERNS

The latest applications lost points over concerns MSDHA employees raised over Traverse City’s payment in lieu of taxes ordinance, Patterson said.

Payment in lieu of taxes agreements allow apartment owners to pay a percentage of net shelter rents — rent incomes less the cost of certain utilities — instead of property taxes. They’re a necessary ingredient, both to compete for the tax credits and to win over investors, Patterson said previously.

Chad Benson, MSDHA Low Income Housing Tax Credit allocation manager said the city ordinance includes a clause for terminating a PILOT agreement that raised flags over its notice requirements.

City Attorney Lauren Trible-Laucht said she’ll meet with Patterson, then MSDHA representatives, to find out more. The ordinance in question dates back to 1995 and this is the first she’s heard of such concerns, she said.

INVESTMENT PERK

Michigan gets about $27.5 million in Low Income Housing Tax Credits annually, Benson said. The IRS awards them to each state based on population.

MSHDA grants the tax credits competitively to affordable rental housing projects through a twice-a-year application process, Benson said.

Investors get a 10-year tax break for investing in the chosen projects, according to the agency. Owners must agree to an 18-year cap on rents for a portion of the housing they’re building or rehabbing, and to rent those units to people earning less than area median incomes for that same period.

HARD TO GET

Tony Lentych, Traverse City Housing Commission executive director, said Low Income Housing Tax Credits have become one of the biggest forces in supplying affordable housing nationwide. The high demand for rent-subsidized apartments the housing commission manages shows the need, as do unfilled service jobs, he said.

Housing North executive director Sarah Lucas said MSDHA sets aside 10 percent of those tax credits each year for rural developments — Traverse City and several surrounding townships are considered urban, documents show.

The set-aside is a smaller chunk of an already small pot, Lucas said. She and Lentych both said the program tends to favor projects in bigger urban areas — for example, the application scoring method favors projects in traditional downtowns and more urban areas, Lucas said.

Navigating the program’s requirements requires costly help that makes smaller projects not viable for HomeStretch to pursue, said nonprofit Executive Director Jon Stimson. The company works to build affordable housing, both rentals and to own.

FAVORED PROJECTS

Tax credit applicants get points for proximity to numerous amenities, transportation and large employers, among others.

MSHDA employees are concerned about the location of a project, Benson said.

“We want to make sure that the housing that we are developing is located in areas of opportunity so that the people who are living there have access to amenities and resources that they need to be able to live and thrive in the community that they’re in,” he said.

Those connections look different in rural areas, and MSDHA considers projects in farther-flung sites differently, Benson said. For example, criteria favoring projects near large employers consider 125 jobs sufficient for rural projects, whereas 250 is the minimum for urban ones, he said.

MSDHA reworks its application process every two years, and the agency is interested in hearing in ways to make it better each time, Benson said.

Patterson said the latest changes to the application process helped the company’s applications score a few more points, he said.

EARLIER FAILURE

The Woda Group in February 2017 dropped a plan to build a 36-unit affordable housing development in part of Northport’s shuttered Leelanau Memorial Hospital. The company requested nearly $1 million in MSHDA tax credits, but a low score put the project nearly last in a field of 57 applicants.

High sewer connection costs and annual fees made the development unaffordable.

ONE FACTOR OF MANY

Several factors make it hard to build affordable housing, not just in the region but nationwide, Lucas said. Rising costs for materials, labor, land and infrastructure make development unlikely without some financial help, to name a few.

“When you put it all together, it’s pretty much impossible to develop housing that’s affordable to the lower, moderate and in some cases even above-average incomes at this point,” she said. “You have to have some kind of incentive, some kind of subsidy.”

OTHER ROUTES

Low Income Housing Tax Credits aren’t the only option, Lucas said.

Developers have taken other routes to secure subsidies, including local partnerships and seeking other MSDHA funding sources. HomeStretch and Habitat for Humanity Grand Traverse Region partnered to build the Depot Neighborhood, and HomeStretch used a MSDHA HOME fund grant to build 16 homes in the Depot Neighborhood, Stimson said.

Habitat for Humanity Grand Traverse Region built 10 homes in the Depot Neighborhood, organization Executive Director Wendy Irvin said. Buyers got up to $12,000 in MSDHA down payment assistance.

The Depot Neighborhood faced its own setbacks and took several years to complete after the city sold the two nonprofits the land in 2012. Habitat for Humanity started construction in 2013 while HomeStretch struggled to get started, at one point losing a past executive director and losing, then regaining, grant funding.

HomeStretch also seeks MSDHA grants to build three more projects, including two in Traverse City, Stimson said. One is a six-townhome development planned for East Eighth Street land where two vacant homes currently stand — city leaders recently approved a PILOT for the project. Another is a four-townhome project planned for an empty Fern Street lot.

RURAL PROJECTS

HomeStrech also is looking for funding to build an eight-unit apartment complex in Honor with rents around $635 a month, Stimson said. The company applied for an Affordable Housing Program grant for up to $400,000 from the Federal Home Loan Bank of Indianapolis toward the estimated $1.4 million development cost.

Stimson said the project would never score competitively for a Low Income Housing Tax Credit. Other partners are stepping in, or could be — the Benzie County Land Bank will donate the land and HomeStretch is seeking a Rotary Charities grant.

Land bank contributions like these are one way local governments can help fill needs for low- to mid-income housing, Lucas said.

These organizations sell back tax-foreclosed properties, and Leelanau County Treasurer John Gallagher said local developers can partner with them to secure land. Property they get this way is considered blighted.

Developers can then ask local governments for agreements to capture increases in property taxes and pay for infrastructure costs to develop the land, Gallagher said.

NORTHPORT SUCCESS

Privately donated land is one key ingredient to the Vincer West project in Northport. Leelanau REACH should start construction soon on the four, 1,400-square-foot homes that will be sold for $169,000 each.

The nonprofit isn’t seeking tax credits, but is using grants and a $500,000 low-interest loan from the Opportunity Resource Fund to finance the project.

REACH President Bob Schlueter said funding is a big problem with developing affordable housing in northern Michigan. Most builders also are not interested because there is such a low profit margin, he said.

“You need people and businesses who want to support the community, that see the need for appropriate housing,” Schlueter said. “You need people with vision and advocacy and deep pockets.”

Lucas said it’s easy to become discouraged when listing the factors that make it harder to build affordable housing.

“We have to focus on the fact that there are things we can do,” she said.

Editor's note: This article has been updated to correct a reporter's error misstating the amount and source of the $400,000 Affordable Housing Program grant HomeStretch is seeking from the Federal Home Loan Bank of Indianapolis for its project in Honor. It's also been updated to clarify a reporter's error misstating the status of HomeStretch's grant application with Rotary Charities, and the name of Woda Cooper Companies. July 18, 2019