St. Paul will spend $362k per unit on Ford site affordable housing projects
On April 13, the St. Paul City Council approved a plan to “funnel” $46.9 million in property taxes to affordable housing projects on the former Ford Plant Site. The city will create two new “Tax-Increment Financing (TIF) districts to fund the program.
In Theory, Real estate development expands net tax capacity. With TIF, these “increased property taxes” are used to finance the costs of the new development. In this St. Paul’s case, the TIF district will finance three projects with a total of 195 units.
As the Star Tribune reports,
Minneapolis-based Project for Pride in Living is leading the development of two housing projects southwest of Ford Parkway and Mount Curve Boulevard. One, called Nellie Francis Court, will include 75 units of workforce housing affordable to those earning less than 60% of the area median income, which is $62,040 for a family of four.
The other, to be run by Emma Norton Services, includes 60 units that will be used as transitional housing for women earning less than 30% of the area median income, which is $22,050 for an individual.
St. Paul-based CommonBond Communities is developing a senior housing project nearby with 60 affordable units for those earning 30% of the area median income.
This is a bad bargain for taxpayers
If we do the math, $46.9 million is equal to about $240,000 per unit. To put this in perspective, the average value of houses sold in St. Paul in the past year was about $258,000, according to Zillow. Taxpayers are spending big bucks on affordable housing.
Worse yet, this is not all of it. More money will be redirected, at the request of the developer, into the project in the future.
Developer Ryan Cos. purchased the former Ford site in 2019 and broke ground last summer, setting in motion plans to build a modern urban village with more than 3,800 units of housing — 20% of which the city has said must be affordable.
City officials approved a separate $53 million TIF package in 2019 to help fund the construction of Highland Bridge’s streets, parks and utilities. The city in 2016 projected it would contribute up to $275 million in public financing to the Ford site’s development, and Ryan is expected to request additional funds for more affordable housing.
A total of $275 million in public funding equals $362,000 for each of the 760 — 20% of 3,800– affordable units that the city requires the development site to have.
Is it bad to want more affordable housing? Certainly not. TIFs are, however, a problematic solution to affordable housing due to a number of reasons.
For one, TIFs shift the tax burden or cost of development from developers to taxpayers. Additionally, research has found that TIFs may also potentially capture some natural growth in property values and take credit for them, essentially diverting property tax revenues from other public services. Sometimes, TIFs may simply underperform, failing to induce economic activity or raise property values. But more importantly, like most tax incentives, TIFs may go to projects that were going to be built anyway.
Development incentives are wasteful
St. Paul is not the only city that directs tax revenue money into such incentives or grants. Just two months ago, the city of Roseville announced it was offering $5 million for a developer to fix up a “troubled apartment complex” and keep it affordable. Even Minneapolis has dedicated hundreds of millions of taxpayers’ money to affordable housing incentives.
Do these incentives work?
Research heavily demonstrates that tax incentives rarely sway business decisions since they go to development that was going to happen regardless of the incentive. In that case, no development is being induced. Instead, private investors get to profit using public funds.
The CBO has said this regarding subsidy programs aimed at incentivizing affordable housing development.
..the low-income housing credit, like other supply subsidy mechanisms, is unlikely to increase substantially the supply of affordable housing. Subsidized housing largely replaces other housing that would have been available through the private, unsubsidized housing market
Housing development is indeed costly to undertake. But, as we have shown, rules and fees in Minnesota are to blame for high development costs, especially in the metro region. To induce development, cities like St. Paul should focus on cutting red tape and scaling back development fees.