New report shows Rent Control is harmful and ineffective
On November 1st, residents of St. Paul and Minneapolis will decide whether to give local bureaucrats the power to limit the rates by which landlords can raise their rents. Advocates…
On April 13th, the city council of St. Paul approved a plan that would “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.
TIF is a program whereby a municipality “uses the increased property taxes that a new real estate development generates to finance costs of the development“. Real estate development expands net tax capacity, in general. In this case, St. Paul will disburse – to the developers – expected property tax revenue increments that would come due to an increase in net tax capacity– of the demarcated TIF district– generated by the housing projects on the ford plant.
As reported by the Star Tribune, the program covers three projects with a total of 195 units.
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.
If we do the math, $46.9 million for 195 units comes to about $240,000 of tax revenue per unit that St. Paul will be giving out to cover development costs. To put this in perspective, the typical value of a house sold in St. Paul in the past year is 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.
If $275 million in public funding is directed to this site, St. Paul residents are essentially paying $362,000 per each of the 760 –20% of 3,800– affordable units that the city requires that the development site have.
Is it bad to have more affordable housing? Certainly not. But TIFs are problematic in so many ways as a solution to affordable housing. For one, TIFs in essence shifts the tax burden or cost of development from developers to taxpayers. 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.
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 in taxpayers’ money for affordable housing incentives.
Do these incentives work?
Research heavily demonstrates that grants/incentives are usually awarded on projects whereby the investments were going to happen anyway. 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 is indeed, in general, 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.
If cities like St. Paul cut the red tape and scaled back on fees, these types of grants and incentives would not be necessary in the first place.