MN Housing Board discusses legislative session updates and housing trends at April meeting

In her opening remarks Commissioner Tingerthal presented a rundown on pending housing legislation. She mentioned Rep. Bob Gunther’s successful effort on the House floor to reverse $4.5 million of a committee’s proposal to move $5 million previously appropriated for the Challenge program to DEED’s workforce housing fund. She added that the House and Senate supported a $250,000 appropriation to create a risk mitigation program that can be used to compensate owners for damages done by higher risk tenants. Also in appropriations and related to the Governor’s racial equity proposals, the Senate supported $3 million for downpayment assistance and one-half million for housing counseling. The House did not fund either program.

Agency updates

Tingerthal said that she had been asked by the Federal Housing Finance Agency (the body that oversees Fannie Mae and Freddie Mac) to present the Agency comments on the Duty to Serve obligation now being developed. This obligation will stipulate how the secondary mortgage market institutions are to support low income households and underserved markets.

Anne Smetak, a new staff attorney whose background includes providing legal services to homeless people in Washington DC was introduced to the board. The board was told that Ann’s hiring brought the Agency’s complement of full time attorneys up to four, the most it has ever employed. Four new employees in the Multifamily division were also introduced.

The board approved a plan to use temporary funds in a manner that minimizes the impact of private activity bonds on the bonding authority limit, or cap, of the Agency. These are federally authorized tax exempt bonds; the amount allowed for each state is set by Congress. During the Great Recession, Minnesota did not come close to utilizing its cap. Now with an improved economy the state housing agency and other Minnesota governmental issuers have reached or will reach the cap.

State housing trends and continued gaps between income and rent

Planning, research and evaluation director John Patterson led a lengthy board discussion on Minnesota housing trends. The Agency’s report on trends is the starting point for the 2017 Affordable Housing Plan (AHP), a one-year spending plan, said Patterson. For this year’s planning the Agency will be seeking public comment through May 20, then produce a draft plan in mid-August. The board is to adopt the 2017 AHP at its September board meeting.

Patterson emphasized a number of trends impacting the Agency’s work. For instance, the state experienced a 59% increase in cost burden over the last 15 years. With the current tight rental and ownership markets, high cost burdens are expected to continue. The sustained divergence of rents and incomes was a significant contributing factor to cost burden. Since the year 2000 inflation adjusted renter incomes fell 12% while rents increased 7% — a 19% spread said Tingerthal.

Commissioner Tingerthal pointed out that a significant change in ownership affordability, the cost of buying an average cost home decreased 22% since 2006, but other factors such as student debt and tighter borrowing standards meant that many were not able to benefit from the increased affordability.

The shortage of workforce housing in Greater Minnesota was seen as another important trend. Patterson said that it would take an additional 4500-7000 housing units to bring the vacancy rate in Greater Minnesota job centers to 5%, the point of market balance.

A positive trend was the drop in homelessness. The reduction in homelessness was particularly significant among families.

Regarding demographic factors, the Agency believes that with most baby boomers between the ages of 51 and 60, and mostly homeowners, there will be time to plan for the movement of this population to rental, which typically happens at a higher rate when a senior reaches the age of 80.

Continued loss of affordable housing rental units and the issue of cost burden

Board and staff discussed the loss of non-subsidized rental housing. Tingerthal said that the state has 300,000 apartments affordable to a household with an income of 50% AMI and of this amount, 200,000 have no income constraints. With investors now seeking to refinance and reposition the Twin Cities supply of three story apartment buildings there is significant threat to the loss of housing affordability – this is a situation that has “burst onto the scene in the last six months,” said Tingerthal. The tight rental market also threatens the viability of the voucher program as owners either are pricing apartments above what rental voucher holders can access or owners are simply refusing to participate in the program. Tingerthal then pointed to efforts, including that of GMHF, to create an investment fund to provide financing to buyers of lower-rent apartment buildings who intend to retain affordability. Minnesota Housing will likely be asked to participate in these funds she added.

The scarcity of lower cost housing is not just rental, continued Tingerthal. She then pointed to the recent Parade of Homes where only two of the hundreds of homes profiled that were priced under $200,000 (one of which was located in Hudson, WI), and very few were priced under $300,000.

Board member Terri Thao asked about solutions to the cost burden dilemma that were being pursued in other areas of the country. Tingerthal responded that some local successes were occurring, but that a problem to having a national response was that the shortage of lower cost apartments was localized to hot markets. She then added that this July a work group sponsored by the National Housing Conference is coming to the Twin Cities to convene representatives of 15 metropolitan areas facing the challenge of gentrification.

Board member Rebecca Otto asked about the role of “tiny houses,” popular among millennials, in expanding affordability. Tingerthal said that she would take a look at this housing type. Board member Thao added that St. Paul was now looking at ways to encourage development of accessory dwelling units, but she said that the cost of even these units was averaging $160,000.

Board member Stephanie Klinzing asked about manufactured housing. She said that they are here, but that they are often not in good condition. John Patterson said that the Agency was reevaluating its role in financing this housing type, and providing background on the topic might be a focus of the Agency’s summer interns. Board member Joe Johnson, a banker from Duluth, said that there was no secondary market for manufactured home loans so lenders are not making them. He then turned to the general lack of housing inventory, stating that his bank has pre-approved 600 borrowers who were out looking for homes to buy. Tingerthal picked up on the comment about the lack of inventory stating that she had heard recently from partners in the Moorhead area that a law limiting development of lower cost homes was the state statute mandating sprinklers in for-sale twin homes and townhomes. She concluded by saying, turning back to manufactured housing, that manufactured home parks will come back on the radar… that very day the Agency got notice of an upcoming draw on its relocation fund established to compensate manufactured home owners in the case of park closings. While this is the first high impact closure in several years she said that we now might see more.