Threat to Challenge Fund could undermine workforce housing

The entire community gains when sensible, effective investments in housing benefit employers, workers and lower-income Minnesotans. As the state’s major resource to create housing for families across a wide range of incomes, the Challenge Program is essential in advancing workforce housing development that helps communities grow and sustain their economies.

Though the demand for workforce housing and Challenge funding are great, leaders in the Minnesota House of Representatives have proposed deep cuts to this essential resource — and MHP is working with lawmakers and advocates to ensure those cuts are restored and the Challenge program is fully funded.

Here’s why.

As Minnesota Housing’s most versatile funding source, the Challenge Program gives local communities and developers maximum flexibility in assembling a broad range of financing tools to ensure projects will be successful. Used in Greater Minnesota and the metro area, it can create or rehabilitate ownership or rental housing, including mixed-income housing with market-rate units.

Local communities, with the help of developers, need maximum flexibility in assembling a broad range of financing tools to ensure projects will be successful. Challenge funds can be readily paired to leverage other dollars.

Serving Minnesota Workers

The need for housing affordable to the Minnesota workforce is clear. More than 1 in 4 Minnesota households pay more than they can afford for housing. The vast majority of Minnesotans in need of housing — and the fastest growing jobs in the state’s workforce — are well served by the Challenge program.

The median wages for the top six fields with the most job openings projected by 2024 in Minnesota earn well within the income limits for the Challenge Program (approx. $89,000 for homeowners and $62,000 for renters). These jobs include: retail salespeople; registered nurses; food prep and serving workers; personal care aides; and cashiers.

A Proven Tool

The Challenge Program has proven highly effective in advancing housing projects that meet the diverse needs of communities across the state. In 2015 and 2016 alone, the Challenge Program contributed to the development of 498 multifamily units and 696 single family units — providing stable, affordable housing to support a productive workforce. The Challenge Program is widely used — and oversubscribed. In 2016 alone, 56 projects requesting $177 million in deferred loans did not get funded.

Working in Greater MN

The Challenge Fund is a proven resource for the development of workforce housing. Since 2013 Challenge funds have advanced projects throughout the state — from Jackson to St. Peter to Thief River Falls — addressing needs in communities seeing significant shortages in workforce housing.

RIVER POINTE TOWNHOMES IN THIEF RIVER FALLS received $555,000 from the Challenge Program in 2013, which leveraged $900,000 in additional funding. In 2016, 24 units, including two- and three-bedroom townhomes, filled to capacity, serving predominantly working families with children.

TRAVERSE GREEN IN ST. PETER received $100,000 in Challenge funding in 2016 to construct affordable homes to serve workforce households earning up to 80 percent of the area median income.

EAGLE RIDGE TOWNHOMES IN JACKSON was developed in response to a tight rental market driven by job growth and employer expansion. With $850,000 in Challenge funding, 48 rental units — a mix of income-restricted and market rate — were developed.

Leveraging additional dollars

The Challenge Program is unique in its focus on providing housing that is affordable to the local workforce. Projects with Challenge Funds require contributions from non-state resources, including employers, local units of government, or private philanthropic or charitable organizations. This means state funds leverage substantial non-state resources to produce housing that meets local needs.

Fully fund the Challenge Program

For FY19, H.F. 2209 cuts funding to the Challenge Grants by $11.7 million and the Housing Projects for American Indians by $1.2 million. Nearly all affordable and workforce housing developments require gap financing — and obtaining gap financing has become increasingly difficult. A cut as severe as the one proposed in H.F. 2209 would result in the production of hundreds of fewer units in FY19.

H.F. 2209 also includes restrictive language that prohibits pairing workforce housing funds with resources for rent- or income-restricted apartments. Local communities and developers need maximum flexibility in assembling a broad range of financing tools to ensure projects will be successful. The need to combine different financing sources is particularly true for mixed-income developments, housing intended to further a variety of community objectives. If many of the sources developers now employ are excluded, the intent of the Workforce Housing Development Program will be compromised — and it’s probable that fewer market rate units will be developed.

Download our Challenge Fund one-pager here.