PRELIMINARY DRAFT RECOMMENDATIONS, grouped into 5 categories For review at Task Force meeting on May 29, 2018

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1 PRELIMINARY DRAFT RECOMMENDATIONS, grouped into 5 categories For review at Task Force meeting on CHANGE SYSTEMS 3 S1: Incentivize the private sector to participate in affordable housing 3 R1: Publish Statewide Biennial Projection of Need and corresponding goals to inform decision making that builds equitable access to safe, quality, stable housing for all Minnesotans. 4 R2: Create dedicated and permanent affordable housing funding source at the State and local levels, sized to meet the projected affordable housing production and preservation need and rental assistance need. 6 H9: Engage local community members to support new housing opportunities. 8 H10: Encourage broad participation in homeownership housing opportunities by engaging a cross-sector of stakeholders in education, economic development, jobs, and housing. 9 ENHANCE STABILITY 11 S6: Diversify housing options in communities to meet the wide-ranging needs of different ages, abilities, households, and income levels. 11 S7: Facilitate opportunities for affordable housing initiatives to better integrate with health care 13 S9: Prevent and mitigate impacts of evictions on tenants 15 EXPAND PRODUCTION 17 S2: Increase investment in deeply affordable housing options 17 H3: Encourage local governments to evaluate and update local plans, zoning and land use policies to facilitate expansion of homeownership options in communities to keep pace with population changes and shifts in market need and demand. 19 S3: Utilize local land use policies and zoning to encourage increased quantity and variety of housing in communities 21 H4: Identify and encourage ways in which to reduce development and construction costs. 22 H5: Expand the housing inventory by developing more homes, rehabilitating existing homes, and encouraging alternative forms of homeownership housing options that meet the local community need. 23 H7: Expand and simplify construction financing products and underwriting for homeownership housing developers. 26 H8: Provide technical assistance and capacity building for smaller and newer developers to enable them to create more affordable homes. 27 R3: Expand affordability through financial and non-financial mechanisms aimed at unlocking financing options, speeding up delivery of housing developments, and creating cost efficiencies that improve access to housing for all Minnesotans. 28

2 Preliminary DRAFT Recommendations and Actions INCREASE ACCESS 30 S2: Increase investment in deeply affordable housing options 30 S4: Ensure inclusive housing models and practices 32 S5: Increase supports to access housing for those with the greatest barriers. 34 S8: Institute tenant protections to ensure transparency and dignity in renting homes 36 H1: Support and expand the reach of existing homebuyer and financial education and counseling programs. 38 H2: Address the homeownership disparity between households of color and white, non-hispanic households. 40 H6: Increase access to capital for homebuyers through expanding mortgage products, encouraging innovative methods for savings, and growing downpayment assistance resources. 42 R4: Expand rental assistance programs and maximize federal resources to meet the needs of Minnesota s lowest income and most vulnerable renters. 44 PRESERVATION 46 R5: Incentivize private market owners to maintain, expand, or make rental units available to those most in need (Naturally Occurring Affordable Housing) without significant increases in rent using targeted support from local and state government and private market 46 H11: Expand rehabilitation financing products and programs to enable existing homeowners to maintain their homes. 49 2

3 CHANGE SYSTEMS Preliminary DRAFT Recommendations and Actions S1: Incentivize the private sector to participate in affordable housing Minnesota s competitive advantage economically depends on strong partnerships between public and private sectors. S1. A) Explore opportunities for employers to provide housing subsidies as part of benefits packages for low-wage earning employees. For example, create a housing tax credit program for employers who create affordable housing options for employees. (State, Department of Revenue) 3

4 CHANGE SYSTEMS Preliminary DRAFT Recommendations and Actions R1: Publish Statewide Biennial Projection of Need and corresponding goals to inform decision making that builds equitable access to safe, quality, stable housing for all Minnesotans. Meeting the affordable housing need is a daunting challenge for Minnesota, the size of which is often glossed over in policy debates. Currently, Minnesota sets housing production and preservation targets based on what can reasonably be accomplished given current resource allocations. Goal setting for future production is usually a calculation based on existing resources, current development costs, and some aspirational growth. While important, this goal setting is not intended to be a projection of need. After we have meet our annual unit production and preservation goals, more than 25 percent of all Minnesotans and more than 45 percent of renters remain housing cost burdened. For these Minnesotan s, paying more than 30 percent of household income towards housing costs has been the reality for the past decade. Furthermore, the state s lowest-income households and households of color are the renters most often burdened by housing costs. The Rental Housing Work Group heard from the community and practitioners that the current level of investment is not even close to meeting the need. As such, the Work Group recommends shifting our thinking about how we set goals: it s time to set goals based on need, rather than current resources. It is essential to have widely accepted projections of need, based on current housing deficits and projections of statewide growth, to ensure that we, as a State, will be able to track success. It also serves as an acknowledgement of the formidable challenge ahead, helping decision makers see that current levels of investment only address a small portion of the overall need. Minnesota Housing Finance Agency, the Minnesota State Demographic Center, the Department of Employment and Economic Development, Department of Human Services, Department of Health, municipalities, and others have high quality research on housing and factors that contribute to the housing need. A formal process to synthesize this information on need, from which housing goals are set, is missing. R1. A) Biannually, the Governor s Office should convene a multi-agency group to research, set, publicly promote, pursue resources, and monitor statewide goals that correspond to need for rental housing preservation and production in three major categories: current need, future growth, and preservation of federally subsidized housing. There is the opportunity to expand measures beyond rental housing. The first year the group is convened, they will need to assess which measurements are appropriate for goal setting, reconcile measurements or methods that vary across agencies, and agree on a data sharing strategy. 4

5 Preliminary DRAFT Recommendations and Actions The goals should be based on analysis of current and future need, including geography and the micro markets that exist in our state. Based on the subject of community comments, the Rental Housing Work Group suggest measures in the following areas and encourages other work groups to suggest measures that relate to their charge: New affordable rental housing production to match the current need / backlog. Housing lowest income renters can be accomplished through a combination of rent subsidy, subsidized production, and market factors. Current estimates show that 122,500 households earning 30% or less of area median income cannot find affordable housing. A detailed understanding of the need and current assets, including in specific geographies and micro markets, will inform the most efficient and effective strategies to meet the need. For example, a goal in this area could be.build new or create affordable access to (through rent assistance or matching mechanisms) 2,500 units per year of housing with rents affordable to 30% household, so that the next generation (25 years) of Minnesotans do not inherit a housing backlog. New rental housing production to prepare for the future growth and economic health of our state. Population growth, in-migration, and changing labor and wage conditions will greatly impact the need for affordable housing, and will vary by region. Affordability of housing and availability of a strong workforce have been contributors to our economic vitality but cannot be taken for granted in the future. For example, a goal in this area could be.build new or create affordable access to (through rent assistance or matching mechanisms) 3,950 units per year of housing with rents affordable to 30% to 80% AMI households corresponding to jobs in submarkets, so that the state has the housing infrastructure to support economic growth. Federally subsidized housing preservation. The housing system has a number of existing rent-assisted affordable housing developments including HUD insured mortgages for multi-family, public housing, USDA Rural Development, Section 202 and Section 811 units. Many of these developments are aged and require recapitalization. Preserving existing physical structures is usually less expensive than building new. Rental assistance dedicated to these units cannot necessarily be replaced, and windows of opportunity for loss/conversation are predictable enough to plan for interventions. For example, a goal in this area could be. Retain 95% of federally assisted affordable housing (allowing some fall out for good reasons), so that we maximize the funds and efforts previously committed. 5

6 CHANGE SYSTEMS Preliminary DRAFT Recommendations and Actions R2: Create dedicated and permanent affordable housing funding source at the State and local levels, sized to meet the projected affordable housing production and preservation need and rental assistance need. Housing is infrastructure. Public investment in housing will always be a significant and critical to ensuring that all Minnesotans have a safe, affordable home from which they can pursue opportunities and succeed. Ensuring that Minnesota s residents including its workforce and school kids are stably housed is also directly linked to the state s economic vitality and competitiveness. In this sense, housing serves a very similar function to roads and bridges. Everyone needs it and it is central to our economy. The Rental Housing Work Group heard the request for increased, stable funding from nonprofit, private, and public stakeholders during its meetings and at community forums. It s time to create dedicated and permanent streams of funding for affordable housing as we do for other critical infrastructure. Service and housing providers also shared with the Rental Housing Work Group that to provide housing for the lowest-income Minnesotan s, rent subsidies are critical. According the National Low Income Housing Coalition, there are 161,286 extremely low-income renter (ELI) households (30% of AMI) in Minnesota, 78 percent of whom experience cost burden and 62 percent pay more than half of their income to housing. Many of these ELI renter households are households of color and many are among our most vulnerable populations: 27 percent are disabled and 30 percent are seniors. Governor Dayton routinely prioritizes housing in his budget recommendations. The Legislature has passed record levels of Housing Infrastructure and General Obligation bonds--$200 million over the last several years. Both the Governor and the Legislature should be commended for their commitment. Every year, public, private, and nonprofit partners join together to make a collective ask to the Governor and Legislature to support affordable housing through the Homes For All Coalition. This unified voice has succeeded in securing resources and policy that support working and low-income Minnesotan's who are housing insecure. But every year the Homes For All Coalition has to start from ground zero. A dedicated, permanent funding source would recognize the state s commitment to housing as critical infrastructure. Then, policymakers could rely on the Homes For All Coalition for recommendations to be proactive about future housing needs and make adjustments and improvements to existing resources/programs based on changes in the market. There are several current state legislative initiatives that would create new resources to produce affordable housing, such as State Housing Infrastructure Bonds, a tax proposal that would bring private capital into housing through donations, and a state-wide sales tax increase to support affordable housing. Additionally, there is an estimated $34 million in unused Housing and Redevelopment Authority (HRA) levies that could be used to fund local Affordable Housing Trust Funds (AHTF), since the State Legislature authorized and provided 6

7 Preliminary DRAFT Recommendations and Actions clear direction on AHTF in Nationally, city housing trust funds leverage $6 in additional public and private funds for every $1 the trust fund invests in housing. R2. A) Explore possibilities of a variety of options to contribute to a dedicated funding source. The sheer size of the affordable housing need indicates that a single source of funding will not be enough to address current housing shortages and meet the future need. Based on public comments and ideas submitted to the Task Force, the Rental Housing Work Group recommends exploring a variety of possible sources, including those used by other states. The exploration should include a careful analysis of who pays the cost to fund more housing. Throughout the discussion of this recommendation, the Rental Work Group has acknowledged member and community concerns that some possible sources will put additional pressure on developer s and owner s already small margins, which could put upward pressure on rents. When possible, the State should look to sources other than the housing field to pay for more housing. R2. B) Create affordable housing sources at the state and local levels that can leverage other public and private investment to support deeply subsidized affordable rental units (affordable to households earning 30% AMI or less). New ideas to consider: o Innovation Fund: Provide flexible financial and technical support for housing innovation and market testing responsive to local needs and conditions but which may not be competitive in existing funding programs. Include leverage from local governments that are creatively problem solving local issues o Provide statutory authorization to local jurisdictions to adopt an increase in sales tax for the purpose of supporting local housing funds. o Provide statutory authorization to allow local jurisdictions to increase the maximum levy limit that can be utilized by housing and redevelopment authorities, economic development authorities and port authorities for affordable housing development and preservation R2. C) The State of Minnesota funds/supplies technical assistance to local jurisdictions to set up Affordable Housing Trust Funds. While Affordable Housing Trust Funds have been used by larger cities, smaller cities and towns have not tapped into the potential to use this resource. The State should provide technical assistance to counties, cities, and towns for the one-time project of setting up trust funds to support local affordable housing goals. 7

8 CHANGE SYSTEMS Preliminary DRAFT Recommendations and Actions H9: Engage local community members to support new housing opportunities. Efforts to create affordable housing and expand homeownership, particularly to households of color, can change a community. Change can be anything from density of a neighborhood to the culture of a community. Sometimes change is received well by the local community and other times, it is not received well. Change, resistance to change, and related challenges should be acknowledged and addressed. Examples to be added H9. A) Recognize shifting demographics (e.g., aging, race, family composition, and millennials) and related housing needs. o Who: Local governments and government officials, community members, community-based organizations o Outcome: Local leaders will foster an environment that encourages and accepts change in local communities. H9. B) Assess current and future housing needs and incorporate them into local planning and economic development strategies. o Who: Local units of government o Outcome: Comprehensive plans will incorporate the housing needs of changing communities. 8

9 CHANGE SYSTEMS Preliminary DRAFT Recommendations and Actions H10: Encourage broad participation in homeownership housing opportunities by engaging a cross-sector of stakeholders in education, economic development, jobs, and housing. Creating sustainable, successful homeownership is a cross-sector effort. Preparing individuals and households for homeownership requires creating education, economic development, and job opportunities. For example, when household members have good paying jobs, they will be in a better position to create capital for themselves. They will be better able to save for downpayment and closing costs to purchase a home. In turn, these sectors benefit from stable housing. For example, studies have shown that children perform better in school when they have stable housing. Minnesota Housing, the Minnesota Department of Education (MDE), the Minnesota Department of Human Services, the Minnesota Interagency Council on Homelessness, and the Heading Home Minnesota Funders Collaborative have partnered to implement the Homework Starts with Home initiative. The initiative acknowledges the impact that housing stability has students educational achievement and partners to fund housing stability for families experiencing homelessness. The program is good example of cross-sector partnership that can be replicated in other areas. Minnesota Housing in partnership with the Greater Minnesota Housing Fund and USDA Rural Development also hosts Housing Dialogues across the state to discuss the housing needs of local communities. Discussions are held with the local Chambers of Commerce, educators, and local businesses to engage other sectors in affordable housing. Habitat for Humanity partners with corporations and businesses to create and preserve affordable housing. Employees of corporations and businesses volunteer to help with Habitat for Humanity projects from constructing new homes to helping homeowners repair their homes to sorting donations. H10. A) Encourage open dialogue about the relationship between housing, jobs, education, and economic development. o Who: Stakeholders in the housing, jobs, education, and economic development sectors. o Outcome: There will be more cross-sector collaboration to address issues impacting local communities. H10. B) Encourage private sector volunteerism and financial contributions to create and preserve affordable housing. o Who: Corporations, businesses 9

10 Preliminary DRAFT Recommendations and Actions o Outcome: More affordable housing opportunities will be created and costs of developing affordable homes will decrease due to the use of volunteers. 10

11 ENHANCE STABILITY Preliminary DRAFT Recommendations and Actions S6: Diversify housing options in communities to meet the wide-ranging needs of different ages, abilities, households, and income levels. Minnesota s demographic composition is shifting, which is resulting in an aging population that is more diverse in race and ethnicity. The housing stock and current building practices do not adequately reflect this demographic shift. Many lower-income homeowners reside in older properties with more delayed maintenance and/or increased frequency of repairs. Seniors need opportunities to assist with aging in place or within their community. Insufficient retirement income may impair home upkeep. Minnesota s population with disabilities must have access, opportunities, and choices for integrated housing. Because the state has rapidly changing demographics, it s important to better coordinate among agencies and health care partners to better engage all the systems to meet the needs of aging individuals both homeowners and renters. Home Accessibility Ramps Program. This program constructs ramps or low tread steps for low and moderate income households with individuals who have physically limiting disabilities in Hennepin and Ramsey counties. In 2017, the program received $250,000 in state appropriated Housing and Economic Development Challenge Funds (the Impact Fund) to assist 51 units. Since 1999, the program has built 336 ramps. Rehab Loan Programs. Minnesota Housing and many counties and local jurisdictions offer rehabilitation loan programs for lower income homeowners to assist in rehabilitating their home and making emergency home repairs or accessibility improvements. Incentivize innovative design to meet future needs given changing demographics. (State and private sector partners) S6. A) Address regulatory/financial barriers to developing non-standard housing, such as accessory dwellings, single room occupancy units, and more communal living opportunities. (State) S6. B) Increase the number of affordable housing opportunities for people with disabilities exiting segregated settings by re-allocating existing funding. (State, Olmstead Plan) 11

12 Preliminary DRAFT Recommendations and Actions S6. C) Implement a process to gather and measure choices made by people with disabilities regarding housing. (State, Olmstead Plan) S6. D) Adopt zoning code amendments that create more flexibility in "family" definitions in households. (Local communities, Regional AI) S6. E) Amend zoning maps to rezone large-lot single-family zones to higher density/lower minimum lot area standards. (Local communities, Regional AI) S6. F) Reduce administrative barriers to Planned Urban Development (PUD) and cluster development approvals which support affordable housing. (Local communities, Regional AI) 12

13 ENHANCE STABILITY Preliminary DRAFT Recommendations and Actions S7: Facilitate opportunities for affordable housing initiatives to better integrate with health care For vulnerable populations, housing opportunities are more likely to be successful when connected with healthcare services and supports. Supportive housing developers must partner with service providers to ensure that tenants have the supports in place necessary to maintain stability. This stability is jeopardized when providers lack a consistent funding stream for supportive services. Olmstead county coordination. Olmsted County revamped their organizational chart to place a person at the center, connecting health, housing and human services departments in an ecosystem. Supportive housing developments. Developments such as Solace Apartments in St Peter and those developed by Center City Housing (such as San Marco in Duluth) are models of supportive housing with wrap around services. S7. A) Strengthen partnerships between housing and healthcare providers by developing formal partnerships to support affordable housing residents and expanding efforts to systematically connect tenants of affordable housing with services when necessary. (State) S7. B) Ensure the right services and supports in supportive housing by building capacity within supportive housing providers to better tap into healthcare funding streams for their residents, supporting efforts to expand healthcare services to include housing-related services for people with disabilities, and working with affordable housing developers to consider what type of services and supports might be useful for prospective tenants. (State) S7 C) Develop and disseminate evidence and research to show how better health and healthcare supports can increase housing stability. (State) S7. D) Improve crisis response to increase housing stability by supporting the development of a robust mental health crisis response system and providing information to property management about options to respond to a mental health crisis. (State) 13

14 Preliminary DRAFT Recommendations and Actions S7. E) Continue to implement housing policy changes made during the 2015 legislative session (creating the Housing Supports program formerly known as Group Residential Housing). These policy changes promote choice and access to integrated settings by reforming programs that currently provide combined housing and supports to allow for greater flexibility. (State, Olmstead Plan) S7. F) Promote strategies to access Medicaid coverage for housing related activities and services for people with disabilities. (State, Olmstead Plan) S7. G) Consider creating a multipayer funding pool to have ability to conduct very tailored interventions outside of the current health care marketplace. (State, private sector partners). 14

15 ENHANCE STABILITY Preliminary DRAFT Recommendations and Actions S9: Prevent and mitigate impacts of evictions on tenants Approximately 13,000 households each year receive a formal eviction notice in Minnesota, and 3,500 of them are formally evicted from their home. 1 This is often regarded as an underestimate of actual evictions in the state, due to informal practices of eviction. The vast majority of evictions are due to nonpayment of rent. 2 Many are losing housing because they have been evicted due to non payment of an average of $ Wrap around services in housing court. From Colleen at Family Housing Fund: In both Hennepin and Ramsey County, we ve been exploring opportunities to take a more problem solving approach to evictions in the same way that Drug Courts, Veterans Courts, and Homeless Courts have recognized that connecting people to resources will do much more to address these problems than fines or jail time. This summer, we ll be launching a Housing Clinic in Ramsey County s 2 nd Judicial District to provide greater wrap-around services at Housing Court Private Sector best practices. Eviction is a las resort for many landlords. At Commonbond Communities, eviction prevention programming is the base of stability and independence programming. From a business investment standpoint, eviction prevention costs much less than the cost of evictions (lost rent, vacancy, legal costs, and turn costs). S9. A) Draft and present legislation that limits evictions to only appear on a tenant s record following court judgement. (State) S9. B) Promote establishment of a pilot project in Ramsey County in which eviction records will be sealed from public access unless and until a judgement is entered against the defendant (the tenant loses the case). If successful, expand this policy statewide. (State, Counties) S9. C) Consider tenant protection strategies such as just-cause eviction to prevent landlords from terminating leases for the sole purpose of raising rents. (State) 1 Matthew Desmond, Ashley Gromis, Lavar Edmonds, James Hendrickson, Katie Krywokulski, Lillian Leung, and Adam Porton. Eviction Lab National Database: Version 1.0. Princeton: Princeton University, 2018, 2 Minneapolis Innovation Team, July 2016, Evictions in Minneapolis, 3 ibid 15

16 Preliminary DRAFT Recommendations and Actions S9. D) Define and crack down on predatory rental practices, including excessive evictions and poor quality. (State) S9. E) Increase the speed and flexibility of emergency resources administered by counties as majority of evictions happen due to nonpayment of rent, short term assistance could mitigate evictions. (State and county partners) S9. F) Create a point of contact at county government for landlords to connect tenants to as many owners don t know what to do when dealing with possible eviction that isn t money related. The Hennepin County Community Health Improvement Partnership is looking at ways to provide such education and resources to owners. (Counties) S9. G) Create problem solving approaches to Housing Court calendars, offering wrap around services. (Counties) S9. H) Provide statewide supports and counseling for eviction prevention similar to the statewide response to foreclosures. There currently is no centralizing force. (TBD) 16

17 EXPAND PRODUCTION Preliminary DRAFT Recommendations and Actions S2: Increase investment in deeply affordable housing options Four out of five extremely low income households in Minnesota (defined as having household incomes at or below 30 percent of area median income) are paying more than half of their income on housing. 4 When this share of income is devoted to housing, a household s stability is at risk, because little else is left to pay for household needs like transportation, childcare, health care, and food. At least 7,600 Minnesotans experience homelessness on any given night. 5 Additionally, there are over 15,000 school-age children living in unstable homes. 6 The need for affordable housing is outpacing supply growth. Though there are tools to assist households to access affordable options, only one in four at-risk, low-income households receive federal assistance. 7 Waiting lists for the Housing Choice Vouchers - a federal program administered through local Public Housing Authorities or Housing and Redevelopment Authorities - are very long, sometimes as much as 10 years. In addition, existing federally subsidized housing lacks resources to make capital improvements. Reducing incidences of homelessness. Reducing incidences of homelessness. The Minnesota Interagency Council on Homelessness recently released Heading Home Together: Minnesota s Action Plan to Prevent and End Homelessness. Since the initial Heading Home plan was released in 2014, overall homelessness in Minnesota has decreased by eight percent, double the national rate of improvement during the same time period. In addition, homelessness among families has decreased by 20% since Existing resources for extremely low income renters. There are several tools to assist extremely low income households through rental assistance. At the federal level, Housing Choice Vouchers assist households who can rent units in the private market and pay 30% of their income. Project based assistance programs, such as public housing and Section 8 also serve extremely low income households. The State of Minnesota offers specifically targeted rental assistance through the Bridges and state Housing Trust Fund program. These tools, however, are oversubscribed and under resourced and cannot meet the demand. Rent subsidies support positive child and family outcomes. 4 Minnesota Compass, Cost-Burdened Households, 5 U.S. Department of Housing and Urban Development, HUD 2017 Continuum of Care Homeless Assistance Programs Homeless Populations and Subpopulations, 6 Center on Budget and Policy Priorities, Minnesota Fact Sheet: Federal Rental Assistance, 7 Center on Budget and Policy Priorities, Chart Book: Federal Housing Spending Is Poorly Matched to Need, 17

18 Preliminary DRAFT Recommendations and Actions While homelessness and housing instability can be costly for both families and their communities, there is ample evidence that long-term housing subsidies can provide a pathway to housing stability and improved childhood outcomes for many families. The Family Options Study, a nationwide study on homelessness interventions conducted by HUD, found that access to long-term housing subsidies reduced housing instability by half, and resulted in increases in child and adult well being and food security. In Minnesota, the Rental Assistance Pilot for Homeless and Highly Mobile Families with School-Aged Children (or HHM pilot) found education specific improvements for children of families experiencing or at risk of homelessness who received rental subsidies and other support services. These benefits included increased attendance and decreased chronic absenteeism for children of school age. 90% of participating families experienced housing stability following two years of subsidy receipt, and families also experienced increased incomes. EXPAND PRODUCTION S2. C) Establish Regional Market Innovation Grants to provide technical assistance, housing subsidies for operations, and housing grants for capital investment. (State) S2. D) Substantially increase General Obligation bond allocations to support rehabilitation of publicly owned housing. (State) S2. E) Support local communities to address their unique needs by creating adaptable toolkits to coordinate housing funding. (State and local communities) S2. F) Create opportunities for current residents in subsidized housing that have sufficient income to become home owners if they would like to. (State) S2. G) Consider statutory amendments to Tax Increment Financing statute to promote affordable housing S2. I) Support income averaging provisions for LIHTC developments. (State, local allocating agencies) 18

19 EXPAND PRODUCTION Preliminary DRAFT Recommendations and Actions H3: Encourage local governments to evaluate and update local plans, zoning and land use policies to facilitate expansion of homeownership options in communities to keep pace with population changes and shifts in market need and demand. Developers, builders and contractors often cite local fees and regulations as driving up development costs and limiting flexibility in the type and location of housing built. While much of this is true, it is important to note that development fees enable local governments to provide needed services and land use policies protect things such as greenspace and wetlands. These objectives need to be balanced with expanded opportunities to provide housing through strategic location of increased density, zoning that allows a wider range of housing types, and judicious use of fees. A number of cities in Minnesota, particularly in the west metro, have been exploring and adopting zoning and land use changes to facilitate the expansion of housing development. Examples of these policies include rezoning to allow smaller lot sizes, allowing small multi-family buildings in single family areas, permitting Accessory Dwelling Units, and zoning for row houses or townhomes. Some cities have provided tax incentives to reduce costs and encourage development. Local governments in the Twin Cities Metropolitan Area prepare Comprehensive Plans ever ten years under the guidance of the Metropolitan Council. The Plans must contain a Housing Chapter, identifying land use plans and policies to accommodate the anticipated housing needs of the population in the coming years. Such plans are not required elsewhere in the State, but could greatly benefit communities in proactively anticipating and building to their housing needs. Organizational support and guidance from some entity to cities, townships or counties in Greater Minnesota to create housing plans could provide the incentive and structure for more communities to thoughtfully plan for their housing needs. H3. A) Develop a best practices guide related to how local governments can support greater housing diversity and encourage affordable housing development. o Who: An entity should reach out to local governments that have successfully created more housing opportunities through changes in local policies and regulations. This entity should compile information about what has worked to develop the guide. o Outcome: A best practices guide will be available to be shared with local governments throughout Minnesota. 19

20 Preliminary DRAFT Recommendations and Actions H3. B) Encourage partnerships between local governments and developers to create new housing. o Who: Local governments and housing developers. o Outcome: More homes that meet local community needs will be built where local governments partner with developers. H3. C) Encourage more local governments to incentivize affordable housing through things such as providing tax abatements, density bonuses, using resources such as the Housing Trust Fund or allowing alternative construction forms such as modular housing. o Who: Local governments and their constituents. o Outcome: More affordable homes will be built in communities where local governments provide incentives for housing development. H3. D) Create a grant program that requires matching funds from the local unit of government to support affordable housing. The matching funds can be in the form of fee waivers, pooled tax increment financing, tax levies, general funds, or other local investments. H3. E) Streamline local processes to reduce the timeline for receiving approvals on various aspects of projects to in turn, reduce development costs. o Who: Local governments o Outcome: The timeline for receiving feedback and approval from local governments will be shortened, reducing developer costs (e.g., holding costs, etc.). 20

21 Preliminary DRAFT Recommendations and Actions EXPAND PRODUCTION S3: Utilize local land use policies and zoning to encourage increased quantity and variety of housing in communities Local land use policies and zoning regulations influence residential development. They can also be used to encourage or incentivize the inclusion of affordable housing in new and existing properties. Inclusionary housing practices could require or encourage developers to make a certain percentage of rental units in a project available to lower income people at affordable, less-than-market rates. The Housing Justice Center evaluated two state laws related to inclusionary zoning and presented to the City of Minneapolis in February As reported in MinnPost 8, One law allows cities to impose affordability requirements if a developer requests a subdivision, planned unit development, site plan or other similar type action. 9 But the second statute, which outlines the state's ban on local rent control ordinances 10, could also come into play, since housing developers might argue that forcing building owners to charge below-market rents could be interpreted as a form of rent control. Local Inclusionary Housing Policies. Currently, Saint Louis Park, Edina, and Minnetonka have some policies. In most cases, this is if the city puts funding into the project. Consider legislative changes that allow for more flexibility and clarity regarding the payment of housing impact fees. (State) S3. A) Clarify the legality to allow localities to create inclusionary policies for multifamily development. (State) S3. B) Explore how to fund the Inclusionary Housing Account, unfunded since (State, Metropolitan Council 2040 Housing Policy Plan) S3. C) Consider ways to leverage 4d tax classification by municipalities, as done with Minneapolis. (local communities through the Regional Council of Mayors, League of Minnesota Cities, etc.) Minnesota Statutes 2017, Minnesota Statutes 2017,

22 EXPAND PRODUCTION Preliminary DRAFT Recommendations and Actions H4: Identify and encourage ways in which to reduce development and construction costs. Increasing construction costs due to labor shortage, materials, and code compliance has deterred some developers from building homes. There are fewer young people going into the construction trades, resulting in a labor shortage. The cost of construction materials has increased. Additionally, while the Minnesota State Building Code, which adopts of the International Code Council (ICC) standards, establishes requirements that many homebuyers want incorporated into their homes, compliance with the State Building Code can increase the cost of development. As a result, there is a need to explore ways to reduce development costs and encourage more developers to build new homes. There are apprenticeship and training programs to encourage more people to enter the construction and building trades. For example, the Department of Employee and Economic Development funds the YouthBuild Program that provides hands-on training in the construction and building trades. The Department of Corrections offers the Institution Community Works Crews (ICWC) Affordable Homes Program, a vocational training program for minimum security inmates focused on building affordable housing. The Department of Labor and Industry (DLI) reviews and revises the State Building Code every six years and invites members of the public to participate in the revision of the State Building Code. While there is some public participation, there is not enough, particularly from those in the industry who have expressed concerns about the high costs associated with State Building Code compliance. DLI encourages more participation in the revision process. More developers are exploring alternative and innovative ways to build homes. This includes modular, panelized, and 3D construction. These alternatives to stick-built homes may offer some cost savings opportunities. Modular construction though is not as easily accessible in all parts of the state. As a result, transportation costs may outweigh the benefits of using modular construction. 3D construction has been tested in other parts of the country but there are currently no examples of 3D construction in Minnesota. Project Build Minnesota is a partnership of development and construction industry professionals that encourages individuals to enter the development and construction trades. It provides outreach and resources to educate people about learning opportunities, from hands-on trade experience to associates and bachelor degree programs. This is one step in the right direction in encouraging more people to enter the trades but there needs to be outreach and education beyond Project Build Minnesota. 22

23 Preliminary DRAFT Recommendations and Actions H4. A) Evaluate the procedure and participation in the development of the ICC and the State Building Code to ensure requirements are evaluated for costs and benefits. o Who: Developers, contractors, and DLI o Outcome: The State Building Code will include policies that are reasonable in light of costs and benefits. H4. B) Encourage new and young people to enter the development and construction trade through training and mentorship programs. o Who: State, local governments, nonprofit organizations, developers and builders and schools (trade and high school), builders associations, trade associations, unions, employers o Outcome: More people will enter the building and construction trades, in turn addressing the labor shortage. H4. C) Encourage developers to use innovation and technology to assist in cost containment including, materials, design, and methodology, including 3D development, panelization, and plastic homes. o Who: Developers and contractors, manufacturers, product suppliers o Outcome: Costs of building homes will decrease due to the use of innovation and technology. H4. D) Conduct targeted outreach and market the construction trade to encourage more people to enter construction. o Who: Builders associations, people currently working in the trades industry, trade unions o Outcome: More people will enter the trades helping to address the labor shortage. H4. E) Prepare programs and curriculum to ensure that they are readily available when demand for construction trade training increases, including programs related to rehabilitation and remodeling. o Who: Builders associations, community and technical colleges, trade unions o Outcome: There will be training programs readily available to prepare people interested in entering the trades. H4. F) Stretch Idea: Remove sales tax on affordable housing developments. o Who: State and local governments o Outcome: Development costs for affordable housing will decrease as a result of the savings on taxes. 23

24 EXPAND PRODUCTION Preliminary DRAFT Recommendations and Actions H5: Expand the housing inventory by developing more homes, rehabilitating existing homes, and encouraging alternative forms of homeownership housing options that meet the local community need. The housing market in Minnesota is extremely competitive right now due in large part to a very low inventory of available homes. The low inventory problem exists for both new construction homes and existing homes at all price points. While the new construction of single family homes has increased as compared to past years, there is still an insufficient supply of new construction homes for sale in light of the demand. Additionally, current homeowners are staying in their homes longer and therefore not putting their homes on the market. As a result, there is also a need for move-up homes between $250,000 to $400,000. The lack of homes in this price range is one factor that has deterred current homeowners from moving up and putting their homes on the market. The inventory problem is even more pronounced when it comes to affordable homes. Rising home values have put homes out of reach for many low- to moderate-income households. New construction homes at price points above $300,000 tend to be less affordable to low- to moderate-income households. Existing affordable homes below $250,000 are not coming onto the market because current homeowners are not moving up. Some existing affordable homes require rehabilitation before they are habitable. Acquisition, rehabilitation, and resale programs preserve the housing stock and create another means for households to access homeownership. These programs typically provide funding to developers to acquire existing homes, rehabilitate the homes and resell them to low- to moderate-income households. These programs played a large role in addressing vacant and foreclosed homes following the foreclosure crisis. While the number of vacant and foreclosed homes has decreased, there are still homes on the market that need rehabilitation before they are livable and can be resold. Community Land Trusts (CLTs) are an affordable alternative to traditional homeownership. In a CLT model, the homeowner holds title to the structure and the CLT holds title to the land. When CLT homeowners sell their homes, the homes must be sold to lower income households. CLT models are affordable because the homebuyer only purchases the structure, resulting in a lower purchase price than in a conventional model where the purchase includes both the structure the land. This results in a smaller mortgage, making monthly payments more affordable to the homebuyer. Another more affordable option is condos and townhomes. For many years, a state statute holding developers liable for construction defects up to ten years after the development of a project deterred some developers from building condos and townhomes. In 2017, the state legislature passed a law that would address some of the developers concerns regarding the condo and townhome construction defect statute. Advocates hope that this change will encourage more condo and townhome developments. 24

25 Preliminary DRAFT Recommendations and Actions Minnesota Housing provides funding for development of affordable homes for purchase through its Community Homeownership Impact Fund. Developers can use the funds for new construction or acquisition, rehabilitation, resale projects. Funding is available through an annual request for proposals. Some local governments also provide funding for homeownership housing development. For example, the City of Minneapolis provides grant funding through its Minneapolis Homes BUILD program for private and nonprofit developers to construct new homes on vacant city lots. There are several successful CLTs across the state. Several of these existing CLTs are expanding their inventory of homes to create more affordable housing options. These successful CLTs can be a resource or model for the development of new CLTs across the state. H5. A) Encourage development of a wide range of homeownership housing options that meet the needs of the local communities including but not limited to manufactured and modular homes, 2-4 unit properties (duplex-quad), condos, townhomes, twin homes, row homes, and cooperatively-owned homes. o Who: Developers, local communities o Outcome: New homes will be built, increasing the inventory of homes and meeting the housing needs of local communities. H5. B) Expand community land trusts. o Who: Community land trusts o Outcome: The number of community land trust homes will increase, creating more affordable homeownership opportunities for lower income households. H5. C) Implement a statewide developer challenge to build 500 new homes under $250,000 across the state (idea from Little Falls forum). o Who: Developers, employers, foundations, state and local governments. o Outcome: 500 new affordable homes will be built in Minnesota. H5. D) Expand acquisition, rehabilitation, resale programs through increasing funding and encouraging more developers to complete acquisition, rehabilitation, resale projects. o Who: Legislature, state, developers o Outcome: More existing homes on the market that need to be repaired before occupancy will be rehabilitated and sold. 25

26 EXPAND PRODUCTION Preliminary DRAFT Recommendations and Actions H7: Expand and simplify construction financing products and underwriting for homeownership housing developers. Construction financing is a risky product and therefore many private lenders are unwilling to take risks on smaller projects and smaller developers. Rigorous underwriting that includes requirements such as strict loan to value ratios sometimes makes it difficult for smaller developers to access construction financing. While there are some private lenders willing to provide construction financing for smaller developers, there are not enough to fill the need. Additionally, the structure of some current programs makes it costly and difficult to draw down and utilize the loan funds. H7. A) Explore alternative products such as simplified revolving loan funds for construction financing. o Who: Construction financing lenders o Outcome: Construction financing will be simplified and more accessible, particularly for smaller developers. H7. B) Identify strategies to reduce lender risk for small developers, projects, and new products. o Who: Construction financing lenders o Outcome: Lenders will increase the number of construction financing loans they make to smaller developers and projects. H7. C) Engage business and philanthropic partners to support lenders and developers in providing funding. o Who: Businesses and foundations o Outcome: Developers will be able leverage their construction financing with funding from businesses and foundations. H7. D) Encourage innovative methods to fund construction such as crowdsourcing. o Who: Developers o Outcome: Developers will have access to alternative forms of construction financing. 26

27 EXPAND PRODUCTION Preliminary DRAFT Recommendations and Actions H8: Provide technical assistance and capacity building for smaller and newer developers to enable them to create more affordable homes. There is a need for more developers to build or rehabilitate affordable homes. Providing technical assistance, mentorships, and capacity building for smaller and newer developers may encourage more housing production. Minnesota Housing currently provides funding for capacity building projects through its Capacity Building Initiative, and smaller programs may be available through local governments or nonprofit organizations. Programs are limited though by who is eligible to apply and what the funds can be used for. As a result, private developers and individuals would not be able to utilize the program. H8. A) Develop a peer to peer homeownership housing development technical assistance program. o Who: Developer and contractor associations, state and local governments o Outcome: Smaller and newer developers will establish their capacity to build new homes on their own, in turn, creating more affordable housing opportunities. H8. B) Develop a rehabilitation mentorship or trade program to develop more skills capacity and encourage more developers to pursue rehabilitation projects. o Who: Developers, builders, unions, trade associations o Outcome: More existing homes will be rehabilitated and resold as a result of more developers pursing rehabilitation projects. 27

28 EXPAND PRODUCTION Preliminary DRAFT Recommendations and Actions R3: Expand affordability through financial and non-financial mechanisms aimed at unlocking financing options, speeding up delivery of housing developments, and creating cost efficiencies that improve access to housing for all Minnesotans. Every Minnesotan deserves affordable housing. By this we mean that no household should have to pay more than 30% of their household income towards housing costs. For some, finding affordable rental housing is not a problem, but for many there is just not enough supply. For the lowest-income Minnesotan s, having to pay more than 30% of income towards housing means making impossible decisions between rent and medication, food, or electricity. Households of color are much more likely to be represented in households earning less than 30% AMI income category than their white peers. Therefore, increasing supply at the deepest levels of affordability will help advance our State s racial equity goals. The Rental Housing Work Group heard from both the community and Minnesota Housing s research team about the scale and impact of the supply shortage for the lowest income Minnesotans. The gap felt by renters is caused both by a supply gap and by an allocation gap (when households earning a higher income rent apartments that would be affordable to lower income households). Addi tion ally, the Rent al Hou sing Wor k Grou p heard from developers and owners that zoning, permitting, code, and building standard requirements often add to development costs, making affordable housing development unfeasible or putting upward pressure on rents and further limiting the supply available to the low income renters. Going forward, the members of the Rental Work Group and property owners believe it is important to intentionally evaluate and balance the impact regulations will have on development cost, unit delivery, and broader social goals. Finally, on-going operating costs could strain affordability long-term. Strategies to better contain operating costs are delineated in Recommendation #5, incentivize private market owners, and are also impactful in the development of new affordable rental units. 28