Make Homes Happen Recommendations on Inclusionary Zoning in MPLS

For years, the Alliance has played a key role in advancing inclusionary zoning as a means to increase affordable housing production. As a member of the Make Homes Happen coalition, Alliance Policy Advocate, Tram Hoang, co-authored this letter sent on November 6, 2019 to Grounded Solutions Network and Andrea Brennan, Director of Housing Policy and Development at the City of Minneapolis, responding to and providing recommended changes to the proposed inclusionary zoning policy. 

Make Homes Happen is a coalition of organizations mobilizing for the production and preservation of affordable housing and protection of tenant rights in the City of Minneapolis through education, advocacy, and public policy reform. Throughout the past two years, we have engaged with City Council Members, Community Planning & Economic Development (CPED), and Grounded Solutions Network to shape an inclusionary zoning policy we believe will best serve Minneapolis residents experiencing the burden of the affordable housing crisis. Ultimately, we believe that in deciding the future of inclusionary zoning in Minneapolis, City Council Members and city staff should prioritize our concern for the public good over our concern for the profitability of individual businesses.

The calculations Grounded Solutions Network used to develop their draft recommendations include a very generous 5.9% yield on cost metric to assess project feasibility. This emphasis on robust returns for developers should not come at the expense of prioritizing the purpose of inclusionary zoning: ensuring the creation of affordable units so that residents of all incomes can benefit from increased housing supply and development.

Broadly, there are a few factors we believe should be more heavily weighed in the decision making process. We can anticipate that because “marginal” deals are riskier, developers will be weary to complete them and prefer to pursue projects that have higher returns. Given this, we shouldn’t let the potential impacts on those “marginal” return projects dictate our inclusionary zoning policy. Furthermore, we know that the most financially successful developers are the ones that contribute the least to the public good through high-end, beyond market-rate apartments that are out of reach for median income residents, let alone extremely low-income or low-income residents. The inclusionary zoning policy should not prioritize their continued profitability without greater consideration of their impact on residents experiencing the most housing instability. Lastly, and most importantly, given the city’s recent changes to parking minimums and density, developers are receiving the benefits of many regulatory changes that are ultimately decreasing development, and at no cost to them. This inclusionary zoning policy is one way to capture those benefits for public good.

Please see below for our comments on the various sections of the Draft Policy Recommendations as presented by Grounded Solutions Network to the Housing Policy and Development Committee on October 16, 2019:

On-site Affordability Requirements – Rental:

  • To ground us in reality, we would like to reiterate that HUD defines 60% AMI for the MSP area as $60,000 for a household of four, which is equivalent to a family of four earning 100% AMI in the city of Minneapolis.
  • We believe the reduction from 10% to 8% of units at 60% AMI (or from 5% to 4% at 30%AMI) should be rejected. 10% is low enough as it is – a reduction to 8% sacrifices some of the precious few units that might be created through this policy only to pad return on investment.
  • If the city is serious about taking on real affordability, we need to focus on 50% AMI and below.
  • Therefore, we recommend removing Option 1 (8% of units affordable at 60% AMI) and having developers choose between Options 2 and 3 (with option 3 being set at 5% of units at 30% AMI).
  • During our meeting, Rick Jacobus mentioned the Los Angeles IZ example, through which developers found it easier to build fewer units of deeper affordability due to the ability to make up for the affordability gap with the greater proportion of market-rate units. We think this is an important case study to consider, and an example of how deeper affordability can be made feasible.

On-site Affordability Requirements – Ownership:

  • To make sure that ownership units created through the IZ period truly go to buyers in need of affordable ownership opportunities, we believe that there should be an asset test/restriction in addition to income restrictions.
  • We don’t think there should be a ramp-up period.
  • If the city is going to have a ramp-up period, then rental-to-owner conversions need to be included in the count.
  • Ramp-up numbers should be cut in half. During our meeting, a city staff member stated that it takes approximately 3 years to get to 500 units; if we’ve already been waiting 10 years for a policy, then we should not continue to delay.
  • We should strengthen the ownership requirement by increasing the mandated affordability from 4% and 8% to 5% and 10%, respectively.

Revenue Loss Offset Policy (TIF Policy):

  • This should only be used in a scenario in which the developer would otherwise not be able to complete the deal (not to make their profits whole).
  • The TIF should only be used to cover the gap in affordability, not to fill the gap in profit.
  • One concern is whether the City is going to get full transparency from developers regarding financial projections (if someone were trying to exploit this, they could underestimate returns in the underwriting process in order to justify additional city financial assistance)
  • If the City provides financial assistance and the project over performs, there should be a clawback provision for those funds.

Threshold Size / Scaling for Smaller Projects:

  • We don’t believe scaling should be incorporated into the policy because it provides such little benefit for so much staff time; it is not worth the trouble and work for city staff.

Compliance Alternatives:

  • In-lieu Fee: GSN’s rationale here is sound and good, especially taking into account the scale of buildings.
  • Ultimately, this comes down to a policy choice for the city – Are we prioritizing temporary affordable units across the city or money for deeper, permanently affordable units that may not be as geographically dispersed?
  • Off-site Development: How is the city going to measure “level of public benefit” or “meaningful contribution”? We feel strongly that the City must be gaining measurable additional benefits from such projects.  For instance, if a developer is just selling land to a non-profit developer at market price and does nothing else to financially support the project, then the non-profit developer will be going back to the normal pool of affordable housing dollars (tax credits, county/federal/Met Council funds), which ultimately increases competition in the same, limited pool of funds. The point of this policy is to shift some of the affordable housing burden on to private developers, not for private developers to continue putting it on the backs of the non-profit development community.
  • We do not believe that a letter of support and market-value land transaction is a meaningful contribution from a developer. In fact, that is the bare minimum that should be expected.
  • Overall, the city needs to make sure they are getting equivalent or better outcomes on alternative compliance options.

Updating the Policy:

  • What are the metrics we are using to measure the policy’s performance?
  • We don’t want to create perverse incentives for developers to influence results. For example, the City of Portland received the equivalent of three years worth of development permits before the effective date of their IZ policy, then very little in the following two years. Eighteen months later, they weakened their IZ policy.
  • We know the market will change and adjust to this policy, we can’t equate change to failure.
  • The city should ensure that the in-lieu fee is dynamic so that it can adjust to changes in the market.

Thank you for the opportunity to weigh in on this important policy, and for your work in taking the necessary steps towards more equitable housing in our majority-renter city. Please let us know if you have any questions or would like clarification on any of our points. We look forward to continuing to work with you on the many additional policy changes we need to ensure an increase in production and preservation of affordable housing and protection of tenant rights in the City of Minneapolis.

Make Homes Happen