Minneapolis tests a program to preserve affordable rental units

An apartment building in Lowry Hill East. File photo

Minneapolis offered a deal to rental property owners in April aimed at preserving the city’s dwindling number of affordable housing units.

The 4d pilot initiative, announced April 20 by Mayor Jacob Frey, is an effort to recruit more rental property owners into an existing state program that offers a property tax reduction in exchange for keeping a certain number of units affordable. The City Council on April 27 voted to approve a package of incentives that would lower barriers to participation, with the goal of adding 300 Minneapolis rental units to the program this spring.

“We are in the midst of an affordable housing crisis, and across the city tenants and property owners are feeling the pinch of increases in property taxes and their operating expenses,” Frey said. “However, we know we have a group of landlords — a large group of landlords — who would like to keep units more affordable if the finances would allow. What this program does is allow for it.”

The goal is to preserve so-called naturally occurring affordable housing before the tight housing market pressures landlords into raising rents. The affordable housing is referred to as naturally occurring because it isn’t government subsidized.

But it takes some type of subsidy to qualify for the state’s 4d program, so the city is offering one on the cheap.

For pilot participants, the city plans to cover the $10-per-unit fee the Minnesota Housing Finance Agency charges to apply for low-income rent classification status, also known as 4d status. That classification comes with the 40 percent property tax reduction on affordable rental units.

The pilot was open to market-rate multifamily housing buildings with at least 10 units; 20 percent of those units must be occupied by and affordable to people earning 60 percent of the metro-area median income or less. That translates to below $949 per month for an efficiency, $1,017 per month for a one-bedroom or $1,221 per month for a two-bedroom. Tenant incomes for those units would be no more than $37,980 for an individual or up to $51,480 for a family of four.

To enter the pilot, the property owner must enter into an agreement with the city that commits them to keeping those units affordable for 10 years.

“It costs way less money to preserve any existing unit than it does to build fresh, and this policy … tackles the affordable housing we already have,” Frey said.

Optionally, rental property owners who join the pilot can also sign up for energy efficiency programs offered through local utilities to qualify for subsidies and rebates, increasing their potential savings.

“The beauty is it’s an improvement in the property for the owner which at the same time reduces the cost burden for the renter,” Frey said.

The pilot program has the potential to expand in coming years and was limited to just 300 units this year because the annual application window for the Minnesota Housing Finance Agency’s 4d program had closed. The state agreed to extend the window two months to early May for the Minneapolis pilot.

The deadline for Minneapolis landlords to apply is May 2.

Ward 7 City Council Member Lisa Goodman said naturally occurring affordable rental units are often found in small multifamily buildings, including many with fewer than 10 units. She said council members debated opening the pilot to those smaller buildings but set the minimum unit count at 10 to get as many rental units as possible into the pilot.

Goodman said landlords of small buildings are facing intense pressure to raise rents. As a hot housing market drives up rental rates across the city, apartment buildings are being assessed at higher rates and paying more in property taxes.

“This is not a giveaway to developers, it’s an acknowledgement that small property owners between two and 100 units have a problem keeping their units affordable just based on rising property taxes,” she said.

Minneapolis has about 38,000 naturally occurring affordable housing units, or roughly 23 percent of those available in the entire seven-county metropolitan area, according to a city report. Rents average $600–$1,200 per month in those units.

Those units are also attractive to speculators who see the opportunity to purchase the properties and hike rents, according to that same city report. A metro-area vacancy rate of just 2.7 percent adds to the pressure.

Prior to a unanimous City Council vote to approve funding for the pilot, Council President Lisa Bender (Ward 10) said the program would help shield some of her constituents from fast-rising rental housing costs.

“This is such a huge issue in my ward, and I’m really, really excited that we’ve added this to the long list of things that we are doing in the City of Minneapolis to fight back against the displacement of renters that we’ve been seeing increasing year by year,” she said.