The lack of affordable housing has been a highly discussed topic at the local and state levels this past year as the COVID-19 pandemic exacerbated an already tight market.
Rent prices continue to rise as housing stock continues to fall behind demand. Since January of this year, the national median rent has increased by 17.8 percent, according to Apartment List’s national rent report this month. From 2017 to 2019, rent increases averaged just 2.6 percent each year.
“It has become abundantly clear that housing is a critical need and a basic component of economic development,” said Ryan Kilpatrick, executive director of Housing Next, which works with various entities to create affordable housing solutions. “The pandemic illustrated to a lot of folks that we’ve been on a knife’s edge for a lot of our workforce on whether they can afford housing to stay in our community.”
Want more news like this every weekday? Get the free MiBiz Morning Edition newsletter.
Grand Rapids Mayor Rosalynn Bliss agreed that the pandemic has simply made ongoing housing challenges even worse.
“Before this, we were already struggling as a community for individuals that wanted to call Grand Rapids home, and there were already so many people paying more than 30 percent (of their income) for housing,” Bliss said.
A 2020 housing needs assessment of Kent County showed roughly half of Grand Rapids renters were cost-burdened, meaning they spend more than 30 percent of their income on housing. The needs assessment also indicated that the city would need to add at least 5,340 more rental units and 3,548 more owner-occupied units to satisfy housing demand and affordability.
Tax credits, rising costs
However, Kilpatrick said a growing number of developers across West Michigan are looking to build multifamily projects and use tax credits to make them more affordable. The past year has been “one of the best” for Low Income Housing Tax Credits (LIHTC) after six projects in Grand Rapids received a total of $6.7 million in support when awards were issued this summer, Kilpatrick said. Under the program, developers can receive a credit equal to about 9 percent of qualified construction or rehabilitation costs if they’re not already using federal or tax-exempt financing.
These projects are working against soaring construction costs that are still making projects difficult to finance, Kilpatrick said, noting LIHTC is highly competitive and limited.
An index of input prices — the prices that producers and service providers such as distributors and transportation firms charged for inputs for non-residential construction — were 21.1-percent higher in October compared to a year earlier. That included a 1.3-percent increase since September, according to an analysis by the Associated General Contractors of America.
“We are continuing to fall behind on additional moderate income and market-rate units,” Kilpatrick said. “We’re not seeing the same rate of production we saw two and three years ago, and that’s partly due to construction costs.”
New funds to add housing
Grand Rapids leaders have been trying to identify what they can do to help solve Grand Rapids’ lack of affordable housing while knowing a significant part of the solution is simply building more housing, Bliss said.
“We’ve incentivized affordable housing through zoning changes, but we knew we also needed funds,” Bliss said. “We have had people who wanted to be part of the solution but didn’t have the dollars.”
Once American Rescue Plan Act funding became available, the “top of the list” of priorities was to put some of the funds toward housing, Bliss said. The City Commission seeded its Affordable Housing Fund with a deposit of just less than $1 million by amending the city’s 2022 fiscal year budget. Grand Rapids plans an additional $5 million investment in affordable housing from ARPA funds, Bliss said.
The City Commission this year also established an Affordable Housing Fund Board that will determine how to use the funds. Officials hope to have all 11 of the board appointments made this month before distributing some of the first funds by spring 2022, Bliss said.
“My hope is that these funds will be able to provide greater flexibility for us to support smaller-scale projects,” Bliss said. “We have a lot of affordable housing projects under construction and many have received LIHTC and those are extremely helpful for lower income households, but there are a lot of requirements and regulations for using those funds, and it’s a very competitive process.”
The city’s Affordable Housing Fund could be used on a range of initiatives such as infill housing projects on smaller lots or to offset development and permitting fees, gap financing, aiding with property acquisition or even to preserve existing housing to keep it affordable, Bliss said.
“That’s what’s really exciting about this fund — it opens an opportunity we really haven’t had before to look at creative ways for affordable housing,” Bliss said.
Legislative tools
Meanwhile, a statewide initiative known as Housing Michigan has taken the multifaceted housing issue to the Legislature.
The group pushed six bills this year that passed overwhelmingly in the Senate at the end of the spring session and are expected to be taken up in a House committee this week, said Joshua Lunger, director of government affairs at the Grand Rapids Area Chamber of Commerce.
The bills were introduced in April and are designed to address areas of “peak need” for any community in Michigan to address affordable housing issues, Lunger said. The bills use an opt-in approach and have varying aspects of customizability.
“This work is so aligned with our Chamber mission because the work we do on housing is a talent issue and a general vibrancy issue,” Lunger said. “If we have a healthy housing market across the region, that impacts student outcomes, wealth creation, economic outcome and job access, which is so fundamental to our state.”
The bills involve giving local governments expanded access to affordable housing tools and ways to incentivize affordable housing developments. Senate Bill 364 would expand the ability for local governments to designate neighborhood enterprise zones, effectively opening the tool to any city, town or village across the state. S.B. 360 also offers tax credits to employers that contribute to a local housing trust fund.
“I’ve never seen so many groups rowing in the same direction,” Lunger said. “I think that’s really powerful, that housing isn’t partisan. We’ve got bill sponsors from both parties. That’s really encouraging in a time when it feels like everything is partisan, this really cuts a clear path to move our state forward.”
