Regional grants help create, preserve affordable housing

Call it “The Little Program that Could.”

In the complex world of affordable housing financing, the Local Housing Incentives Account (LHIA) of the Metropolitan Council’s Livable Communities program is not a big player, moneywise. But according to city officials and housing developers, a relatively small amount of money can make the difference between whether affordable housing is preserved or not.

The East Side Commons project in St. Paul tells the story. Nonprofit development partners East Side Neighborhood Development Company and Twin Cities Housing Development Corporation propose to purchase and rehabilitate 40 rental townhomes on two sites near the Payne Avenue commercial neighborhood.

The partners will also fix up 8 aging apartments in a commercial building and construct a duplex on vacant land near the townhomes. The total project cost is more than $11.2 million. With a combination of private and local public sources, the nonprofit developers and the City of St. Paul were able to come up with nearly $9.5 million.

The G.A. Johnson Building on Payne Avenue in St. Paul is part of the East Side Commons project. The eight apartments in the upper floors of the building will be rehabilitated and rented to households earning a maximum of 60% of median family income. An LHIA grant is one component of the project funding.

To fill the gap, the city applied to the Metropolitan Housing Implementation Group – of which the Metropolitan Council is a part – for the additional financing. After going through a rigorous evaluation and ranking process, the project was awarded $575,000 from the Council’s LHIA (less than 5% of total project costs) and $1.2 million from the Minnesota Housing Finance Agency.

The new investments will preserve the affordability of the units for the next 30 years.

LHIA funds leverage other resources

“The LHIA funding helps to leverage state resources,” said Ken Isaacson, Development Manager for the Twin Cities Housing Development Corporation. “To the extent that there’s a demonstrated commitment from the local level – including private investment – that all helps leverage the state funding.”

Preserving existing affordable housing “is much more efficient and easier to do than trying to find new sites and constructing new affordable housing,” Isaacson said. “Maintaining what you already have makes sense.”

Each year, the Council invests at least $1.5 million of LHIA funds in local projects to create or preserve affordable rental and ownership housing. Rental units are typically affordable to families with up to 50% of area median income; ownership units are targeted at families with up to 80% median family income. Among the types of projects funded:

Construction of new rental townhomes.
Purchase and rehabilitation of foreclosed homes by a land trust, which retains ownership of the land but sells the homes, thus making them affordable to families with lower incomes.
Renovating aging apartments and townhomes.
Building affordable housing near transit.

Program helps support region’s economic competitiveness

“LHIA helps promote the Council’s policy to expand and preserve lifecycle and affordable housing options to support the region’s economic competitiveness,” said Council Chair Peter Bell. “LHIA-supported projects often provide housing for families headed by medical technicians, teachers, police officers and other workers essential to community well-being.”

Carbury Hills Townhomes in Rosemount were built with the help of an LHIA grant. All of the 30 rental units are affordable to families at 50% of median family income.

Since the program’s inception in 1996, the Council has awarded 125 grants totaling more than $21 million to 59 communities for affordable housing through the LHIA, leveraging hundreds of millions more in private and other public investments. LHIA is one of three accounts under the Livable Communities (LCA) program, established by the Minnesota Legislature in 1995.

In order to qualify for LCA funding, communities must agree to:

Negotiate long-term affordable and lifecycle housing goals.
Have in place a LCA Housing Action Plan to identify and give direction to the city’s use of programs, officials controls (like zoning) and fiscal devices to help accomplish these negotiated goals.
Make the minimum annual contribution or expenditure of local dollars on affordable housing activities required by the state law.

See a list of communities participating in LCA and frequently asked questions about LCA participation (pdf).

A little goes a long way

Alan Arthur is CEO of Aeon, a nonprofit developer and property manager of affordable housing in the Twin Cities. Aeon is no stranger to assembling financing packages with multiple funding sources. In fact, Arthur said, Aeon holds the federal Housing and Urban Development program’s record for funding sources for a single project – 30. But that’s not even Aeon’s record, he added. “Ours is 40 funders,” he said.

When asked about the significance of the relatively small amount of funding that the Council’s LHIA program contributes to projects, Arthur said he is often asked a similar question by other funders about their own potential contributions. He tells them:

“A bicycle is only a bicycle if it has all its parts. If you take a pedal off, you won’t get very far. Or if you take the seat off, it is going to be a very painful ride. These complicated affordable housing financial structures are nothing without all of their pieces.”