Affordable housing a competitive game: Developers compete for federal, state tax credits
Although the Housing Incentive Fund has been tapped out since November, developers are still trying to find ways to bring affordable housing to Dickinson.
Two housing projects — one an apartment building for seniors, the other two- and three-bedroom townhomes for low-income individuals and families — came before the Dickinson City Commission last week to give them a leg-up in the competitive field of low-income housing finance and tax credits.
“We’ll go in, request the credits based on the things that we’ve selected in our development and hopefully it will score out well enough that we’ll be awarded the credits,” said Ben Idle, director of development at G.A. Haan Development, LLC, a Harbor Springs, Mich.,-based firm that developed the Lincoln Park townhomes in southeast Dickinson.
The federal government allocates less than $3 million in tax credits for low-income housing to North Dakota each year. Each state receives funding based on population. The North Dakota Housing Finance Agency then distributes the credits using a points system to determine the need and viability of each proposed project.
“Typically that means that about four to five are able to be funded every year,” said Max Wetz, public affairs director of the North Dakota Housing Finance Agency. “The deeper that they target the lowest income households possible, the better that they’re going to score.”
Having community support in the form of local incentives adds points to projects, increasing their likelihood of getting the credits needed to build and keep rents low, Idle said. That is why his parent company is applying for a payment-in-lieu-of-taxes agreement with the city of Dickinson.
These agreements allow building projects to pay a predetermined flat rate over the course of several years instead of the actual taxes owed on the property.
The G.A. Haan development is on its third phase of townhomes in the Lincoln Park development, Idle said. The first was affordable housing built with tax credits, the second a market-rate project, both were lease quickly.
If G.A. Haan is denied the federal low-income tax credits, it may proceed with phase three as a market-rate project, Idle said.
“We would prefer to keep it affordable, given our knowledge of the market and how badly it’s needed there,” Idle said. “But we’re not sure what would happen if we’re not allocated tax credits. I guess we’d have to cross that bridge when we get there.”
Beyond Shelter, Inc., a Fargo-based affordable housing developer, has been able to take advantage of the Housing Incentive Fund and the federal tax credits to build specialized affordable housing in Dickinson, said Dan Madler, chief operating officer of Beyond Shelter.
“The way you get affordability is the federal low-income tax credit allows you to bring equity to the project. It’s like your down payment,” Madler said. “When you bring in equity to the project, instead of having an 80 percent mortgage on the property, the project may end up having a 15 to 20 percent mortgage. With your mortgage being less, you don’t need to charge high rents to pay for the operational expenses of the project.”
The company’s Patterson Heights building opened last autumn with eight of its 24 units set aside for law enforcement, Madler said. Other essential workers, such as teachers and government workers, are encouraged to apply to live in the building as well.
“That project used a number of different funding sources to basically allow a couple different things to happen,” Madler said. “(Both programs) buy down the amount of hard debt, or mortgage, needed for the project.”
Next to Patterson Heights in west Dickinson is Heritage Hills, 42 apartments for individuals 55 years of age or older. The first phase opens this fall at the same time the company is breaking ground on the second phase. Madler applied for a payment-in-lieu-of-taxes agreement with the city, which was approved by the commission.
Madler said the first phase was “mostly financed” using the federal low-income tax credit program but the Housing Incentive Fund was also used to “fill our funding gap.”
The agreement between the city and G.A. Haan will come before the commission again at a special meeting at 4:30 p.m. Tuesday at City Hall.
Even if more businesses wanted to contribute to Housing Incentive Fund, there are no longer tax credits available, Wetz said. The only way to add to the $35.4 million set aside in the 2013 legislative session before the next session in 2015 is to call a special session, which is unlikely.
“We’re capped at where we are right now,” Wetz said.