AMA: How does affordable housing get built?

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Above: While the 1950s-era chalet (and the original home of Food Truck Friday) is going away, the Chocolate Moose will return to this spot in 2017. (Photo: moosebtown.com)

What happened to no new luxury apartment construction until we had affordable housing development? I have been renting for 6 years in Bloomington and I am still struggling to make rent, despite making almost twice minimum wage. — Workin’…Stiffed

This is a doozy of a question to start an “ask me anything” column with. It’s loaded with assumptions that deserve some unpacking. The question assumes, for example, that Council has authority to regulate the construction of new apartments.

Council has some authority, but not that much in a country called the United “States” of America, whose provinces have significantly more power than do provinces in other countries. Our Constitution mentions neither cities nor any other form of local government. Thus, what authority the city of Bloomington has is based on what’s granted by Indiana state law. It being a liberal city in a conservative state, Bloomington often finds itself chafing at such limits.

Our land-use regulations only go so far. Council can’t dictate rents; Indiana does not permit rent control. We can’t hold up apartments just because they’re targeted to wealthier renters. We can’t make developers build housing, let alone mandate that it be “affordable.”

Theoretically, affordable housing doesn’t get built new so much as it just doesn’t get torn down. New construction is expensive. The time to think about affordable housing is before we allow buildings to be torn down. (Bloomington Fading has devoted years to cataloguing the demolition of more than half of downtown Bloomington in the name of parking lots and “progress” between 1950 and 1975. Their blog is worth reading, and a sobering reminder of how not to improve a city. That happened two generations ago, and not enough people back then anticipated that the city would be more than twice as populous today. But that’s a matter for another post.)

In the early 21st century, how do we build affordable housing? An answer lies in the project about to take over the Chocolate Moose site, which Council approved August 31, that will have both market-rate and affordable housing in it. How did it happen?

Earlier this year, a developer came to Bloomington’s newly-sworn-in mayor with a question: can we help? The new mayor said: yes! We could use more affordable housing. The developer came back with a proposal: they were planning a new downtown housing project. They’d make ten percent of the units in their new affordable for 30 years in exchange for a three-year tax abatement (see page 74 of the packet).

Was this a good deal? (I have to be all math-wonky now. This is where you go get your sixth-grade child to sink her teeth into a real-life problem. Spoiler alert: I’m not waiting for the next post for her answer.)

“Affordability” would be defined by Bloomington’s living wage, which this year is $12.32/hr. Multiply by the 2080 hours in a work year; multiply by 30% — the maximum amount of one’s income one should have to devote to rent — and divide by 12 months. The result: $641/mo is the maximum rent considered “affordable” for a one-bedroom apartment in Bloomington. Market rent was estimated by the developer at $950/mo per bedroom. A $309 saving, times 360 months, times the 7 bedrooms in those 5 units equals $778,680 in 2016 dollars.

How much would the developer save in taxes? A typical tax abatement offered 100% off the first year, and an amount off each further year descending as a proportion of the number of years left in the abatement, up to ten years. A one-year abatement would be one whole year’s worth of taxes off. A two-year abatement would be 100% off the first year, 50% off the second year, or 1 1/2 year’s worth. A three-year abatement would be 100% the first year, 66% the second, and 33% the third, or two full years’ worth abated. You get the idea: the maximum-length abatement, ten years, would result in 5 1/2 years’ worth of taxes abated.

The developer’s investment would be $11 million; their tax rate would be just over 2%, or $237,349 per year. The total value of a three-year abatement to the developer would thus have been $474,698 in 2016 dollars. The developer gives back $300,000 more in rent (albeit over 30 years) than he saves in taxes (over three years).

Councilmember Isabel Piedmont-Smith and I liked the idea, but thought it didn’t go far enough. Ten percent of the 51 units in this project meant only five percent of the 146 bedrooms, because the units offered were 1- and 2-bedroom, and most of the units are 3- and 4-bedroom. We wanted ten percent of the bedrooms to be affordable.

The developer worked with us, and in the end everyone got a much better deal: in exchange for a ten-year abatement, 15 bedrooms will be affordable…for 99 years. This amounts to $1,305,420 over ten years for the developer…and $309 x 15 bedrooms x 1188 months = $5,506,380. More than $4 million of rent will be saved by Resolution 16-12.

Workin’…Stiffed, if you’re making almost twice the federal minimum wage of $7.25, and you wanted to live in this new project (because, say, it’s a block from the city’s bus station), you’d still qualify to live there even though you’re making minimum wage more than the living wage. An amendment passed broadening the range of who could live there: any household making less than 80 percent of the area’s Average Median Income (AMI). Because your income is less than the figure for a 1-bedroom, you’d qualify.

Both the developer and us councilmembers are hoping this will set a precedent for future development: that every new building of any size pursue this exchange. Bloomington has no sticks with which to compel affordable housing, but we do have carrots.

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Above: Artist’s rendering of the buildings coming to South Walnut St. in 2017. (Photo: theurbanstation.com)

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Stephen Volan is the District 6 representative to the Bloomington city council. Write him at .

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