by John H. Fischer on February 23rd, 2010
[I know this appeared on Johns blog, but the work is impressive, and I think it is worthy of a larger discussion.]
Let me start off by saying that I don’t know everything and I don’t understand everything. I start out with that statement because something just doesn’t add up for me — it doesn’t make sense to me. Although I admit I don’t know everything there is to know about various sources of development incentives from the local, state and even federal level; to be fair, I am not completely without knowledge either.
At Tuesday’s City of Wausau Plan Commission meeting, after a public hearing, a zoning change was approved for a 40-unit apartment complex near downtown. It would be located where the Zastrow Beer Distribution facility is, on the river just south of Bridge Street. This zoning hearing is not the first step in the process for this development. Although the meeting last night was to get the zoning situated, about a year ago the City of Wausau approved a Developer’s Agreement for this project where the City of Wausau (through various sources, including funds allocated toward development of low-income housing) was going to provide a total of $450,000 towards this development.
Before I start my rant about how this project appears to be an outright abuse of those systems in place to help with our “affordable” housing crisis, it is important that I make a few of my personal thoughts clear.
I do not oppose a development of this nature in this location. This property is currently zoned manufacturing, which made sense back when we floated logs down the river. However, today a mixed use of commercial and high-density housing along the river front makes sense from an urban planning perspective. I also, in concept, don’t have a problem with the Community Development Authority (CDA) using money they have available to eliminate blight. However, I would hope that because this is a limited resource, they would be selective in its use to get the best bang for the buck.
I have said for a while that our rental housing market for “market-based” rentals is saturated. And, reports done not that long ago by the Wausau Daily Herald and City Pages both verified the amount of overbuilding that has happened, and what this overbuilding has done not only to the supply, but also the quality of housing available. However, the market is, though, in my opinion, overbuilt. I cannot and will not object to a private developer proposing a multi-family development in an location that is consistent with that type of use and the developer is taking this gamble with their own money. After all, I am a free-market kind of guy.
Personally, I think we need to take a much closer look at what our government (city and state in this case) is doing when a developer realizes that the only way to make a development profitable in a saturated market is to have the government defer their risk with grants, tax credits, and other incentives.
I did testify at the public hearing. However, my testimony was neither truly in favor or against. Instead, I was providing information. The hearing was only on the zoning aspect of this project, and as I already stated here, this is a good use of that land from an urban planning perspective. Although the hearing was on the zoning, I did try to address the funding issue without being completely out-of-order. I pointed out two facts: The market for “market-rate” multi-family is beyond saturated; and there is a severe shortage of income-based housing (often called subsidized housing, or often labeled “affordable” housing).
We have a crisis when it comes to housing for those with very low incomes. Most of our subsidized housing developments have waiting lists. The waiting list to get on the Section 8 Housing Voucher program has gotten so long with so few people coming off of it, that the Housing Authority isn’t even taking new applications any more. When I testified, I wanted to know how many of the 40 units were targeted to help with this urgent need. I wanted to know how many families this $450,000 would help, what were we spending per family? You can imagine my shock when the final answer to the question as I phrased it was: ZERO. I was told these are “tax credit” units, which differs from those type of units where the rent paid by a tenant is a percentage of their income. In exchange for these “tax credits” (issued by WHEDA), they have to keep the rents at a level that is affordable to “low and moderate income” individuals.
To give you an idea how much help $450,000 could do if targeted differently: The average amount that I get as the Housing Authority portion of the rent payment for my tenants that are on Section 8 is about $260 per month (let’s round that up to $300). That means that someone who just needs a safe roof over their head costs the Section 8 program about $3,600 per year (let’s call it $4,000). At $4,000 per year per family, over 50 families (10% of those on the waiting list) could get safe housing for over 2 years!
(That is based off of the payments I receive, can any one from the Housing Authority correct my numbers as to what the average cost per household is, if my $4,000 per year number is off?)
We must remember that certain types of City funds can only be used certain ways. You can’t just take this $450,000 and use it to fund the voucher program. That is a federal government issue (although WHEDA does provide funding for some of the vouchers our Housing Authority provides). If, instead of cash for clunkers or new home buyers credits, the federal government would put some funding in the Section 8 program, we could solve the problem of this huge waiting list of families that need help AND solve the problem of record vacancy levels in market rate units AT THE SAME TIME. However, the federal government has no time for solutions that make sense, and this post is not about the federal government use of money to solve problems.
It was said at the hearing this is a $6.9 million multifamily development (however the Daily Herald reported it at $7.2 million). That comes out to well over $170,000 per unit. Based on my experience, a good rule of thumb when calculating the financial feasibility of multi-family projects is $100 per month in rent = $10,000 of value. That is a rough guideline. An example of how to use it would be if the market says you can get $600 per month in rent, you are looking at about $60,000 per unit. If you are relatively close, for example $80,000, the project may still cash flow, just the risk increases as you need to sharpen your pencil. However, but if the market dictates $600 per month and the costs are going to be $120,000 per unit, there is no way to make that thing profitable. On this project, we are looking at units that run from $600 to $750 per month with a cost of over $170,000 per unit. You do the math.
One way to make this work is to cut your costs, bringing down the per unit cost. Another way is to not spend less money, but instead someone else’s. One way to do this is to get WHEDA tax credits designed for low income housing. Another place to ask for money is to ask the City of Wausau to throw money at the project. If I remember correctly from information that came out when the developers agreement was being discussed, they are cutting operating costs also, specifically property taxes. It is my understanding this nearly $7 million project is not going to be taxed on $7 million of value.
The person at the hearing representing the developer said at the hearing that as a condition of getting these WHEDA tax credits, they have to keep the rents “low and affordable” for low and moderate income individuals and families. Really? $600 for a one-bedroom? That is not housing for low income individuals. That is “market rate.” Actually, if you look around, that is a little higher that what the market charges for one-bedroom units.
As a matter of fact, only a few of these units will even take those people who do manage to get off the waiting list and get Section 8 vouchers (though I don’t know of too many landlords in town who would turn down a Section 8 tenant, so there is no need for units that take Section 8, the need is for Section 8).
Based on the information handed out last night, of the ten one-bedroom units, only two will be at rates that are eligible for Section 8. Late last year, I had been told by Mary Fisher of the housing authority (no relation) that the highest need is for two-bedroom units. Of the 19 two-bedroom units in this project, only two are priced within Section 8’s guidelines. The other two-bedroom units rent from $650 to $775. (The highest priced two-bedroom unit Section 8 will allow is $631).
The information provided at the public hearing that specifically addressed how this housing will cater to our need to provide safe housing for low income individuals and whether the CDA’s contribution to this project actually created more questions for me than answers. I feel one of the reasons the developer’s agreement passed was that I was not the only one who thought this development would help with our low income housing needs. The biggest question I have, was there a deadline in the developer’s agreement? Now that we know this project won’t help with low income individuals, can that agreement be re-negotiated?
We have a need for housing that is affordable to our low-income families (the market provides plenty of housing for moderate income families). We have programs available through the City of Wausau and through WHEDA to help solve those needs. This project, in my opinion, does nothing to help with our low-income housing problem and that money would best be, not put toward this project,but instead focused more on things that will actually solve the problem.
I close this post as I started, reminding you that I do not know everything, and maybe there is something going on here, something important, that I am missing. If that is the case, I need for someone to explain to me what I am understanding incorrectly. Please educate me – educate us. Because if I am understanding the situation correctly, a great disservice is being done, not only by the City of Wausau, but also by WHEDA.