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OPINION: Affordable housing fund needs clear guidelines

It’s no secret that the Chippewa Valley needs more housing. The market right now is blisteringly hot. We’ve heard of homes in the area selling in hours, not days.

So developments like The Current are good news. But when the developer asks for an additional $192,700 after receiving previous grants of $800,000, it gives us pause.

Eau Claire Finance Director Jay Winzenz said the previous funding for the project came in two parts. The city gave $300,000 for Phase 1, and another $500,000 for Phase 2, a 43-unit apartment building next to the one completed last spring along North Oxford Avenue. The latter grant is “contingent on the developer receiving Low Income Housing Tax Credits (LIHTC) and creating affordable housing,” he said.

Let’s pause there for a moment. Affordable housing is a term frequently used in discussions like this, but rarely defined. Winzenz said the amount varies. Affordable housing is generally understood to be when rent and utilities take up no more than 30% of a person’s monthly income. The Census Bureau puts Eau Claire’s median household income at $55,477. If you base affordable housing rent on that figure, it comes to about $1,386 per month.

But Phase 2 apartments are aiming at people who make 30%-60% of the median income, which would slash the rent for this particular project. And developer Tyler Warner told the city council on Monday rents would not be raised to cover the increased construction costs.

The grant sought here comes from the city’s Affordable Housing Fund. The original fund was seeded with $500,000 last year. Plans call for it to get another $275,000 in both 2023 and 2024. The original grants to The Current came from Tax Increment Financing, a different economic development tool.

Unsurprisingly, given that the fund is just a year old, there’s not much of a track record to go on. “The City of Eau Claire has made very few cash grants to developers,” Winzenz said, “therefore there really are not any historical amounts for comparison.” That’s where we see a potential risk for the city.

No one who has paid attention to what has been happening in construction over the past several months can reasonably reject the developer’s assertion that costs have gone up. While prices have retreated recently, at the top of lumber’s price spike it alone added tens of thousands of dollars to the cost for a new, single-family home. It’s easy to see how that would be magnified considerably with a development like The Current.

At the same time, though, developers take on a certain amount of risk when they plan and begin a project. The risks are calculated, studied carefully to minimize them, but that doesn’t mean they’re absent. And fluctuations in the price of materials are very much part of that risk.

Just as developers must weigh the risks and gains of their actions, the city needs to think carefully about what precedents it sets for this very new program. While the goal of the Affordable Housing Fund is solid, and it addresses a genuine need for the city, there is a risk in creating the expectation among developers that the city will help foot the bill if unexpected costs come into play. There’s also a risk if the city is viewed by developers as being stingy, holding too tightly to money in a fund that’s designed to be spent.

In this case, the city’s best path is to use this situation as an opportunity to lay out with clarity how it will make cash grants. We understand that housing developments vary significantly. There’s not going to be a one-size-fits-all solution. But by clearly stating what the requirements are for such grants and how applications will be weighed, the city can give developers a better idea of what their proposals need to look like. It would also assure Eau Claire residents who are, after all, paying for the fund, that their money is being well tended.

Eau Claire unquestionably needs additional housing, including affordable housing. Working with developers offers a way to accomplish that goal. But beginnings are delicate times. The city needs to be sure this new fund establishes a good track record for itself, for taxpayers, and for developers.

– Eau Claire Leader-Telegram

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