Agenda - Planning Commission - 09/04/2014

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Last revised July 24, 2014 "Mixed -income" can have a variety of potential meanings and any number of combinations of income targets within or across projects, neighborhoods, or corridors. Indeed, funders increasingly recognize the value of building not only affordability into market rate projects but also of market or moderate rate units into mostly affordable projects. Similarly, "market rate" does not always equate to "rich" or "well-to- do". Rather, "market -rate" simply means the rate that potential renters will pay for housing. In the same way, "affordable" does not equate to households earning extremely modest incomes. In other words, the perception of mixed -income as a potential clash of very "high" and very "low" incomes is often incorrect. What are the barriers to developing mixed -income housing? A chief impediment to developing mixed -income housing is the real or perceived risk involved. Risk, a factor in any housing proposal, is perceived differently across projects based on elements such as level of demand in the local housing market, the location of the property, and value of comparable nearby properties. Investors or lenders evaluating a market rate proposal will pay particular attention to whether local market demand is sufficient to support the planned rent levels. An investor or lender considering investing in the rehabilitation or construction of affordable housing is likely to focus more on the number of lower -income households who need the subsidized housing. In both of these cases, demand can be expressed with relative certainty. In a mixed -income proposal, however, two or more types of demand must be accounted for —the demand for the market rate units and the demand for the subsidized units. In addition, these two demand functions may be perceived to have very real and possibly detrimental effects on each other. For example, a would-be investor that has found success in market rate development but is inexperienced in affordable housing developing might ask: • Will higher -income residents want to live in the same building, on the same floor, or next to a lower -income household, and vice versa? • What will happen if a market rate tenant learns that the nearly identical unit down the hall is renting for several hundred dollars less per month? Could this drive up vacancy rates? • Will the amenities needed to be competitive with other market rate developments be possible with the reduced rental proceeds from the affordable units? • Will the lower -income households need special services or different types of amenities that will strain the operating budget and potential profit? If these questions lead potential investors to believe that demand for either the market or subsidized units, or both, may be questionable, the perceived risk increases. When the perceived risk increases, investors expect a higher rate of return, the housing becomes more expensive to build, and the project becomes less feasible. For example, public entities can often provide financing on highly favorable terms and conditions to locally significant projects. But those public entities, too, have their limits; they must be effective stewards of taxpayer resources and invest them in developments that are likely to succeed and in time repay the public investment. What are potential strategies to develop mixed -income housing? Despite the challenges of mixed -income development, national and local success stories show where mixed -use development has met with little resistance, has improved access to amenities and services, and has been effectively matched with other public policy goals. For example, Austin, Texas launched the S.M.A.R.T. (safe, mixed -income, accessible, reasonably priced, transit -oriented) Housing Program, which offers developers a schedule of incentives based on the level of affordable housing and 2040 HOUSING POLICY PLAN I METROPOLITAN COUNCIL DRAFT RELEASED FOR PUBLIC COMMENT Part IV: Opportunities for Impact I Page 63