TRAVERSE CITY — The problem doesn’t seem to be going anywhere.
The population in northwest Michigan is growing. House prices are on the rise, and increasingly, a regional affordable housing crisis is the issue of the day for local authorities, businesses and even school districts. Everyone seems to agree that without housing for the workforce, the region will not have much of a workforce.
A proposed solution was released Thursday in a webinar hosted by Housing North. The idea is to popularize a financing tool that can lessen the sticker shock of investing in affordable housing. With a little traction, housing advocates say the tool could help launch rent-protected units for generations.
The funding tool is called “Brownfield TIF” and has been around in Michigan for decades.
In a TIF development, a local government body agrees to freeze the base assessed value of a property for 30 years. The actual assessed value of the TIF development increases as house prices increase. But since its taxable value is frozen, an extra bag of money is generated each year. After an exclusion for local schools, that bag goes to the developers who built the project in the first place.
Initially, TIF – which stands for Tax-Increment Financing – was primarily used as a tool to redevelop brownfields. But it can also be used to build infrastructure, using a smart reversal of rising home values to pay off developers over time.
With patience and cooperation, it’s a model that generates money for affordable housing where there was none before. And Michigan housing advocates say it could jump-start building scalable homes without waiting for the cavalry to arrive from federal or state funding sources.
“It’s really using money created by the development itself,” said Dennis Sturtevant, who developed a 150-unit land trust in Grand Rapids called “Dwelling Place.”
This is partly because TIFs generate returns as home values rise. And those values have galloped in recent years, more so in the Northwest than elsewhere in the state.
Zillow data shows that between November 2020 and 2021, typical home values in Michigan increased by 16.1%. But in Leelanau County, the value of typical homes increased by 19% and in Grand Traverse County, by 25.8%.
In the latter, a typical home now sells for $352,000. That’s $70,000 more than a new owner could have paid this time last year.
“The gap just keeps getting bigger and bigger,” Sturtevant said.
Sturtevant and others offer TIF developments as one tool in a larger toolbox – not to be oversold, yet overdue to be considered.
“It’s not for everyone, it’s not a panacea, but it can be done if there is a will and a way,” Sturtevant said. “The economic impact of doing nothing is going to be really suffocating if you don’t look at something like this.”
The finance tool has more resilience when used to establish land trusts – non-profit organizations that own land but lease properties at below-market rates.
Land trusts keep affordable housing in perpetuity, an outcome that is important to housing advocates and even eviction lawyers who have seen affordable housing pull out of the market in recent years.
It is common for developers to offer to set aside a portion of units at affordable rates for a set period of time. When these units expire, they result in a zero net gain of long-term affordable units.
Land trusts do not die out. Generally, they offer homes at 75% of their appraised value, bringing in a whole new class of buyers.
“In most cases, these are people who can’t knock on a developer’s door and ask to have a house built for them,” said George Larimore, redevelopment incentive specialist at Colliers International. “It will be their first step out of the rental.”
Groups like Housing North are eager to see more land trusts, as well as the ability to use TIF to attract investors who otherwise wouldn’t come to the table.
The challenge on this front is finding partners committed to a long-term schedule — TIFs can take years to reimburse developers in full, and some might hire companies with shorter turnaround times instead. Larimore said TIF and Land Trusts projects sometimes get “turned down from for-profit developers.”
They can also piss off other investors, such as municipalities and county governments. Township officials aren’t always comfortable committing hundreds of thousands of dollars to building homes if they won’t be paid back for years. It’s an issue Housing North is currently working on in Charlevoix County, where county council members have spent years discussing a TIF project that would build several new affordable homes.
Yet popularizing the tools at hand — land trusts, funding models and even innovative new uses for county land banks — is what we need now, said Yarrow Brown, executive director of Housing North .
“We’re trying to figure out – first of all – how to make counties and all units of government comfortable with this tool,” Brown said. “Then we line up the projects.”