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Peer learning exchange spotlights cities’ successes in mixed-income housing policy

As officials from three Minneapolis-St. Paul suburbs shared their cities’ policy-development experiences, some common themes emerged

February 18, 2020

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Panelists take questions at the October 30, 2019, peer learning exchange on mixed-income housing policies. From left to right: Bill Neuendorf, City of Edina; Julie Wischnack, City of Minnetonka; Eric Johnson, City of Bloomington; and moderator Cathy Capone Bennett, Urban Land Institute Minnesota.
Panelists take questions at the October 30, 2019, peer learning exchange on mixed-income housing policies. From left to right: Bill Neuendorf, City of Edina; Julie Wischnack, City of Minnetonka; Eric Johnson, City of Bloomington; and moderator Cathy Capone Bennett, Urban Land Institute Minnesota. Minneapolis Fed

Article Highlights

  • Formally adopting a local mixed-income housing policy improves communication

  • Developers appreciate flexible policies and cities that treat them as partners

  • Support from local elected officials is vital to the success of policies

Peer learning exchange spotlights cities’ successes in mixed-income housing policy

In the last five years, multiple municipalities in Minnesota’s Twin Cities region have adopted mixed-income housing policies, also known as inclusionary zoning policies, which require housing developers to include affordable units in market-rate rental projects that meet a stated threshold, such as receiving city financial assistance or requiring zoning changes. On October 30, 2019, the Family Housing Fund, the Federal Reserve Bank of Minneapolis, and the Urban Land Institute co-hosted a peer learning exchange targeted at city staff members who do the on-the-ground work of implementing housing policies. Sharing their cities’ experiences with local mixed-income housing policies at the event were:

  • Eric Johnson, Community Development Director, City of Bloomington;
  • Bill Neuendorf, Economic Development Coordinator, City of Edina; and
  • Julie Wischnack, Community Development Director, City of Minnetonka.

More on this event series

The October 2019 peer learning exchange was the third in a series of mixed-income housing events hosted by the Minneapolis Fed. For more on the first two events, see:

Expert Insights on Inclusionary Zoning
April 29, 2019
Video, event summary, agenda, and additional resources

Developer Insights on Mixed-Income Housing Policies
September 6, 2019
Event summary

What key themes and recommendations emerged? The summary below captures the main takeaways from the three presenters’ remarks and the panel discussion that followed. (A note from the presenters: Since cities have a range of housing markets and local policy priorities, not all of these themes and recommendations will fit all situations.)

Formalize your city’s policy. The cities of Bloomington, Edina, and Minnetonka have all adopted formal, written, mixed-income housing policies. The result? For each of the three cities, formalizing their intentions into adopted policy has changed the dynamics of their conversations with developers. For Edina, among the wealthier suburbs of Minneapolis, the 2015 adoption of a mixed-income housing policy caught the attention of affordable housing developers, for whom the adoption signaled Edina’s commitment to affordable housing. Similarly, Bloomington’s recent adoption of its Opportunity Housing Ordinance has led to an upswing in interest from developers. Minnetonka had long had an informal policy of expecting that affordable housing be included in residential projects that receive city financial assistance, but only formally adopted a policy in summer 2019. Julie Wischnack from the City of Minnetonka observed that the formal policy gave developers a document to read and understand prior to beginning negotiations with the city.

"Do your homework. If you haven’t established a policy, make sure it’s something that’s predictable and defensible to the general public and courts. Developers are smart. If it’s predictable, they can make it work. And you have to defend it to peers, elected officials, and the community."
—Bill Neuendorf, City of Edina

Partner with developers. Mixed-income housing policies help mediate the conversations and negotiations between city staff members and residential developers. Eric Johnson emphasized that the process of drafting the City of Bloomington’s Opportunity Housing Ordinance clarified the variation among developer perspectives, developer models, and developer needs. Some developers build and manage properties for the long term; other developers build and sell them quickly. Some developers have had extensive experience building affordable and mixed-income housing; for other developers, building affordable housing is new, different, and uncomfortable. As a result, Johnson stressed the importance of building relationships with developers to better understand their varying needs and perspectives.

Policies in detail

View a side-by-side comparison of the mixed-income housing policies adopted by the cities of Bloomington, Edina, and Minnetonka here.

Developers are motivated to figure out how to make development projects work for their needs. Accordingly, all three cities highlighted the flexibility of their policies as key to their success. For example, Bloomington’s policy quantifies the financial value of regulatory incentives in addition to direct financial assistance. Edina offers a payment-in-lieu option, allowing developers to contribute money to future affordable housing in the city in lieu of creating affordable units in their projects. As Neuendorf explained, payment in lieu can be a more economically efficient approach to providing affordability, given Edina’s relatively high costs for new development. All three cities also noted that their policies include flexibility to adjust in response to future economic downturns.

“We’ve gotten zero resistance to date from developers and our pipeline is growing fast. We think 2020 and 2021 will be historic in terms of development in Bloomington.”
—Eric Johnson, City of Bloomington

A question for further analysis and reflection is whether national developers differ from Minnesota-based developers in terms of acceptance of local mixed-income housing policies. (See a summary of local developer reactions to mixed-income housing policies.) Wischnack shared that upon hearing about Minnetonka’s expectations, one national developer “didn’t blink” and proceeded to build the required mix of housing affordability. National developers may simply have more experience at building in cities that expect mixed-income development than local developers, but more analysis into this question is needed in order to have definitive insights. One attendee wondered whether education and capacity-building would help developers be more successful in responding to local mixed-income housing policies.

Build staff members’ capacity to perform financial analyses and understand the local housing market. The panel was clear that city staff members need to be as smart about understanding development-related financial projections, or pro formas, as developers are. Johnson noted that understanding the pro formas gives city staff members the opportunity to question and refine developers’ assumptions, such as loan-to-value ratios or the requirements of financing sources. The better cities understand the financing environment, the more effective they can be at supporting developers by, as Johnson suggested, helping them find financing sources that allow more flexibility. The panelists further encouraged multiple reviews of pro formas to ensure that the financial structure of development supports city goals and will succeed.

“The better you understand development finance, the better you can get that developer’s ROI down so you can get what you want.”
—Julie Wischnack, City of Minnetonka

Wischnack encouraged attendees to “do their homework” to understand what’s happening within their cities. City staff members should monitor how many affordable units are being lost to the market, the panelists noted. For example, Johnson shared that Bloomington’s analysis of NOAH (naturally occurring affordable housing) properties uncovered the fact that rent increases were more of a threat to affordability than property sales. Close monitoring of its tax increment financing (TIF) pools* has allowed Minnetonka to use excess tax increment to provide immediate financial assistance to other mixed-income and affordable developments in the city. Wischnack urged all cities to do ongoing TIF analysis.

Align policy with local political goals. Johnson, Neuendorf, and Wischnack all agreed that the support of local elected officials is vital to the successful implementation of local mixed-income housing policies. Wischnack stressed that negotiating affordable housing “takes a lot of stamina and conviction, and knowing that your politicians are behind you and will stand up for you really helps.”

Cities vary significantly in their local contexts and local policy priorities. Neuendorf observed that the Edina City Council is particularly interested in mixed-income developments as a means of seamlessly integrating affordable housing opportunities into the fabric of the community. Johnson shared that Bloomington’s elected officials are encouraging city staff members to figure out how to build 445 units that are affordable to the lowest-income households (those earning no more than 30 percent of area median income) and thereby meet the ambitious housing need allocated to Bloomington by the Metropolitan Council, the Twin Cities’ regional planning agency. The City of Bloomington is exploring how to use its housing trust fund and other public resources to cover the gap between rents and what lower-income households can afford.

Participants at the peer learning event on mixed-income housing compare notes as they prepare to share their thoughts with the group
Participants at the peer learning exchange compare notes as they prepare to share their thoughts about mixed-income housing policies with the group.Minneapolis Fed
Participants at the peer learning exchange compare notes as they prepare to share their thoughts about mixed-income housing policies with the group. Minneapolis Fed

Although the majority of jobs in the Twin Cities region are in the suburbs, the core cities of Minneapolis and Saint Paul have produced the majority of affordable housing in the region. Johnson urged suburbs to step up and provide a greater mix of housing affordability to support suburban job growth. He also encouraged cities to replicate the Nexus Study that Bloomington conducted in order to calculate the share of new housing units that need to be affordable to line up with local job growth. The discussion highlighted the importance of talking with employers about where their employees live and how far they are commuting to reach affordable housing. For example, Bloomington staff members are engaging with the new hotels being built in the city about where they will find their employees. Emphasizing that the more people spend on housing, the less they are contributing to the economy through other spending, Johnson remarked, “We’re leaving millions on the table!” Attendees encouraged more discussion about the types of occupations whose workers benefit from the availability of affordable housing—e.g., school teachers, day care employees, health care workers, baristas—and how their presence in communities improves everyone’s lives.

While Neuendorf expressed his enthusiasm for a common approach to mixed-income housing across the entire Twin Cities region, all three panelists agreed that sub-regional conversations may be an easier and equally important frame for aligning strategies. And they all noted that their elected officials are less interested in what peer cities across the region are doing than they are about what peer cities across their borders are doing.

Questions remain

Attendees at the October 30 event had the opportunity to pose questions they wanted answered, either to inform their own city’s consideration of mixed-income housing policies or to advance affordable housing more broadly. Given the limited time at the event, panelists were able to respond to only a handful of the many questions. While the full list is available here, some of the key themes included:

  • How can mixed-income policies advance cities’ local housing-affordability goals?
  • What is the process for developing and implementing local mixed-income housing policies?
  • What do different stakeholder groups think about these policies?
  • Are mixed-income housing policies economically viable? What are their financial impacts?

As the questions that arose demonstrate, there is clearly more to discuss and more to learn about the continued development, implementation, and maturity of mixed-income housing policies in the Twin Cities region.


Endnote

* TIF creates special tax districts around development or redevelopment from which streams of future taxes are diverted to finance development and/or infrastructure improvements. For more information on TIF in Minnesota, visit the Minnesota House Research Department’s TIF information page.

Libby Starling
Libby Starling
Manager, Community Development

Libby Starling is the Manager of the Community Development department at the Federal Reserve Bank of Minneapolis. She is responsible for the Minneapolis Fed’s efforts to promote the economic resilience and mobility of low- to moderate-income individuals and communities across the Ninth Federal Reserve District. Prior to joining the Fed in 2019, she was the deputy director of the Community Development Division at the Metropolitan Council, the Twin Cities’ regional planning agency. While at the Council, she led the development of Thrive MSP 2040, the 2040 Housing Policy Plan, and Choice, Place and Opportunity: An Equity Assessment of the Twin Cities. She is a graduate of the Humphrey School of Public Affairs at the University of Minnesota.