Community Dividend

Small town addresses big housing shortage

A Deadwood, S.D., housing organization works to satisfy the increasing need for affordable housing for local residents and commuting workers.

Published December 1, 1997  | December 1997 issue

Deadwood, S.D., center of the Black Hills gold rush of the 1870s and '80s, is a community with a historic past and a thriving presence in the state's economy. Deadwood's economy is still driven by people seeking riches, but of a different sort. The state's legalization of limited-stakes gambling in 1989 has revitalized Deadwood by attracting tourists who enjoy gambling and appreciate the recreational opportunities and historical character of the community. Today, the streets of Deadwood are lined with more than 50 casinos, and the gambling industry has created hundreds of jobs. A portion of the gambling revenues goes to support Deadwood's historic preservation and local community services.

While the jobs and revenues from gambling have been substantial, the benefits have not been shared equally across the community. Escalating land and property values have made it difficult for casino workers to find decent and affordable housing in the community. Neighborhood Housing Services of the Black Hills (NHS), a nonprofit housing organization based in Deadwood, recognized an urgent need for affordable multifamily housing in the community. NHS, in partnership with a private developer, recently completed Hills Apartments in Deadwood to help meet that need.

Although the apartment project has been successfully completed, NHS faced many challenges and delays that highlight an affordable housing developer's need for patience and persistence. The difficulties the developers faced—among them the existence of a historic property on the site, not to mention the troublesome topography of the area—tell an interesting story about how to make affordable housing development happen in even the most challenging of circumstances.

Economic effect of gambling

Deadwood is a community of approximately 2,000 persons located in the heart of South Dakota's Black Hills. As the site of an 1876 gold rush, Deadwood gained notoriety for its prostitution and gambling, as well as for some of its more infamous residents, including Wild Bill Hickok and Calamity Jane. Most of the gold was exhausted by the late 1880s, and Deadwood underwent several boom and bust cycles over the next 100 years.

The latest boom cycle began in 1989 with the South Dakota legislature's legalization of limited-stakes gambling. William Ackerman, an assistant geography professor at Ohio State University's Lima campus, has studied the current "rebirth" of Deadwood. According to Ackerman, gambling in the community generated more than $43 million in taxes and fees from 1989 to 1995, and more than half of these revenues have been used for historic preservation activities in Deadwood. 1/

Gambling in Deadwood created many jobs quickly; estimates have ranged from 1,500 to 1,800 new jobs created by the casinos. 2/ About a third of these jobs were filled by Deadwood residents, and the balance was filled by commuters from surrounding towns, including Lead and Spearfish, S.D. While these jobs were and still are plentiful, they are also relatively low-paying. Ackerman estimates that the average annual wage of a casino worker in 1994 was $15,519, including tips. 3/

This combination of high job growth and modest wages has placed a substantial strain on Deadwood's affordable housing supply. Property values have increased with the booming economy, making homeownership even less affordable for first-time buyers and those of modest means.

Historic Property

The site's existing historic property was preserved and serves as an attractive front for this multifamily housing project.

Forming a community housing organization

The Deadwood Community Housing Organization (DCHO) was formed in late 1992 to address the community's growing housing shortage and affordability problems. DCHO members began meeting in early 1993 to discuss how to provide safe, decent and affordable housing in the city. They decided that a new rental housing development was needed to meet the needs of the substantial number of commuting casino workers.

According to Joy McCracken, DCHO executive director, the organization's vision for an affordable rental housing development received strong support from the community. The site of the proposed apartments did not disrupt any existing single-family-home neighborhoods, a fact that helped to limit any community opposition to the project.

In 1996, DCHO changed its name to Neighborhood Housing Services of the Black Hills and became a member of the NeighborWorks® network. NeighborWorks network is a national organization that includes Neighborhood Housing Services, mutual housing associations and similar community-based development organizations. NeighborWorks members receive technical and financial assistance from the Neighborhood Reinvestment Corp., established by Congress in 1978 to promote the creation of affordable housing across the country.

Although there are more than 170 NeighborWorks organizations nationwide, NHS is the only Neighborhood Housing Services organization in South Dakota and one of only two NeighborWorks member organizations in the state. According to McCracken, who continues to serve as executive director of NHS, the Neighborhood Reinvestment Corp. and the NeighborWorks network are important sources of technical assistance to NHS. They provide training, access to resources and assistance during the development process, which are critical to nonprofit organizations, especially small ones like NHS.

Site selection

After deciding that multifamily rental housing was the most critical need, NHS had to choose an appropriate site for the project, a challenging task indeed. Because Deadwood is located in the center of the rugged Black Hills, any new development is naturally constrained by the topography. Most of the city is built into the sides of hills, and the downtown area is in the valley. Furthermore, Deadwood is designated as a national historic landmark, making it nearly impossible to tear down any buildings for redevelopment.

NHS experienced significant limitations in selecting a development site. For example, it had to be large enough to accommodate 27 units and close enough to downtown to meet casino workers' needs. The site selected was one block from the main street, an ideal location for workers. However, the lot had a historic building on it that NHS wanted to preserve. Because of the community's strict historic preservation standards, the home (built by General George Custer's private secretary) had to be incorporated into the development and retain its historic character.

Assembling financing

After identifying an appropriate site, NHS began seeking funding from several sources. It took two years for the organization to assemble the entire financing package. The main source of funding was a $1.3 million, zero-interest mortgage using Home Investment Partnerships Program (HOME) funds provided by the South Dakota Housing Development Authority (SDHDA). Other sources of funding were historic tax credits, a grant from the Deadwood Historic Preservation Commission, an Affordable Housing Program grant from the Federal Home Loan Bank of Des Moines, a capital improvement grant from Neighborhood Reinvestment Corp., tax-increment financing (TIF) from the city of Deadwood and NHS's own equity investment.

Private lenders also participated in the project financing. Norwest Bank South Dakota, N.A., Deadwood branch, provided a loan for the TIF funds, and First Western Bank provided a construction loan for the project. The total development cost of the project was approximately $1.7 million.

Lessons learned

Neighborhood Housing Services of the Black Hills (NHS) learned several important lessons as a first-time developer of a rental housing project. First, the organization's staff members realized that they lacked the skills to serve as the project developer. According to NHS staff, the addition of a private development partner was critical to the project's success.

Second, dealing with site problems was expensive and time-consuming. NHS recommends completing a thorough site evaluation as soon as possible, and advises other developers not to be surprised if problems crop up that cost significant time and resources.

Third, the staff was surprised by the enormous amount of time and organizational resources the project consumed. According to NHS Executive Director Joy McCracken, the organization plans to do future projects on a smaller scale. Although the NHS is pleased with the project, it will probably focus more on homeownership training in the future and may consider developing single-family homes that are affordable to first-time buyers.

Development challenges

Although assembling the financing was difficult, NHS faced its real challenges after beginning the development process. It had originally planned to serve as the developer for the project, but the organization's staff members quickly realized that they lacked adequate expertise about design and construction issues to complete the project effectively. They decided to form a partnership with MetroPlains Development Inc., a private developer from St. Paul, Minn., to complete the project.

NHS originally approached MetroPlains for advice on the project and eventually decided to hand over the design and construction responsibilities entirely. Experience with historic rehabilitation was an important selection criteria for NHS, and MetroPlains had already renovated a historic hotel in Deadwood.

MetroPlains reevaluated the development plan created by NHS and determined that the original development budget was too low. Higher costs for labor and material meant that additional HOME funds had to be secured through SDHDA. MetroPlains uncovered several additional site challenges that added to the total development cost. These site difficulties delayed the completion of the project, which took four years from the initial planning to the finished apartments.

The topography of the Black Hills region and the site in particular created substantial design and development challenges. Site grading and drainage needed to be fixed, and the timing of these problems cost MetroPlains an entire winter of work. A creek that runs through the property interfered with a planned parking lot, so large culverts had to be installed to create adequate parking. The HOME funds paid for the culverts and parking, but they cost more than NHS originally estimated. In all, the site problems MetroPlains identified added $107,000 to the original budget.

Hills Apartments

The split-log-style facade of Hills Apartments complements the rugged natural surroundings.

Hills Apartments

After four years of planning and development, Hills Apartments were completed in mid-1997. The project has 27 units, including two one-bedroom units, 19 two-bedroom units, and six three-bedroom units; one unit is specially designed to be handicap-accessible. The apartments range in size from 350 square feet for the smallest one-bedroom unit to 960 square feet for a three-bedroom unit. Each apartment has a private entrance, new appliances and mini-blinds on all windows.

The project consists of the historic property (a rehabilitated triplex) and 24 new units built behind the historic home. The new apartments, handsomely adorned with split-log siding on the lower half to blend with the natural surroundings, are bordered on three sides by national forests, making for a beautiful view in a convenient location.

The units rent for $225 to $425 per month. According to McCracken, these prices are very low compared with similar rental units in the area.

Because of the constraints of some of the funding sources, the units have specific income targets. Fifty percent of the units are targeted to individuals or families with incomes at or below 50 percent of the area median income (AMI). Forty percent of the units are targeted to people below 60 percent of the AMI, and 10 percent are targeted to people at or below 80 percent of the AMI. The median income for a family of four in the Deadwood area is $37,500, so a family of that size must have an income of less than $30,000 to reside in the project.

Project update

The project received its occupancy certificate August 5, 1997, and 70 percent of the units were leased by mid-October. Most of the residents had lived outside Deadwood, which means that the project is meeting its goal of providing adequate housing in town for commuting casino workers.

Hills Apartments resident Leotta Keyser is a good example of the positive effect of the project. Keyser had been commuting from Sturgis, S.D., for the past two years, which could be a long and stressful trip, especially during poor winter weather conditions. Not surprisingly, Keyser was excited to move into Hills Apartments in August, and she now enjoys walking to work rather than having to drive. What's more, she can work more hours—and earn more money—since her daily travel time declined from 50 minutes to 5 minutes.

According to Keyser, the benefits of residing in Hills Apartments are many. "I like living in a brand new apartment. It's so convenient and I feel more stable in my position at work since I know I'll be able to get there if they need me," she says.

With attractive and affordable homes in a convenient location, demand for Hills Apartments promises to be high among the residents of Deadwood and its surrounding communities.

Related links


South Dakota Housing Development Authority

1/ William Ackerman, Rural Development Perspectives, vol. 11, no. 2

2/ Ackerman. Interview with Joy McCracken.

3/ Ackerman.