Community Dividend

State incentive fund helps ease North Dakota's affordable housing shortage

The North Dakota Housing Incentive Fund, a tax-incentive program to fund housing for essential workers and low- to moderate-income people, is a hit with contributors and developers alike.

Paula Woessner | Community Development Publications Editor

Published July 1, 2014  | July 2014 issue

North Dakota Housing Incentive Fund (HIF) dollars helped Beyond Shelter, Inc., develop Patterson Heights, a 24-unit apartment complex in Dickinson, N.D. One-third of the building's units are reserved for law enforcement personnel. (Photo courtesy of Beyond Shelter, Inc.)

Back around 2010, when the influx of people to western North Dakota’s oil fields was driving housing demand to unprecedented levels, residents of the region’s boomtowns began entreating political leaders for help with a serious problem: Many of the essential workers in their midst were running out of places to live.

“The city, county, and state employees; the teachers; the law enforcement officers; the nursing home workers—their incomes didn’t adjust in concert with the private sector,” explains Jolene Kline, executive director of the North Dakota Housing Finance Agency (NDHFA). “As rents went up, they were having a really difficult time staying in their communities.”

The state responded by creating a distinctive financing tool called the North Dakota Housing Incentive Fund, or HIF, that has won rave reviews from its participants. Taxpayers who contribute to the HIF funding pool for affordable housing receive a state income tax credit. With help from the critical dollars the funding pool provides, thousands of people who might otherwise be priced out of the market will continue to call North Dakota home.

A unique tool

HIF, which is administered by NDHFA, provides funding for the construction, rehabilitation, or preservation of multifamily housing targeted to essential workers and low- to moderate-income households, including seniors and people with special needs. Individual or corporate contributors to the fund receive a credit against their state income tax liability. The particulars of how the credits are issued make HIF stand out from similar funding tools elsewhere.

“A number of other states have tax credit programs, but I believe North Dakota is unique in that it’s a dollar-for-dollar credit in the year of contribution to the fund,” Kline says.

HIF contributions can be of any size; if a contribution exceeds the contributor’s current-year tax liability, the credit may be carried forward for up to ten years. Contributors can express a preference for where they’d like their contributions directed, and NDHFA does its best to accommodate the request. To date, HIF has about 700 contributors, with the largest dollar amounts coming from a handful of financial institutions and energy companies.

HIF awards are structured as forgivable loans and are available for specific, qualifying project proposals submitted by local housing authorities, tribal entities, and nonprofit or for-profit housing developers. The maximum award size varies depending on whether a project also receives funding from the federal Low Income Housing Tax Credit program or Historic Preservation Tax Credit program, but typically equals 30 percent of the total development cost, up to $3 million.

HIF 1 and HIF 2

The biennial North Dakota Legislative Assembly has authorized HIF twice, beginning with $15 million in tax credits for “HIF 1” in 2011. The new funding tool was popular with contributors and developers alike; by the close of the 2011–2012 biennium, HIF 1 was fully capitalized and all the corresponding tax credits were claimed. When the legislature next met, in 2013, it authorized “HIF 2” for the 2013–2014 biennium, to the tune of $35.4 million—$15.4 million in general fund dollars and $20 million in tax credits. Once again, the tool was a hit.

“We had until December 31, 2014, to generate contributions for those $20 million in state income tax credits, and we filled the fund a year early, in December of 2013,” Kline says. “And the theory was that we’d have quarterly funding rounds for two years, but within two quarterly rounds in 2013 we had committed all $35.4 million.”

As a result, HIF is now out of money and will remain so unless it is reauthorized when the legislature reconvenes in 2015. In the meantime, HIF dollars are helping ease the state’s housing shortage. Nearly all of the projects that received HIF 1 funding have been placed in service, and the HIF 2 projects are in development—although, due to the short construction season in North Dakota, most HIF 2 projects just broke ground this spring and likely won’t be completed until late 2014. In all, HIF has helped fund 1,529 housing units—a majority of them in or near the oil patch region, and the remainder in other pockets of the state where recent economic growth has put upward pressure on housing prices.

A plus for contributors and developers

For HIF contributors, the tax credit is certainly an incentive, but so is the prospect of providing homes for fellow North Dakotans.

“You don’t want to see people displaced from their communities. The HIF funds will help these residents remain in the communities where they've grown up and want to retire,” says Kevin Hanson, director of lending for Gate City Bank. The Fargo-based institution, which has branches throughout the state, embraced HIF from the start and is its largest overall contributor, at a total of $4.25 million.

U.S. Bank, which also has a presence throughout the state, is the second-largest HIF contributor, at a total of $4.2 million. Tim Hennessy, U.S. Bank’s regional president for community banking in North Dakota, credits the state’s legislature, governor, and other leaders for creating the HIF tool.

“They had the foresight to develop legislation that would allow companies like ours and individuals to, in effect, direct our tax payments where we’d like to see them spent, and in this case it’s affordable housing,” he says.

On the developer side, HIF has been “a boon,” according to Dan Madler, chief operating officer of Beyond Shelter, Inc. The Fargo-based nonprofit affordable housing developer has a total of 281 HIF-funded units in various stages of development in four communities across the state—a huge ramp-up in production, considering that the organization had created about 500 units total between its founding in 1999 and the launch of HIF in 2011. In accordance with HIF’s rules, all of the new units are income- and rent-restricted and many are reserved for essential workers.

“HIF has not only allowed us to double our pipeline, it’s also been a significant and critical gap filler in our financing, so that we can seal the deal and move projects forward,” Madler says. And he praises HIF’s design. “It’s nimble, it’s easy to work with, and the money gets put to work quickly.”

Hoping for HIF 3

The big question for NDHFA and HIF participants is whether the North Dakota legislature will reauthorize the program in 2015. Jolene Kline is “cautiously optimistic” it will happen. She notes that the state’s leaders are proceeding prudently in order to avoid overproduction that might contribute to a housing bubble. But in light of the still enormous needs for affordable housing in the state, “we’re not at that point yet.”

Beyond Shelter representatives plan to be at the 2015 legislature to voice support for reauthorization, and major contributors like Gate City Bank and U.S. Bank indicate that they’ll be enthusiastic participants if there’s a HIF 3 in 2015–2016. Kevin Hanson of Gate City is hopeful that the program will continue and sees it as an important development in addressing the housing shortage.

“The needs are a little overwhelming, but you’ve got to start somewhere, and this program is doing an excellent job of that,” he says.

When asked to reflect on particular successes of HIF, Jolene Kline points out that each HIF-funded project is a success in its own right, because each new unit of affordable housing is meeting a particular need. Take the community of Arnegard in western North Dakota, where a HIF-funded project is housing teachers who would otherwise be priced out of town. Or Bismarck, where a 127-unit HIF-funded development will provide homes for special-needs individuals whose housing options have evaporated.

Says Kline, “Every project in every community, whether it’s from west to east, is a success story in that community, because these state dollars made the project possible and created the affordable units that wouldn’t have been created otherwise.”

For more information on HIF, visit www.NDHousingIncentiveFund.org.




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