In 2016 HJC concluded that the threat to the Twin Cities’ supply of unsubsidized affordable rental housing, or NOAH as it is now known, needed greater attention. Although housing policymakers were largely focused on protecting and expanding the supply of subsidized housing, most low-income households still were (and are) relying on the supply of NOAH housing, that is, the older plain vanilla Class C and D apartment buildings. And that supply of NOAH housing was rapidly diminishing.
National and even international investors were increasingly targeting the Twin Cities metro market for multifamily residential properties for purchase, and particularly the lower rent NOAH buildings. The business model was referred to as “value-add;” that is, new owners could invest in a few amenities like granite countertops, and reposition their newly acquired properties to appeal to more affluent tenants at considerably higher rents. Meanwhile, the supply of NOAH housing affordable to low and moderate income tenants was quickly disappearing. Given current construction and land costs, it is impossible to replace this housing at that level of affordability and without public subsidies.
HJC drafted a memo which it circulated widely in an attempt to spark a conversation about ways local governments could help preserve this disappearing resource. HJC suggested a series of policies designed to accomplish three main goals:
- Help nonprofit preservation buyers acquire these properties to keep them affordable long term;
- Create incentives for current NOAH landlords to keep their properties affordable rather than “upscale” them;
- Enact protections for tenants threatened with displacement from NOAH housing.
The memo provoked a lot of conversation among policymakers, advocates, city staff and others, and increasingly, it is leading to action.
Encouraging acquisition of NOAH by preservation purchasers.
Several larger nonprofit housing providers in the region have begun to buy up NOAH properties in order to keep them affordable long term, aided by the establishment of the NOAH Impact Fund, which provides lower cost financing. However, so many of these properties change hands these days it can be a challenge getting to the table when negotiations begin, particularly when these buildings are sold “off market” through private negotiations. That’s why HJC has been advocating for advance notice of sale requirements, where notice of a potential sale goes to the city which can then alert nonprofits or other preservation buyers to give them the chance to bid. In late 2018, Minneapolis became the first city locally to adopt an advance notice of sale requirement (combined with a post-sale tenant protection period, described below).
Creating incentives to keep properties affordable.
The state property tax law has a section called the Low-Income Rental Classification (LIRC), more popularly known as “4d,” which has traditionally provided tax breaks to subsidized rental housing. A few years ago, HJC noticed that the 4d program could be easily adapted to NOAH housing, thus potentially providing NOAH owners with a 40% tax reduction in exchange for rent and income limits. When HJC began talking up this strategy, it drew a lot of interest. Last year Minneapolis rolled out a pilot 4d program for NOAH properties in which they required owners to agree to 10-year rent and income restrictions in exchange for the tax break. The response was so strong that the City has now decided to implement a larger permanent 4d program for NOAH properties. A number of other cities in the Metro area have now adopted similar programs or are exploring doing so.
Protecting tenants.
A number of proposals have been discussed on how to protect tenants from the adverse effects of NOAH upscaling. The idea that has gotten the most traction grew out of a working group of landlords and tenant advocates (of which HJC was part) convened by staff from the City of St. Louis Park. The resulting Tenant Protection Ordinance provides that when a NOAH property is sold, the new owner must either wait 90 days to increase rents or evict without cause, or pay tenants relocation benefits. Following St. Louis Park’s adoption of the TPO, approximately half a dozen cities have adopted the same policy, including Minneapolis.
While these local initiatives are an important step, they are not enough by themselves to stem the rapid loss of NOAH housing. HJC continues to work with other groups to identify additional strategies to preserve this important resource.