Report: Subsidized housing is concentrated in central cities despite higher costs, few benefits

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Contacts: Cynthia Huff, Law School, , (612) 625-6691

, University News Service, , (612) 624-1690

MINNEAPOLIS / ST. PAUL (02/07/2014) —A new report by the Institute of Metropolitan Opportunity at the University of Minnesota Law School shows that a disproportionate share of the Twin Cities’ publicly subsidized affordable housing is built in the two central cities, at high cost and with few quantifiable benefits for the region. 

An analysis of over 160 subsidized housing projects in the metropolitan area has revealed that units of subsidized housing in Minneapolis cost $30,000 more than units with similar characteristics built outside of the central cities. Construction in Saint Paul comes at an even higher price: its subsidized units cost $37,900 more than their suburban equivalents.

Despite the costs associated with building in Minneapolis and Saint Paul, a highly disproportionate share of subsidized housing construction is focused in the two cities. While the central cities contain only 25% of the region’s total housing, they are home to 59% of its subsidized units. These units are concentrated in racially segregated, low-income areas.

Expensive central city development is frequently justified as necessary to jump-start economic growth in struggling areas. But the report’s analysis of the Twin Cities’ largest housing development—the Franklin-Portland Gateway in Ventura Village—reveals no evidence of improved growth or revitalization. On the contrary, despite over $25 million of public investment in the project, the area’s household incomes, labor participation, and property values have dropped rapidly, faring much worse than the city as a whole. Although the project has had no discernible positive impact on its neighborhood, its final phase is slated to receive another $25 million of public funding.

The heavy emphasis on central city development, despite the high cost and dubious benefits, may be related to the structure of the region’s housing development community. Subsidized housing development in Minneapolis and Saint Paul is dominated by a handful of large nonprofits, some of which closely resemble and are closely associated with for-profit development firms. Despite their nonprofit status, these developers regularly pay executive salaries in the triple figures, with one vice-president receiving $207,000 in 2011. These large developers often work closely with small, geographically-focused community development groups based in low-income, highly segregated neighborhoods, thus creating a political constituency for the redirection of housing dollars into the central cities.   

The single largest source of subsidized housing money, the federal low-income housing tax credit, is weighted towards Minneapolis and Saint Paul. Over 40% of the metro region’s annual allotment is given directly to the two cities’ respective development agencies. Most of the remaining credits are distributed by the Minnesota Housing Finance Agency, which has implemented allocative criteria which advantage central city projects. The criteria provide well over one hundred allocation "points" for projects which address the city-oriented problem of long-term homelessness, are built on existing utility lines, or have the support of local nonprofit groups. By comparison, cost-effectiveness can earn a project a total of six points, and economically integrated projects are eligible for only two. 

The metropolitan area’s subsidized housing policies have negative impacts on the region as a whole: they create inefficient public spending, cluster poverty in neighborhoods and schools, and increase racial segregation. They worsen the region’s already-poor record on housing and school integration. And they represent a missed opportunity to reduce the geographic concentrations of poverty that anchor disadvantaged individuals to low-opportunity areas. 

The Institute’s report makes several recommendations:

  • Discontinue the allotment of housing tax credits to city development agencies, and instead implement region-wide systems for distributing affordable housing funds. 
  • Reconfigure the state housing agency’s point system to reward cost-effectiveness and integration.
  • Focus housing dollars on "high-opportunity" areas and ensure that affordable housing is distributed evenly across all the area’s communities. 
  • Broaden the scope of economic revitalization efforts to include job creation, safety, and schools, so that housing does not represent the only significant source of funding for urban recovery.

News Source : Report: Subsidized housing is concentrated in central cities despite higher costs, few benefits

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