Ramstad: Security, other costs hamper Minnesota affordable-housing owners

Affordable housing — the kind that's subsidized for lower-income families and individuals — is a notoriously difficult business.

It goes against free-market principles. It's unpopular with neighbors. It's stacked with regulations. It's constantly buffeted by controversies over discrimination and the self-determination of neighborhoods and cities.

Now, two years after the Minnesota Legislature's best intentions and $1 billion in spending to drive more construction of affordable housing, developers say it has become harder rather than easier for them to operate.

The problems lie in timing and economics. Much of the state's construction aid won't materialize as projects until at least next year. Meanwhile, owners of existing affordable-housing units, chiefly apartment buildings, all across the state have been caught in a pincer of rising costs and declining revenue.

"It's that simple," Scott Cordes, chief operating officer at Project for Pride in Living (PPL) in Minneapolis, told me. "As revenues have grown slower, expenditures have grown rapidly. The ability to collect rent, the ability to fill vacancies, has gotten infinitely harder."

The result, he said, is visible beyond the income statements of property owners.

"It's led to a lot of financial distress that shows up for our residents in all sorts of different ways, including safety, security, stability, and the condition of the building and the environment," Cordes said.

The Minnesota Housing Stability Coalition, a group of developers and landlords, tapped a researcher to pull together data on the finances of more than 25,000 affordable-housing units across the state. In the resulting reports, the researcher found per-unit average revenue has been essentially flat since 2020. By contrast, average rents have been climbing for market-rate units.

Signs of this pressure grew throughout 2023 and 2024. Eric Johnson, the CEO of Aeon, one of the largest operators of affordable housing in the Twin Cities, warned early last year that production of new affordable housing may not meet expectations because developers were coping with other costs, like insurance, maintenance and security.

For PPL, property insurance alone was 300% greater last year than in 2018, Cordes said

"So many of these factors that are driving the mismatch cannot be controlled by an owner," said Ellen Sahli, president of the Family Housing Fund, which has been involved in affordable-housing financing in the Twin Cities for 45 years.

"Security is an example," she added. "How to keep a building safe is a huge function of community conditions, and those are not the responsibility of a housing provider, yet they have been asked to solve for that."

Public safety has diminished across the state. The Minneapolis police force is an example that is most widely discussed, particularly after so many officers left in the aftermath of the slaying of George Floyd. Smaller communities are also having trouble finding and retaining officers.

The effect is the proverbial squeezing of the balloon. With police less able to help with the difficulties of crime prevention and safety in low-income housing, the property owners are left to take on the work and costs themselves.

Sometimes, that leads to the worst outcome of all: the loss of a property. That happened last year with Dundry House, a 25-unit building of apartments south of downtown Minneapolis known as "deeply affordable" because they were rented to people at the lowest-income threshold.

Security costs started to overtake rental income in 2022. The next year, owner Hope Community closed the building and sought a new operator for it. While vacant, the building experienced two fires and was condemned. It was torn down last May.

"It went away as a resource for people who desperately needed affordable housing," Sahli said. "That's the most extreme example."

However, it's becoming more common for affordable-housing providers to sell properties to shore up their finances. PPL sold a 19-unit building in St. Paul recently, for example.

"I think every one of us has either already sold buildings that we would have preferred not to or are considering it," Cordes said. "It's trying to manage losses or to put homes in the hands of people who can do something different."

The Housing Stability Coalition and others are seeking $50 million from the Legislature to help affordable-housing providers get through a rough patch they fear will become permanent. A state task force produced a report on sustainability in affordable housing for legislators last month.

Meanwhile, a different set of advocates want lawmakers to provide more help to stressed renters.

With the new budget outlook for the state coming Thursday, everyone will find out more about the feasibility of their requests.

This issue is bigger than affordable housing. Minnesota needs more of every type of home. In addition to getting affordable-housing providers through this rough patch, legislators are being asked to consider tax breaks for office-to-housing conversions and some rezoning proposals.

The state's prosperity depends in no small part on maintaining an advantage against other states as an affordable place to live. And so, while this isn't an oil-producing state, a variation of a famous catchphrase applies to Minnesota.

Build, baby, build.