4.0. SR 12-03-2001 - Laserfiche WebLink

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Sunday, July 29, 2001 Opinion St. Cloud Times 7B St. Cloud should build affordable homes Many new homes will be needed in area in next 10 years By Dan Finn St. Cloud King Banaian ("Afford- able housing is poor deal for poor", July 15 Times) argues that the proposed five-city affordable housing ordi- nance is a bad idea. This judgment is based on three fundamental errors. No price controls The first mistake is his claim that the ordinance uses price controls. It does- n't. The maximum price (based on a formula that in- corporates all costs, profit, the number of bedrooms, etc.) simply defines what's "affordable" so the require- ment to build 15 percent af- fordable houses has a mean- Lng. As an economist, Banaian would know that a price control is a law that requires a product to be sold invol- untarily for less than its market value. A price eon- trol would force the builder to sell for $105,000 a house that's worth $140,000. The ordinance simply in- sists that developers con- struct some houses worth about $105,000 along with the more expensive ones. And the buyers voluntarily agree to the resale restric- tions. Smart buy for some The second error is Bana- ian's belief that only the foolish would buy one of these houses. He clearly misunderstands how this works. During the first 10 years, the owner can sell the house only for the original price plus an inflation adjust- merit, plus the value of any improvements made to the house. Why? So the next owner can also buy an affordable home. Let's say the original price is $100,000 and the origi- nal owners, the Petersons, decide to sell after seven years because they now can afford a larger house. If, for example, inflation is 3 percent and house prices rise at 5 percent per year, the maximum resale price would be $122,987 - Times photo by Jason Wachter Dan Finn takes part in a re- cent affordable housing dis- cussion. about $17,000 less than market value. The second owners, the Schindlers, get this advan- tage. Unlike most affordable housing programs, this or- dinance keeps the house af- fordable longer. But why would the Peter- sons agree to this restric- tion? Because without this program they earmot afford homeownership. They agree because they get a $15,000 gap loan (to be paid back when they sell) that allows them to afford a $100,000 house even though their income is only enough to afford 'an $85,000 mortgage. (Recall that there simply are not enough $85,000 houses around to meet the Times photo by Kimm Anderson Writer Dan Finn believes an affordable housing ordinance being drafted by five area cities is a good way to increase the stock of affordable homes such as these in Sartell. demand.) Counting the $22,987 rise in the price and the eq- uity they've build up in their mortgage, the Petersons, even with the resale restric- tions, still walk away with more than $26,000, a size- able down payment on a market-rate home. These homes will not be a smart investment if you can afford a market-rate house. But if you can't afford to buy a house, these homes are a great investment, far better than renting. During the second 10 years of life of the house, the Schindlers (who couldn't af- ford a market-rate house but got the $17,000 price reduction plus a gap loan when they bought this one) can sell for full market val- ue. But they must pay 50 percent of the appreciation above inflation to the city's affordable housing fund, which helps other families. If the Schindlers sell the house when it's 14 years old, they would have more than $85,000 for a down pay- ment on a larger house, even after paying $23,000 into the affordable housing fund. They too are much better off than renting. Supply is short The key to the ordinance is it seeks to increase the stock of affordable homes. The third mistake Bane- lan makes is his amazing assertion that "affordable housing is no less created by a builder building a $1 mil- lion home than a $50,000 tar shack." There's a big difference between building 75 houses (about the number the or- dinance will generate each year) worth $105,000 eom- pared with building 75 cost- ing a lot more. Banaian is right that in both cases 75 families would leave behind 75 vacant resi- dences - and others can move into them. But is the affordable housing situation the same in the two cases? Of course not. If we build the more ex- pensive houses, the number of affordable residences is' unchanged. If we build the $105,000 houses, we'll have 75 extra affordable homes. The price of existing homes rose by about 16 per- cent last year. Why? Be- cause of fast-growing de- mand and slow-growing supply. We can't build more old- er homes. Building the 75 new affordable houses will make a real difference in both the number and price of entry-level homes. In addition, because these 75 families would not other- wise be in the market for a new house, homebuilders will face a greater demand and will want to hire more workers. Central Minnesota is the fastest job-growth area in the state. Projections say that between 1996 and 2006 there will be 46,000 new jobs in our region. That means a lot of new homes are needed. And be- muse 55 percent of the jobs in the St. Cloud area pay less that $12 an hour, many of those homes need to be affordable. The 15 percent require- ment won't solve the prob- lem, but it will make a sig- nificant contribution. Finn teaches at SL John's University and is a leader in the Great River Interfaith Partnership. He is chair of the drafting committee creat- ed by Sartell, Sauk Rapids, St. Cloud, St. Joseph and Waite Park to develop a affordable housing ordinance.