The City of Ann Arbor passed a resolution in 2015 to build 2,787 affordable housing rental units by 2035 as part of efforts to tackle the city’s legendarily high cost of living. However, only 200 have been built in the last eight years.
Now the question is: how can Ann Arbor try to reach this goal and establish the mixed income neighborhoods long championed by politicians and urban planners?
To accomplish this, the City Council voted earlier last month to instruct City Administrator Milton Dohoney Jr. to investigate whether the 1.000 Affordable Housing Millage approved by Ann Arbor voters in the 2020 election can be adapted into city bonds to theoretically generate more revenue faster and thereby accelerate the rate of construction of affordable units.
“If we sell municipal bonds backed by the revenue we expect to come in from our affordable housing millage then we’ll be able to get those funds in more quickly to say ahead of increasing building costs. It’s similar to how the city administrator has issued bonds for street repair … and then we’d pay that back that bond service when our revenue comes in,” said Councilor Linh Song (Democrat – Ward 2). “I just want to be more responsive to this because if economic conditions change and more evictions are on the rise, it takes years to build this, the housing situation will just get worse.”
The cost of living in Greater Ann Arbor has been going up for decades. The Ann Arbor Area Board of Realtors, a real estate industry group, found at the start of this month that the market has been cooling in recent months, but the price of an average single family house in Washtenaw County is still currently at $438,250. Compare that to June 2015, when the average family home was selling for $288,938.
The bond proposal was approved to generate $6,550,505 in the first year, 2021. According to the millage, it will create, “new affordable housing units for low-income individuals and families making less than 60 percent Ann Arbor Area Median Income.” It has been approved to run 20 years until 2041, providing the funds to both the Ann Arbor Downtown Development Authority and the Washtenaw County Brownfield Redevelopment Authority.
Ann Arbor Housing Commission Executive Director Jennifer Hall said the actual plausibility of this approach is currently being investigated by Ann Arbor’s bond counsel Dykema Gossett. A report on the feasibility of this approach is expected on December 1.
Instead of having the housing commission use millage funds to purchase lots and develop new housing units, the millage revenue would be used to back the issuance of a bond to “expand your reach” financially, according to Dohoney, by creating more money up front and paying it off over time as your build more housing units faster.
Dykema Gossett’s job now is to see how practical that approach would be in practice, how much debt would be created and how many units would be generated.
The revenue is much more stable and regular than what you could finance on the open market, making bond financing a much cheaper way to boost the amount of money the housing authority has access to via the lower interest rate, Hall explained.
Rental income will be used to repay the debt. But, Hall said, financing this way would allow the city to have lower rent prices or take on more debt.
“We have a 20 year millage … so we know that funding is coming in; we don’t expect it to suddenly stop or reduce. There would have to be another major economic downtown for it to reduce,” Hall said. “So, you can either annually use that seven million towards the housing development(s), meaning that you’re pacing yourself by doing a little at a time, doing a project or two a year. Alternatively, you could do bond financing for a significant project and then you pay back the bond with future millage funds. So instead of waiting years to save up $30 million in millage funds, I could do bond financing, build it now and use future millage [funds] to pay off the bond that I’m taking out now. It lets you do more sooner, rather than pacing yourself over the 20 year term of the bond.”
The Michigan State Legislature is currently beginning debate to change housing rules for different zoning via proposals like Senate Bill 293. The bill is currently in the Michigan State Senate. Current will go into further detail on the bill in a subsequent article.