Amid development boom, Rochester worries about affordable housing

On a recent afternoon, workers for Minneapolis-based Eagle Building maneuvered a giant excavator on the site of Rochester's newest affordable housing project.

When finished in early 2016, the Meadows will add 54 apartments to the city. But that's only a fraction of the affordable housing the city needs to meet the growing demand, and studies show the city and Olmsted County will have to encourage more development to keep pace in coming decades.

Over the next 20 years, state funding will support a massive Mayo Clinic expansion that is expected to add 32,000 more residents to the city. Mayo Clinic plans to spend $3.5 billion in capital improvements at its Rochester campus, projects that could attract at least $2.1 billion in additional private investment.

Although the growth will occur over time, the expected population bump it is expected to trigger is raising concerns about the region's efforts to deliver affordable housing.

According to county data, Rochester has 32 affordable or subsidized rental housing projects. A few more, including the Meadows, are in the pipeline. The projects vary in size and number of affordable housing units.

But a recent housing study notes that Olmsted County has a lot of catching up to do.

From 2006 to 2012, the county averaged about 20 new affordable housing units a year. But it will need 246 each year for the next five years to keep up with projected demand.

Olmsted County Housing Director Cheryl Jacobson said some of Rochester's anticipated growth will come from high-paying positions and Mayo Clinic's Destination Medical Center expansion. But she also expects plenty of new lower-paying jobs.

"We are going to have a lot more people in this area," Jacobson said. "So where they're going to live is going to be a key part of the growth. And housing that is affordable to the types of jobs that are going to be created or coming to this area is the big question."

The current vacancy rate for affordable housing apartments in Rochester is below 2 percent, indicating lower-income renters already have few options in Rochester.

By 2020, the housing market in Olmsted County will need 1,725 affordable housing units, according to the recent report by the Maxfield Research Group, a national housing research firm based in Minneapolis. The county, Rochester Area Foundation and Mayo Clinic commissioned the report in 2014.

Unless developers build more reasonably-priced units, low-income renters may be forced out of the Rochester housing market, County Commissioner Paul Wilson said.

"It's beginning to bubble up," said Wilson, who has been a vocal supporter of affordable housing. "Once it hits ... personnel departments at employers, they're going to be [saying], 'This is an issue. We've got a problem. What are we going to do to sustain ourselves and to grow ourselves?'"

One solution is a new property tax Olmsted County commissioners adopted this week to help raise money for affordable housing developments. County officials say the tax likely will cost the owner of a $200,000 home about $30 per year, although they have not yet determined the total amount of the tax.

The levy, which would apply to businesses and households, could raise up to $2.6 million the first year to help fund the county's Housing and Redevelopment Agency. The Omsted County Board has until July 1 to file its intent to collect the tax, which it plans to begin doing next year.

Another option is a community challenge grant similar to one in the late 1990s that established First Homes, a program that helps low-income families buy homes.

The Rochester Area Foundation, Mayo Clinic and the Rochester Area Chamber of Commerce raised $14.5 million for the program, which helped create more than 1,100 affordable housing units from 2000 to 2010.

Steve Borchardt, development officer for the Rochester Area Foundation, said the group is working with community leaders and businesses, including Mayo Clinic, to launch a new initiative. But he declined to give details of the plan.

"The usual group of community leaders, suspects, are at the table recognizing that this is a serious issue," Borchardt said. "It's not at crisis proportion for the people it affects right now, it will be soon. We can see that coming."

Key questions, he said, are exactly what the plan will entail, how best to roll it out and when.

Although Rochester's affordable housing demands mirror the need across the state and the nation, the city's rapid influx of residents is rare, said Ryan Allen, associate professor of community and economic development at the University of Minnesota's Humphrey School.

"When you have a hot real estate market like Rochester will become with these massive investments and a lot of people looking for housing, the market is not paying attention to working families and those with disabilities [and the] elderly in ways it pays attention to people with six-digit incomes," he said.

Allen said there's a strong effort in Olmsted County to take action. But he said there is no one tool that will address the affordable housing needs as Rochester continues to grow.

"Ultimately, this is a political issue," Allen said. "Finding housing subsidies and monies to support those subsidies is a political issue and you need strong public officials and you need support by the residents of the city and the region to make that happen."