Fund aims to keep apartments affordable in tight market

Finding an apartment is getting increasingly difficult for Twin Cities residents of modest means, as high demand continues to push up costs. In some places, low-income renters have even been forced to move after developers bought and upgraded large apartment complexes to attract more affluent clients.

However, there's an effort underway across the region to preserve the dwindling stock of unsubsidized affordable housing.

When a new owner bought her Richfield apartment building, 33-year-old Maria Johnson soon learned she would have to move. The modest, 1960s-era complex where she lived was getting some fancy upgrades including a spa, a pet spa and a golf simulator. The rent rose — and so did the credit requirements for tenants.

Johnson said she always paid her rent on time. But a bankruptcy several years ago made her ineligible to stay. It took a lot of searching to find new place. She eventually found an apartment several miles away in Bloomington. But Johnson said her rent is now about 45 percent higher.

"I don't want to live beyond my means. Just because on a paycheck I can afford this, I can't afford this, because no one wants to live paycheck to paycheck," she said.

People with low to moderate incomes often struggle to find affordable rentals. And it's getting harder. The market research firm Marquette Advisers said the vacancy rate for apartments in the $700- to $1,000-a-month range is just 2 percent in the metro. In fact, vacancy rates for all apartments have barely touched 3 percent in the last five years.

Warren Hanson with the Greater Minnesota Housing Fund, a nonprofit lender, said investors are converting many 40- and 50-year-old no-frills apartment buildings into luxury rentals.

"That's the kind of housing stock, the kind of rental apartments, that are disappearing," he said. "They're being bought, and suddenly they're $1,500 or $1,800 or $1,900 a month."

Hanson's group is trying to slow this trend. They've set up a $25 million fund developers can tap if they promise to keep the rent low and accept Section 8 vouchers, something many landlords won't do.

"This is kind of plugging a hole and saying we can stop some of this loss of naturally affordable housing by capturing it and keeping it affordable for another 15 or 20 years," he said.

Earlier this month the Hennepin County Board voted unanimously to kick in $3 million in public money to the fund. It's called NOAH, short for Naturally Occuring Affordable Housing. Hanson expects philanthropic and institutional investors to provide the rest. He said both nonprofit developers and for-profit companies can tap the fund.

Bill Bisanz, CEO St. Paul-based Real Estate Equities, said his company used it to buy and refurbish a complex in New Brighton built in the 1970s.

The fund covered 90 percent of the down payment. Real Estate Equities paid the rest and manages the buildings. Bisanz said rent on a two-bedroom there is around $1,000 a month, well below the region's average. And it'll stay that way for a decade and a half.

"The NOAH fund presents a great combination of doing well and doing good," he said. "I think that there's a strong business opportunity for me and there's also a strong social opportunity for me to be a part of creating this high-quality affordable housing for families, and I believe in that."

Federal tax credits have long been available to developers of affordable housing. But Bisanz said the NOAH fund accomplishes many of the same goals without a lot of the red tape.

Eric Hauge of the tenant advocacy group Homeline said the effort is a creative solution to a growing problem.

"We in Minnesota sort of pride ourselves in being progressive about some of the policies we have here and our approaches to responding to public policy issues. And this is an example of that," he said. "It's a public-private experiment to try to preserve an important affordable housing resource."

The NOAH fund's goal is to keep 1,000 units of housing affordable for low- to moderate-income renters. Hauge said that's a great start, but solving the problem will require a long-term commitment to building more affordable apartments as well as keeping those that remain.