How tax incentives help bring a new affordable housing project to fruition

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Simplified: The city council on Tuesday approved a plan to use a special incentive — known as tax increase funding — to construct a new affordable housing project in northeast Sioux Falls.

Why it matters

  • It is unusual that the city council is using tax increase financing (TIFs) for a housing development — an issue that caused much discussion during Monday’s council meeting.
  • TIFs are a tool to motivate developers bring large projects to Sioux Falls by offsetting their costs. Historically, TIFs have been used for large multipurpose developments such as Cherapa Place and the Steel District currently under construction.
  • As the city tries to address an ongoing housing crisis, the planning department has been working on a plan to use TIFs to offset construction costs for new homes in an effort to keep homebuyer prices below $340,000.

“We are targeting those who are ready for home ownership but are struggling to get there because of the price,” planning director Jeff Eckhoff told the council on Monday. “(And) we wanted to make sure that whatever we came up with would work in the marketplace.”

How will the TIF work?

TIFs essentially take what a property would have paid in taxes to the city’s general fund and instead return the money to the developer to cover their costs.

  • Then the Taxes levied on the newly developed property will be used to amortize the TIF in the next 20 years.

This affordable housing TIF is unique in that state laws do not permit the use of TIFs in single family home construction, but the City can use the financing method to offset infrastructure costs.

  • The $2.14 million TIF will help Nielson Development – the group behind the project – cover the costs of preparing the site for housing, framing, etc.

What is the plan for this affordable housing project?

The project will be a development worth over $20 million bringing it 65 single family homes for nearly 10 acres off Veterans Parkway and Madison Street in northeast Sioux Falls.

  • Houses will range in price from approx $230,000 to $323,000.
  • Construction should start as early as next spring, with the aim of having that 15 houses completed in 2023.

“This will give 65 families the opportunity to own a home,” said Councilor Marshall Selberg.

Why do we call $300,000 homes “affordable”?

It helps to see which frame the city uses to make decisions about what is “affordable” or “accessible”.

  • In this case the city with the state’s first-time buyer program as a benchmark.
  • The first-time homebuyer program sets a cap on the home price for buyers using this type of loan. Since this year this price is $340,000. The most expensive property in the proposed Nielson development is approximately $15,000 below this cap.

Council members and city officials have also used the phrase “barrier-free living” instead of “affordable living” – which means they are focused on helping provide housing at all levels.

“I don’t see this as creating affordable housing…this is accessible housing for workers,” Councilor Rich Merkouris said. “Do we need it? Absolutely. Are we publicly investing in it? Absolutely… It’s not an either/or, it’s a both/and.”

What happens next?

It’s the city’s goal now Use this type of TIF to attract more developers to build affordable and accessible housing.

“What I’m looking for is something that’s a repeatable process,” Merkouris said.

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