Councilor: More houses won’t solve affordable housing problem

Sioux Falls City Councilor Pat Starr says latest city accessible housing development is a mere band-aid
Published: Sep. 12, 2022 at 8:36 PM CDT
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SIOUX FALLS, S.D. (Dakota News Now) - The latest “accessible housing” district proposed for the northeastern part of Sioux Falls is not effectively addressing the city’s growing affordable housing problem, according to one city councilor.

Pat Starr, who represents the northeast district, also told Dakota News Now on Monday that city government is continuing to “dig a hole” by continuing to dig literal holes to build homes partly funded in part by Tax Increment Financing (TIFs).

“We need to talk about the real causes of the housing issues in our city rather than trying to put a band-aid and build 65 houses, which is what this program will do.” Starr said.”

“It’s not the program I’m concerned as much about as as I am figuring out who we’re trying to help. And, it seems to me we have a wage issue more than we have a housing issue.”

His remarks come a week after a City Council meeting in which Starr pressed city officials about the $232,000 to $323,000 price tags on the 65 proposed single-family homes in the East Ridge District, a 9.7 acre plot of land that is currently farmland. Those prices are set between 60-100 percent of the South Dakota Housing Authority’s first time home-buyer pricing.

It is a $20 million project, and the City Council will vote in early October whether or not to help fund the development with $2.14 million in TIFs.

TIFs are programs where municipalities typically divert future property tax revenue increases from a defined area or district toward an economic development project or public improvement project in the community.

When Starr asked city business development officials overseeing the project if there was any way to lower the prices so the homes could be afforded by a broader array of families who need them, he was told that those prices are as low as they can go because of the rising cost of development set by the developer of the project, Nielson Construction.

Owner Kelly Nielson told councilors his staff had recently “started designing the least expensive house we could come up with.”

So, Starr’s solution is to make sure fewer people qualify for affordable housing by businesses raising wages, or the city being more discriminate about new business it brings in.

“The problem isn’t with affordable housing, the problem is with wages and income,” Starr said. “We’re having taxpayers subsidize housing for people who are professionals, and to provide housing for people if they qualify,” Starr said, noting that a family of four — two parents and two kids — that makes up to $70,000 can work full-time, yet still qualify.

Those that make 80 percent or less of the city’s median income are eligible — that’s $56,000 or less — qualify for these “accessible homes.” That means there are some law enforcement, firefighting, and nursing who qualify, and Starr said that’s a red flag.

These are people, Starr said, who make $17 to $18 per hour. They are servants and some are educators They should not have to apply for affordable housing, he said.

“What we have to do is we have to stop paying tax money on bringing jobs to town that don’t pay a living wage,” Starr said.

“It’s one thing if they want to come to our community, because we are a great place to live. We have lots of cheap labor. But, at the same time, we have to be able to have our folks pay for their own housing, to pay for their own education, to pay for their own necessities, and if we don’t, then we’re just adding to the problem, and the problem continues to grow.”

The president of Sioux Metro Growth Alliance, which helps people with payment on houses in rural and suburban communities surrounding Sioux Falls, disagrees.

“If you look at wage growth around the country and in the Sioux Falls market in the last three years, it’s been astronomical,” Jesse Fonkert said.

But Fonkert does agree with Starr’s assessment that continuing these city-funded housing projects is not solving the affordable housing crisis.

“It’s a challenging situation, because if you spend too much money on government programming, you’ll have companies that will just hike their prices up,” Fonkert said.

Fonkert said the problem isn’t going anywhere. That the extreme weather climate that forces more durable — and therefore more expensive — homes, and the Sioux Falls area’s lack of proximity to a forest for accessible lumber — which raises lumber costs — will always make prices to build homes an uphill battle.

Another reason of the high pricing is that developing companies of new homes want to build houses with more space, because the average family size has increased over the last few decades, and more families now want more space. It is what the market demands. Plus, developers make more money by building more space for newer houses.

”There really isn’t a great solution where you can just wave a wand and things will disappear,” Fonkert said.

Meanwhile, Karl Fulmer, the executive director of Affordable Housing Solutions in Sioux Falls, told DNN that these TIF-paid city developments are an effective way of addressing affordable housing.

“The benefit of just building more houses in the $250,000 to $400,000 range still provides the unit, and you can see the transition out of more affordable units from those who might make enough to buy” homes in that price range, Fulmer said.

In other words, these new houses in new “accessible housing” developments actually are not for those most struggling to find affordable housing the most. They are far those who bought smaller, older “starter houses” in town that cost less than $250,000 and are ready to move out of them.

The true affordable housing comes in those starter houses. And the more new “accessible” houses funded by city TIFs that are built, the more those older, smaller houses become available to lower income people.

But to qualify, home buyers must make a certain level of income in order to get mortgage financing.

Before interest rates started creeping upward during this past year-plus of inflation, that level was about 60 percent of median income in the city, which, again is about $70,000. Now, the minimum income level to get mortgage financing is at 65 percent of the median, or just over $45,000.

“And that’s just the sad reality about the dynamics right now,” Fulmer said.

As for how wage dynamics could be changed at a time when most employers are already feeling the burden of raising compensation to compete in the market, Starr said this:

“Education. People getting a good, solid education. And it’s not post-secondary. It’s making sure people are educated from the time their kids enter school — with good pre-school, with good, quality elementary, middle school, secondary education. We can never spend enough on educating our workforce.”