By Matthew Mitnick
This policy memo offers recommendations for student affordable housing to the Madison Common Council. The challenge of affordability for University of Wisconsin – Madison students on campus is outlined, with an explanation of what types of projects qualify as affordable housing. Solutions that have been implemented across the country, as well as with similar demographics, are shared. A series of recommendations are provided, which demonstrate how the City of Madison should pursue as many outside funding sources as possible, while augmenting local sources, to promote affordable housing projects. This memo details how the creation of a Tax Incremental District (TID) to collect property taxes through Tax Increment Financing (TIF) and Payment In-Lieu of options for developers will provide sources of revenue to augment the City of Madison’s Affordable Housing Trust Fund. This will allow for affordable housing developments that could otherwise not be built. Moreover, the use of Density Bonuses, Low-Income Housing Tax Credits (LIHTCs), and Inclusionary Zoning are additional measures that may be used to promote affordable student housing across the city, but particularly in Aldermanic Districts 2, 4, 8, and 13. Finally, a Neighborhood Association can be created, covering parts of Aldermanic Districts 2, 4, and 8, to promote public input in implementing these proposed measures for affordable housing.
PROBLEM – RENTS ARE RISING FOR STUDENTS IN MADISON
It is a minimum of $9,900 room and board fee per school year (roughly $1,100 per academic month) to live in an on-campus dorm at the University of Wisconsin – Madison (University Housing 2020). This is likely why roughly 75% of students choose to live off-campus (U.S. News & World Report 2020). Living off-campus proves to be significantly more affordable in comparison to university residence halls. Off-campus monthly rates are consistently below $1,000 per month for a one bedroom (Apartments.com 2020).
However, the influx of luxury apartments, such as the Hub Madison, The James, and Lucky Apartments, threaten affordability close to campus. As a whole, the median rent price in the City of Madison has increased 23% in the five-year period in which Census data is currently available (Becker 2019). Students in search of housing are being pushed further away to the Vilas and Greenbush Neighborhoods – some even as far as the cities of Monona and Fitchburg. As a result, the already limited public transit system is strained, and residents already living in these areas are displaced.
The United States Department of Housing and Urban Development (HUD) defines affordable housing as housing that costs 30% or less of a household’s income (HUD 2020). With very few students working full-time jobs, income is hard to quantify. Subsequently, this makes students ineligible for means-tested entitlement programs that rely on income for qualification, such as Section 8 Vouchers.
Currently, the City of Madison has an Affordable Housing Trust Fund, which “provides loans and grants to for-profit and non-profit housing developers for the acquisition and development of costs necessary for the creation of” low-income housing (City of Madison General Ordinances). It is administered by the City Comptroller and deposited in the Trust Fund Account.
SOLUTIONS IN OTHER MUNICIPALITIES
The challenge identified above is one that has become a common trend for municipalities across the nation, especially those with increased populations of young people in need of housing. The following are sample solutions other municipalities have taken to counter the affordable housing crisis:
- The Tacoma, Washington Housing Authority partnered with Tacoma Community College to adjust student restrictions on qualification for means-tested entitlement programs. 25 homeless and at-risk students received piloted housing choice vouchers with the stipulation that they be enrolled as full time students (Wachter 2016).
- Many Mansions, an affordable housing provider and the Area Housing Authority, a nonprofit housing authority, develop and administer affordable housing for a variety of cities in the County of Ventura (County of Ventura 2020).
- Texas A&M University partnered with Servatis, LLC to manage a new $360 million, 3,406 Park West apartment project, which is one of the largest public-private partnerships in the nation. Through the initial 30 years of the project, it will be owned by the nonprofit NCCD-College Station. After this period, the university will regain ownership of the property (Wachter 2016).
- Single room occupancy (SRO) units were implemented by the University of British Columbia in the development of a 70 unit building that encompasses just 140 square feet. These apartments are rented at a value of roughly $250 less per month than the market rate (Wachter 2016). This was funded partially by federal funding through a Community Development Block Grant (CDBG).
- The City of Lincoln, Nebraska utilized $2.6 million in TIF funding toward parking to support a 624 bedroom student housing project (Wachter 2016).
- The City of Thousand Oaks, California, which lies in one of the most expensive housing markets in the nation, allocates a portion of its annual Community Development Block Grant funding from HUD to support the rehabilitation needs of low-income renters in its nonprofit housing authorities (City of Thousand Oaks 2020).
RECOMMENDATIONS – AFFORDABLE HOUSING
The City of Madison should utilize the Dane County Housing Authority to administer the already existing Affordable Housing Trust Fund. Nonprofit management is preferable, as it is a more sustainable model in the long run when dealing with unpredictable public budget cuts, regulations within set jurisdictions, and shifting political climates.
When it comes to building affordable housing units, there is not a one-size-fits-all approach. The City of Madison should explore a multitude of funding sources, including the following:
- Low-Income Housing Tax Credits
First, to generate an adequate amount of funding into the Affordable Housing Trust Fund, the City of Madison should continue to leverage Low-Income Housing Tax Credits (LIHTCs) that are administered by the Wisconsin Housing and Economic Development Authority (WHEDA) (City of Madison Resolution #57594). LIHTCs allow developers to receive tax credits in exchange for pricing specified numbers of units below the market rate. They are implemented through the Section 42 Housing Tax Credit Program, which sets housing rates below market rate housing for income-qualifying renters in private housing (HUD 2017). The City of Madison should lobby the federal and state government to create incentives for private companies to provide direct and indirect funds to the Affordable Housing Trust Fund or housing authorities through various programs, such as 4-9% LIHTCs (Congressional Research Service 2019). If a company is experiencing profits and wishes to avoid paying higher corporate income taxes, then this provides a mechanism to do so – while also improving housing costs for students in future developments that receive local funding assistance. Given that the number of LIHTC projects are limited by federal regulation, the City of Madison should make proposed projects more attractive by leveraging funds from a variety of sources. Federal sources typically require a share of local funds. If the municipality is willing to put in 20% of the costs associated with a LIHTC, for example, then the federal government might more readily provide a greater share to reduce the local cost.
- Tax Increment Financing
If the City of Madison had the ability to fund a new affordable housing project, it would be able to issue debt through TIF funds (City of Madison TIF Policy Committee). The Tax Increment Financing Manual details how municipalities consider specific projects and use property taxes from a Tax Improvement District (TID) to fund them (WI DOR 2019). This type of tax revenue is used to pay annual debt service payments associated with affordable housing projects. TIF revenues capture the future growth in property taxes that would have been used to pay for other municipal services. Capital projects centered around the redevelopment of commercially-zoned areas should not be promoted if they take funding away from budget items related to education and public safety, among others. In the case of affordable housing, future tax revenues from the TIF should only be applied for this purpose.
The City of Madison’s TIF Policy Committee outlines how student housing developments that are leased primarily by students is considered an ineligible development to receive TIF assistance. However, this does not apply if there is “a significant affordable component” (City of Madison TIF Policy Committee). This component may be achieved through mechanisms, such as “Density Bonus” provisions, Inclusionary Housing Zoning requirements, and Payment In-Lieu of affordable housing development options – which are discussed in detail below. TIF should be used to improve the quality and safety of existing student housing. Thus, the development of future TIDs should be used specifically in support of this.
- Creation of a Tax Improvement District
There should be at least one TID in the aldermanic districts of 2, 8, and 13 that are heavily populated by students. Since TIF assistance for student housing requires an affordable component, having at least one TID in these areas specifically for supporting student housing will improve affordability. Affordable housing developments should be targeted to high performing TIDs that have the capacity to support affordable housing developments.
To create a TID, the Wisconsin Department of Revenue lists a step-by-step process (WI DOR 2019). I recommend that the TID be opened in the South Campus neighborhood of Aldermanic Districts 8 and 13, encompassing the multitude of businesses present and for the tax increment.
- Density Bonus
Certain areas of District 8 have properties in disarray and in desperate need of maintenance. This can be viewed throughout the South Campus neighborhood, particularly on North Orchard Avenue and Spring Street. The practice of single family homes being developed into student rentals is not an efficient use of space, nor does it always lead to the most optimal living conditions. The City of Madison controls zoning and should thus remove regulatory obstacles to prevent future developments that exhibit a density component. There is a risk that high density development will turn into the high priced luxury apartments that have threatened affordability in the first place. Hence, a Density Bonus is a viable solution, as it would result in additional units for a development if a certain percentage of all units are set aside for affordable tenants. Since the City of Madison controls zoning, it would ease restrictions for developers to build in these areas if a portion of the units are considered to be affordable. This is also referred to as an affordable housing set-aside (Grounded Solutions Network 2019).
- Inclusionary Zoning
An Inclusionary Zoning requirement is often an important affordable housing development tool when it is used effectively. This zoning tool is used to require a certain percentage of units to be deemed affordable (HUD 2012). Although this was challenging in the early 2000’s for the City of Madison, leading the Wisconsin Court of Appeals to overturn this policy, it can be beneficial when the terms are agreeable to all parties. Property owners, developers, affordable housing advocates, and the municipality must all agree on a set rate prior to its implementation. Inclusionary Zoning would be beneficial in areas around campus, where new housing projects, such as the Hub II on Langdon Street, decrease affordability. If a developer would like to supersede inclusionary zoning requirements; however, they could do so with a payment-in-lieu option.
- Payment-In-Lieu option
The payment-in-lieu option allows a developer to provide the municipality with a cash payment to be dedicated to affordable housing subsidies for other developments instead of building affordable units in a specific project. These funds will thus be used for affordable housing elsewhere in the community. Additionally, a TIF could be created for payment-in-lieu option projects, generating revenue for other future projects.
- Neighborhood Association
The creation of a Neighborhood Association in Aldermanic Districts 2, 4, and 8 would give residents a voice to advocate for these policies at the city level and generate buy-in from residents. A Neighborhood Association is a grassroots group of neighbors, small business owners, residents, local elected officials, and community leaders that work together to positively impact their neighborhood. They determine what the needs of the neighborhood are, lobby elected officials, advocate for specific projects, make recommendations on developments and public works projects, hold developers accountable, enforce zoning, and maintain city ordinances. The creation of a Neighborhood Association with a board of students, potentially being institutionalized through the Associated Students of Madison, would allow for these measures to continually be advocated for. With such a powerful grassroots body, future District 8 Alders would have to appeal to the Neighborhood Association to get elected, meaning that they would be amenable to its policy directives.
Affordable housing for students is complicated. However, by taking into consideration the recommendations in this memo, great strides will be made to improve student affordability. Affordable housing will not only assist students. It will encourage students to stay in Madison post-graduation. Such growth creates positive economic development for the city as a whole.
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Becker, Abigail. “Is Your Neighborhood Gentrified? Madison Report Identifies Areas of Displacement.” The Capital Times: August 6, 2019. https://madison.com/ct/news/local/govt-and-politics/is-your-neighborhood-gentrified-madison-report-identifies-areas-of-displacement/article_d935a2db-cd15-50a1-a18c-a869b48e6a8f.html
City of Madison. General Ordinances §4.22. https://www.cityofmadison.com/cdbg/toolbox/docs/mgo4_22.htm
City of Madison. Resolution #57594. City of Madison Legislative Information Center: 2019. https://madison.legistar.com/LegislationDetail.aspx?ID=4146548&GUID=D197BD2E-990A-4A57-B9FE-15CE81642820
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City of Thousand Oaks. “Affordable Housing.” City of Thousand Oaks: 2020. https://www.toaks.org/departments/community-development/housing/affordable-housing-program
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Grounded Solutions Network. “The Set-Aside Requirement.” Inclusionary Housing: 2019. https://inclusionaryhousing.org/designing-a-policy/onsite-development/the-set-aside-requirement
University Housing. “Billing and Rates.” University of Wisconsin-Madison: 2020. https://www.housing.wisc.edu/residence-halls/billing/#2020-21-new-students
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U.S. Department of Housing and Urban Development. “Expanding Housing Opportunities through Inclusionary Zoning: Lessons from Two Counties.” Office of Policy Development and Research: 2012. https://www.huduser.gov/portal/publications/HUD-496_new.pdf
U.S. Department of Housing and Urban Development. “Welcome to the 2018 HUD Affordable Housing Guide.” Housing Link: 2017. https://www.hud.gov/sites/dfiles/State/documents/2018-Affordable-Housing-Guide.pdf
U.S. News & World Report. “University of Wisconsin-Madison Student Life.” U.S. News & World Report: 2020. https://www.usnews.com/best-colleges/university-of-wisconsin-3895/student-life
Wachter, Matt. “2016 City of Madison Biennial Housing Report.” City of Madison: 2016. https://www.cityofmadison.com/cdbg/documents/2016CityBiennialHousingReport.pdf
Wisconsin Department of Revenue. “Tax Incremental Financing Manual.” Wisconsin Department of Revenue: 2019. https://www.revenue.wi.gov/DOR%20Publications/tif-manual.pdf