Committee acts to make 4D program permanent

Updated: October 30, 2018 – 11:24 am

After seeing the results of a pilot project aimed at preserving naturally occurring affordable housing, the City Council in October acted to make the program permanent.

The 4D Affordable Housing Incentive Program was championed by Mayor Jacob Frey, who announced the launch of the pilot program in April and the very next month identified its expansion as a priority in his affordable housing agenda. The program offers landlords of market-rate apartment buildings an incentive to sign up for a state program that offers a property tax reduction in exchange for holding down rents.

The City Council’s Housing Policy and Development Committee on Oct. 24 approved a plan that would make the pilot permanent with annual funding. If approved by the full City Council, the ongoing 4D program will be run by Community Planning and Economic Development staff working with the city Assessor’s Office.

The affordable housing targeted by the program is described as “naturally occurring” because rents are below market rate without the support of a government subsidy. Owners of those units can apply to Minnesota Housing Finance Agency for low-income rent classification status, also known as 4D, which comes with a 40 percent property tax reduction on the affordable units.

For the pilot program, which was open to market-rate multifamily housing buildings with at least 10 units, the city covered the $10-per-unit fee charged by MHFA to 4D applicants. Landlords agreed to keep the units affordable for a decade.

The city received 22 applications to the pilot during a brief enrollment period this spring. Affordability commitments were secured for 207 units ranging in size from studios to two-bedrooms.

City staff estimate the 4D program could add another 700–1,500 units in 2019. To participate, landlords must agree to keep a minimum of 20 percent of units in a 4D-qualified building affordable to households earning 60 percent or less of area median income,

New eligibility guidelines would open the program to buildings with as few as two units. Landlords would also be eligible for city solar energy incentives and grants of $100 per affordable unit for up to 10 units. Landlords are also required to limit rent increases to 6 percent or less annually for tenants of participating 4D units, although exceptions could be made to fund deferred maintenance projects or compensate for a significant increase in operating costs.

The pilot is expected to shrink the city’s tax base by the equivalent of $124,571 in 2019, according to a staff analysis, although that loss could be offset by new development. Even if the program expanded to 1,500 units in 2019, the impact is expected to be small, reducing city’s tax capacity by just 0.2 percent.

A staff report notes Minneapolis is losing those units at “an alarming rate,” but about 15,000 naturally occurring affordable housing units remain.

CORRECTION: A previous version of this story incorrectly interpreted a staff report on the 4D program. Staff projected a slight reduction in the city’s property tax base due to 4D, not a loss of property tax revenue.