$100 Million for Affordable Housing: Where It Comes From, Where It Goes

by Camille Galles on 6 July 2014

Welcome back to Homeline’s Public Policy blog!  Check back often as we begin to cover important Minnesota housing bills that were passed during the 2014 legislative session.  We’ll start by breaking down the “Homes for All” bonding bill, which sets aside  $100 million for affordable housing projects.

Where does this money come from?  The term “bonding” means that the state borrows this money by issuing bonds, which are financial tools that are  similar to loans.  The money the state borrows now will be paid back to bond holders over time with interest. The risk of borrowing so much money is offset by the current low interest and mortgage rates in the housing market, making this an ideal time for the state to invest in housing.  Ensuring the 2014 passage of this bill remained a top priority for Minnesota housing advocates.   A multi-organizational “Homes for All” coalition was formed, which gained endorsement by over 100 groups.

Indeed, this is a first-time  commitment to low-income housing in Minnesota.  $100 million can build or rehab up to 5,000 units!  Although no specific projects have been designated, the funds from the bonding bill will allow the Minnesota Housing and Finance Agency (MHFA) to boost its capacity by nearly $40 million dollars.  MHFA will use this money to build new affordable housing units, establish supportive housing centers, and perhaps most importantly, preserve existing Section 8 housing.

It’s easy to assume that new money automatically equals new housing, but the construction of new units was not the biggest thrust behind the Homes for All bill.  Preserving Section 8 housing is crucial because once it’s gone, you can’t get it back.  Owners that participate in the Section 8 housing program enter contracts that legally bind them to accept low-income tenants.  However, once an owner completes their contract, they can choose to opt out of the program.  This leaves current low-income tenants high and dry, and permanently removes some of the most affordable low-income housing in the state.  Nearly 30% of Minnesota’s Section 8 housing is at risk of vanishing during the next 5 years.  Using this bonding money to preserve Section 8 housing home security for current tenants, and also assures that more expensive units won’t  have to be built to compensate for expiring contracts.

Permanent low-cost housing, such as units participating in the Section 8 program, remains the most effective way to combat homelessness.  $100 million is an exciting opportunity for the local housing community, but it will not provide homes for the estimated 14,000 homeless Minnesotans in one fell swoop.  Even with this new legislature, the demand for affordable housing far outweighs the supply.  The Homes for All bill is a victory for housing policy, but the battle to truly provide homes for all is far from over.

 

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