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IOWA IDEAS 2019
OCTOBER 3-4 CEDAR RAPIDS

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In Iowa free land giveaways can be imperfect fix for rural housing shortage

Sep 16, 2019 at 1:01 pm
    A vacant lot stands in Aurora on Tuesday, Sept. 10, 2019. City officials solicited proposals for an apartment building after a foreclosed home was torn down. (Rebecca F. Miller/The Gazette)

    A significant number of homes across Iowa have seen better days.

    The state’s median home was built in 1968 — the eighth-oldest in the country — with more than a quarter of housing units, at 26.1 percent, built in 1939 or earlier. That’s the fifth-highest percentage nationwide, according to the U.S. Census Bureau.

    Iowa’s aging housing stock can stand out especially vividly in its smaller cities, some of which have gone so far as to offer pieces of themselves at no cost to private builders or developers who pledge to add even one more home to the local ranks.

    But even free land giveaways aren’t a magic bullet solution for officials seeking to address a rural housing shortage, industry observers have said.

    And in some cities with populations as small as a few hundred residents, a sort of vicious cycle persists: Residents don’t move to such cities in large numbers when new homes aren’t getting built, officials and experts have outlined, and because residents aren’t moving in, most developers don’t see a path to profit in building new homes there.

    “I think it’s a difference between life and death, to be honest with you,” said Marne Mayor Randy Baxter, of housing as it relates to the vitality of Iowa’s rural communities. “A lot of these small towns are fading away.”

    And yet, small cities that successfully court new housing not only add to their property tax base but also can curb outward migration and reap “intangible benefits” from people putting down roots, said Brian Depew, the Center for Rural Affairs executive director.

    “I think that in general, we need to get a lot more creative and be willing as a community to have skin in the game when it comes to housing development and not just leave it to developers, the private market or individuals,” he said.

    “We should be willing to spend our tax dollars on making sure we’re developing the next generation of housing stock.”

    UP FOR GRABS

    At least four cities in Iowa either have taken stabs at no-cost land giveaways.

    Though not part of a formal program, the city of Aurora — population 185 — made the most recent known effort in May. In partnership with the Buchanan County Economic Development Commission, Aurora officials advertised a free 1.3-acre lot, where the city’s Slater Avenue and Prospect Street intersect.

    Wells Fargo previously had foreclosed on a home there and given it to the city, along with some funds to tear the old structure down and keep it from becoming an eyesore, Aurora Mayor Dave Young said.

    The city at first put the vacant land up for sale, he said, and after it was unsuccessful tried giving it away at no cost, hoping to solicit proposals for single- or multifamily housing, such as new apartments.

    Though Aurora officials were willing to provide “strong incentives” to return the land to productive use, the economic development commission’s materials show, Young said no one submitted any proposals, and the city ultimately re-listed the lot for sale.

    Aurora’s newest home was built over 10 years ago, Young said, chalking the city’s lack of development up to its small town status.

    “We don’t have a gas station or a grocery store, so there are a few negatives,” he said, though he added that the absence of homes for sale and vacant apartment units were positives.

    “It’s a good situation to have everything filled up.”

    Though officials in Marne — population 120 — have operated a free land program for at least a decade, Baxter said he doesn’t believe the effort has been all that successful. So far, the program has resulted in one new house built over the last 10 years.

    That’s not to say people don’t ask about the no-cost lots.

    The city temporarily unplugged the phone line for its program in April 2018, when officials found themselves unable to answer all of the many calls received in the days following a Des Moines Register report on their free land.

    But even that heightened media attention didn’t translate to new development, Baxter said, adding that inquirers often mistakenly believe they can do as they please with the free properties.

    “People see and hear the word ‘free’ and they’re all about ‘free,’ but when it comes to actually building a new house, then it’s a whole different story,” he said.

    “We’ve had hundreds and hundreds of people all excited about (the program), but nobody’s ever shown up and built a house other than a local couple who was already here.”

    Marne permits strictly residential uses on its lots and does not allow for temporary structures like trailers or for livestock or poultry to be kept onsite. Homes also must be built a minimum size of 1,200 square feet and no more than two stories, and be completed within 18 months of the lot’s acquisition.

    Over the past 20 years, “We’ve taken down about 15 houses that have basically aged out and weren’t taken care of,” Baxter said, noting that Marne now has space for eight to 10 new homes.

    “I think that’s the first step, to get rid of all the houses that are no longer habitable. In our town, if we could build one new house every other year, that would put us back on the plus side again.”

    A different free land initiative in Osceola — population 4,955 — has seen slightly more success, though not much.

    Three homes have been built since the land giveaways began in late 2016, two by developers and one by a family, said Bill Trickey, executive director of the Clarke County Development Corp., with two or three more in the pipeline.

    Though he said officials originally were hoping for 10 to 12 homes per year, a possible increase in local renters could explain the relative shortfall in interest.

    “We’re a town with a pretty strong industrial base, but a lot of folks come to our town for a couple of years and then get promoted out to another facility, so they don’t want to have a house that they have to get rid of,” Trickey said.

    Rather than Osceola keeping an inventory of free properties, Trickey said, his not-for-profit writes checks for the lots at closing time with funds from a revolving loan.

    The city then replenishes the coffers over time with property tax dollars paid on the lots, made instead of providing the eventual home a traditional tax abatement.

    Osceola and the not-for-profit also offer to reimburse interest on construction loans for up to one year or $8,000, an incentive Trickey said helps reduce risk for developers in case the home does not immediately sell.

    “If you’re a developer and you build a house in a little down like ours and you sit on it, (the interest) can start to eat up your profit quickly,” he said.

    A fourth Iowa city, Manilla — population 779 — has advertised 16 free lots where qualified individuals or entities could build single-family homes in its Sunrise Second Addition community, supplementing 12 new homes built there so far.

    Incentives promised under Manilla’s program include a five-year, 100-percent tax abatement and down payment assistance for qualified first-time homebuyers.

    Elsewhere in the nation, at least 12 cities — including five in Kansas, four in Nebraska, two in Minnesota and one in Alaska — have offered free land for residential uses, each with their own requirements for the homes and construction process.

    RURAL INITIATIVES

    State and federal governments have developed multiple measures for bolstering housing stock in Iowa’s smaller cities.

    One focus of Gov. Kim Reynolds’ Empower Rural Iowa Initiative, signed in May, involved increasing funding for the state’s workforce housing tax credit program, administered through the Iowa Economic Development Authority.

    Through the program’s Small Cities set-aside, for eligible projects in Iowa’s 88 least-populous counties, developers are eligible for refunds on sales, service or use taxes paid while building or rehabilitating homes.

    They can receive a 20-percent tax credit up to the first $150,000 spent on each unit, and capped at $1 million per project, so long as costs do not exceed $215,000 per unit.

    The new legislation included a one-time $25 million payment, to clear a waitlist of Small Cities set-aside projects running through 2024, and doubled the set-aside’s annual allocation from $5 million to $10 million.

    With the backlog cleared, said Dan Hansen, the program’s acting director, developers now have a clearer picture in terms of funding they could receive once state officials start reviewing tax credit applications again next July.

    “There are (housing) projects out there that are sitting and waiting,” Hansen said. “With this moving forward, I’ve talked to quite a few developers that are now starting in the process of contacting the municipalities.”

    Two federal single-family housing loan programs for buying homes and sites also have seen renewed interest, said Grant Menke, state director for U.S. Department of Agriculture Rural Development in Iowa.

    The USDA agency provides a 90-percent loan note guarantee to approved lenders that place no lending limit on low- to moderate-income applicants. It also directly issues 33-year loans at a fixed interest rate — currently 3.125 percent — to low- to very-low income applicants, with each county setting its own lending limit annually.

    The two programs provide loans for about 2,000 families each year, Menke said.

    “With this focus among community leaders working hard to recruit and grow businesses and attract residents to rural Iowa, they’re trying to crack this housing nut that has been such an issue for them,” he said.

    “When they’ve learned about our single-family housing programs, they’ve been very, very interested in the opportunities that those two programs could provide.”

    Elsewhere, rural housing solutions haven’t just been government administered but also have come from the grass roots level.

    Cliff Mesner, who owns a development company in Central City, Neb., has formed multiple investment clubs in smaller communities across his state, with dozens of local members paying $100 a month to pool venture capital for use in developing projects.

    So far, Mesner said, the clubs have built and sold 16 homes in five years, plus other projects including a motel, an assisted living facility and a farm store, receiving an approximate 5 percent profit.

    To begin the first investment club, Mesner said he and his wife mailed letters to 63 Central City residents, inviting them to a meeting to discuss the concept. Twenty-three recipients became members.

    That’s an approach he said he believes groups of community residents who “play well together” could replicate in other rural cities, including in Iowa, resulting in successful construction that otherwise would not take place.

    The clubs “are able to go in, keep a local builder busy and build one or two (homes) at a time,” Mesner said. “These are in communities that can’t attract an outside developer to come in and do stuff because we just can’t hit the economies of scale we need there.”

    That the investment clubs can complete projects without applying for government funds also is an advantage, he said.

    “You don’t have to have state money, you don’t have to have (tax increment financing), you just have to decide to do it,” he said.

    Comments: (319) 398-8366; thomas.friestad@thegazette.com

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