Iowa communities drive innovation to fill affordable housing gaps

It had been more than 25 years since Forest City — a northern Iowa city under 4,000 population, straddling Hancock and Winnebago counties — had seen an affordable housing development.

“We were having a workforce constraint, like most everyone else,” said Beth Bilyeu, executive director of Forest City Economic Development. “We can hire people in our employers but keeping them was getting to be a little trouble.”

Many workers drove 30 to 45 miles into town every day, and some of them commuted from even farther away, Bilyeu said.

It’s a scenario that plays out across rural Iowa as communities struggle to offer enough housing to keep up with demand.

If city officials and community partners were to do anything to help recruit and retain employees, getting more places for workers to live was at the top of the list for Forest City officials.

Of course, housing units wouldn’t appear overnight. It would be several more years until Forest City would reap the rewards of pursuing a new housing development, but the community had to start somewhere.

Quantify the need

Step one, Bilyeu said: Commission a rental housing study, which the city did, with Minnesota-based Maxfield Research and Consulting.

“At that time, if you wanted to find an apartment, it was tremendously hard,” she said.

The study showed just how difficult it was. The community, it said, needed at least 74 new rental units to keep up with demand from 2015 through 2025.

To begin to meet that need, Forest City issued a request for proposals in August 2015 seeking developers to build a new rental housing complex near Winnebago Industries, the community’s major employer. The proposed site also was near the elementary school and other amenities like the Waldorf College Athletic Complex, a YMCA, tennis courts, a skate park and an aquatic center.

Some companies came to look. Ultimately, none submitted proposals.

So Forest City went to plan B — do it themselves.

Forest City Economic Development entered into a public-private partnership after soliciting investors from around northern Iowa and created Westown Place LLC, the owner of the new market-rate housing project.

The group raised nearly $1.2 million and leveraged a workforce housing loan from the Iowa Finance Authority and workforce housing tax credits to finance the $4 million development of 24 new units. It was built in 2017 and quickly filled up.

While it was quite the undertaking, Bilyeu said, Forest City’s experience building Westown Place Apartments shows other communities it is doable.

“I think sometimes we can fuss a little bit and say, 'Oh, this is never going to happen, or 'Nobody will come and do it.' We can do it ourselves,” Bilyeu said. “It's not easy. It is profoundly not easy. But if we take the template examples of a lot of other people, we can develop things. You need good partners.”

Forest City is not alone in facing a “growing mismatch between where job opportunities are thriving and where people can find affordable places to live,” Gov. Kim Reynolds said in her annual Condition of the State address in January.

Across Iowa, an aging housing stock, rising construction costs and insufficient resources are contributing to a shortage of affordable housing.

To keep up with population growth, Iowa will need 47,000 more homes by 2030, according to the Iowa Finance Authority.

Plus, much of the state’s existing housing stock is aging and in need of rehabilitation. Forty percent of the housing units in the state were built before 1950.

And as housing costs rise more significantly than household incomes, 38.6 percent of Iowa's renter households and 15.8 percent of Iowa homeowners are cost-burdened — meaning they pay more than 30 percent of their income toward housing expenses.

Those measures are up from 2000, when only 34 percent of renter households and 14 percent of homeowners were cost-burdened, according to the Iowa Finance Authority.

Dan Garrett, chairman of the Iowa Housing Partnership, a group dedicated to advocating for affordable housing needs, said if people did not need to overpay for housing expenses, it would fuel the economy.

“If somebody is not spending their money on utilities and rent, they're spending it in the community,” he said.

The issue is inextricably tied to the economy, advocates say: To attract new employers and keep existing companies in Iowa, prospective and current workers need affordable places to live.

Joe Murphy, executive director of the Iowa Business Council, said Iowa needs to address the issue now to avoid problems seen in other areas across the country, such as San Francisco or New York, where house and rental prices are “exorbitant,” even when split among roommates.

“While Iowa’s not at that point yet, we need to take steps now to prevent that in the future and make sure that we're able to drive those local solutions to meet local workforce needs,” Murphy said.

The rap on affordable housing

People often think of those who live in affordable housing as individuals who do not want to work and rely on welfare, Garrett said.

“We can't forget that people who are classified as vital workers, people who are working in our communities that could live in affordable housing — you're talking about grocery workers, nursing assistants preschool teachers, EMTs and paramedics, policemen,” Garrett said.

Debi Durham, director of the Iowa Economic Development Authority and Iowa Finance Authority, agreed that affordable housing has taken on negative connotations.

She views it as “attainable housing.”

Such projects typically are open to those who earn at or below 80 percent of the area’s median income.

Forest City’s solution to its affordable housing shortage through a public-private partnership landed the community in Reynolds’ address as a model for other cities to consider.

Cities often look to competitive state programs for assistance in kick-starting such housing developments, but Reynolds said there are not enough resources to meet all the need.

“We must expand initiatives like these that address pent-up demand for affordable housing, helping our communities thrive and our families move where opportunities await them,” Reynolds said in her address.

Getting creative with tax credits

Two things are holding Iowa back from reaching its full economic development potential, Durham said — housing and population.

In other words, Iowa’s population — therefore, its workforce and economy — will not grow without sufficient housing.

“As we grow, we've got to have places for people to live,” Durham said. “And so, unfortunately, we've had great programs, but they've never really been right-sized based on capacity.”

Recognizing that communities request more than these programs can give, Reynolds in February proposed an omnibus housing bill to expand the state’s housing supply.

She proposed appropriating $15 million in a new state low-income housing tax credit program and doubling the greyfield/brownfield tax credit, which helps offset the cost of renovating housing with environmental issues, to $20 million a year. The biggest gain under the bill, though, would have been doubling the workforce housing tax credit program to $50 million a year.

The Iowa Finance Authority would have used funding to bolster the existing federal low-income housing tax credit program, making it more enticing to developers by supplementing the $8 million a year Iowa receives with state funding.

The tax credits help developers build housing for tenants earning 60 percent or less of the area's median income.

That provision did not make it in the newly enacted law.

But it does provide $40 million in fiscal 2022 and $35 million in following years for the workforce housing tax credits, which defrays the costs to developers to building new housing — particularly on abandoned, empty or dilapidated properties. It also bumps brownfield/greyfield tax credit funding from $10 million to $15 million.

Reynolds also on Sept. 8 shared plans to dedicate $100 million of the state’s allocation of federal American Rescue Plan COVID-19 relief funds toward affordable housing initiatives.

This will provide:

What cities are doing

Around the state, Durham said she has seen communities pursue new housing development by leveraging these tax credits to revamp old properties.

Smaller towns like Clarence and Cascade, both in Eastern Iowa, are pursuing market-rate, upper-story housing projects in old downtown buildings.

Urban cores are revamping old buildings, too, to meet their housing needs.

Davenport city leaders — such as in Forest City — used a public-private partnership to convert the vacant Pierce Elementary School building into 41 affordable apartments, bringing new housing to the city’s riverfront and spurring redevelopment.

Reynolds touted that example in her January address, but Davenport has turned other vacant school buildings into housing and senior living apartments.

“You see that happening all over the state where communities come together and they give land away to developers,” Durham said. “ … It's all about downing the cost curve to get it to an affordability level that people can afford.”

Tax credits are even more important in helping to offset increasing construction costs as prices of lumber have soared recently, Durham said. They are tools that allow developers to borrow less money for projects, and the savings are passed on to homebuyers and tenants.

“You can't just pass (the cost) on to these residents because they don't have the income level to do it,” Durham said.

Expense of rural housing

Rural areas, in particular, benefit from the expansion of the workforce housing tax credit.

Murphy said it is more expensive for housing developers to build homes in rural communities because they are farther away from the developer’s supply chains, there is a lack of available land and low housing stock drives up costs.

The workforce housing tax credit program already included a set-aside for communities from Iowa’s 88 least-populous counties. During the 2021 legislative session, state lawmakers approved an increase in that funding pool from $10 million to $17.5 million.

“That will provide tools and incentives for home developers and builders to go into those communities, and begin in begin the construction of those workforce and affordable homes,” Murphy said.

Sometimes, it takes a community like Forest City stepping forward to test the market to spur further housing development in rural areas, Durham said.

“It’s a bit risky for developers,” Durham said. “ … Once these projects are successful, then you see more interest.”

Driving innovation

There is currently a waiting list to get a unit in Forest City’s Westown Place Apartments. And the city is talking about constructing a second building.

“We still need more,” Bilyeu said.

Tax credits are not the be-all, end-all for fueling new housing construction. But public-private partnerships and housing rehabilitation projects are among the keys to driving development forward in Iowa communities.

Durham said there is even a 3D-printed house in the works with Iowa State University, which may prove to be a way to bring down the cost of housing.

Cities and counties also may think twice about new regulations they adopt, Murphy and Garrett said, and evaluate whether current ones are needed.

Garrett pointed to onerous single-family zoning ordinances as having the potential to add burdensome red tape at the local level.

Creating barriers, he said, “create negative opportunities for those cities.”

Cities can encourage affordable housing growth through some regulations, such as Portland’s housing bond program — a measure that seeks to raise money for supportive housing services for people experiencing or at risk of being without a house.

Also, Murphy said, communities should not be shy about thinking outside of the box and trying to come up with innovative strategies to partner with local businesses to secure the capital needed to start a development project.

“Sometimes,” he said, “those local solutions are much more are much simpler than anything that the state can do.”

Comments: (319) 398-8494; marissa.payne@thegazette.com