Support all new residential projects
January 11 — People are always interested in new developments coming to the area.
Announcements of new restaurants or stores always generate excitement for the new option and also spark a list of other brands they want to see come to the Mankato area, be it an IHOP or Trader Joe’s.
Social media users seem to be particularly excited for new apartments that have been built or are under construction.
Inevitably, the main comments are similar: why are they building market-priced apartments or luxury apartments when we need more affordable housing? Why isn’t the city pushing for more affordable housing first?
For starters, everyone wants to see more affordable housing, including city officials, employers and residents.
But there are a limited number of things local governments can do to increase the supply of affordable housing.
And some in the public seem to forget that it is private companies and the free market that bring new developments, not the government.
Construction costs, especially over the past two years, have skyrocketed. Those who take the financial risk of investing in new construction or large renovation projects can only do so if they see a rate of return that will cover the costs of repaying their loans and make some profit.
Increasingly, this means that private developers can rarely find ways to make rentals more profitable at lower cost.
Affordable housing developments are generally only financially feasible if federal low-income housing tax credits are part of the package. Developers who qualify and commit to keeping rents a certain lower level use tax credits to make a project feasible.
But with a shortage of affordable housing virtually everywhere, the demand for tax credits is astronomical, and the amount of federal funding for tax credits is far below demand.
The recent US bailout, which injected $ 1.9 trillion into the economy, will provide temporary relief. The city of Mankato plans to use about $ 900,000 of the $ 10 million in rescue funds it has received to fund affordable housing projects.
There have long been calls to change federal policies to better stimulate the development of affordable housing, but for now, the limited amount of federal tax credits available is the main public tool to help more affordable rental projects. .
But the private market can certainly help. Mainly by simply building more housing – single family homes and apartments – in areas such as Mankato where the demand for housing is high.
The more new apartments at market price, the less demand and competition for existing properties. A Minneapolis Federal Reserve article a few years ago showed that cities that have added a lot of new apartments at market rates have seen rents drop on existing properties.
And even those “luxury” apartments that attract the wrath of many are a necessary part of the mix. For every luxury unit filled, there is a more modest house that someone can move into, often leaving their starting house available for sale or rent.
This is why the announcement of any new residential project, be it apartments, townhouses or single-family homes, must be applauded. The more there are, the lower the demand and the upward pressure on rents.