photo by: Nick Krug

Construction on the 888 Lofts building at the corner of Ninth and New Hampshire streets continues on Saturday, May 7, 2016.

Editor’s note: This is the second story in a five-part series exploring the shortage of affordable housing in Lawrence, which is designated through national health rankings as a “severe” problem in Douglas County. We’ll cover the attention that issue has received in the past year and what measures city leaders and others are proposing, moving forward, to improve it. Read the rest of the series here.

One year after the Lawrence City Commission approved a tax rebate for the now under-construction HERE Kansas apartment development, of which Chicago-based CA Ventures is a partner, Iowa City entered into its own deal with CA Ventures.

photo by: Nick Krug

The HERE Kansas apartment and retail project at 1111 Indiana St. is pictured on March 20, 2016.

In Lawrence, development partners received city approval for an 85 percent, 10-year tax rebate on new taxes generated by the approximately $75 million project, through the National Revitalization Act. They entered into a cost-share agreement for reconstruction of adjacent streets — one that could have the city paying about $250,000 of the $1.5 million total, pending City Commission approval Tuesday. Developers are also allowed to keep fees for more than 100 new metered spaces, but not fines for violations.

Recently, during the discontentment caused by HERE’s evolving parking problems, Lawrence negotiated to receive $100,000 of the meter revenue annually for the city’s parking fund.

In Iowa City, the situation was different.

Contrary to Lawrence’s position, Iowa City owned a piece of land and sent a request for companies to develop it. The request drew six competitive bids, the Iowa City Press-Citizen reported, and the one from CA Ventures — for an apartment, office and retail development with a traditional parking garage — was the best.

The company paid the assessed value for the land, $5.5 million; contributed $1 million to Iowa City’s affordable housing fund; and set aside 32 units, or 10 percent, as affordable housing, serving households earning 80 percent or below of the area’s median income. The development, a $102.5 million project, did not use public financing.

City Manager Tom Markus came to Lawrence in March after serving as Iowa City’s city manager for five years. He took part in Iowa City’s agreement with CA Ventures, and he told Lawrence’s Affordable Housing Advisory Board about the deal at its latest meeting in April.

He relayed to the group that in his last couple years there, when Iowa City incentivized residential projects (all mixed-use), it would negotiate for affordable housing. And developers agreed — in the CA Ventures development and three others.

Markus also told the affordable housing board he wanted to start down the same path in Lawrence with future developments.

A few weeks later, that idea is now on paper.

Requiring affordable units

In a larger package of proposed changes to the policies that govern economic development incentives, Lawrence included a new affordable housing requirement.

Economic Development Director Britt Crum-Cano has said she wants to gather feedback on the changes and present them to the City Commission by the end of the month.

Markus reiterated at several meetings in recent weeks — to the Affordable Housing Advisory Board, the Lawrence Association of Neighborhoods and the Joint Economic Development Council — that affordable housing is a “public policy issue,” one that requires investment on behalf of the city and a bridge to be built between the public and private sectors.

To the Lawrence Association of Neighborhoods, Markus said he had “a passion” for the issue.

“I think everyone is kind of scrambling trying to figure out what programs exist and if other programs need to be created to expand the supply [of affordable housing],” Markus said. “I feel the same kind of anxiety here in Lawrence about it that I did in Iowa City.”

“I think it affects everybody, but I think there are some communities that would just as soon leave it to others to fix,” he said. “Clearly, that’s not Iowa City or Lawrence.”

Under the proposed policies, any project comprising four or more residential units — and that is seeking city incentives — would be required to set aside a percentage for households making 80 percent of the area median income. Developers would be required to charge income-based rent for those units as determined by the Lawrence-Douglas County Housing Authority. The units would have to remain affordable for the duration the project is incentivized, but no less than 15 years.

The provision would apply to all developments receiving one of a host of incentive options: tax abatements, industrial revenue bonds, tax increment financing, transportation development districts, community improvement districts and national revitalization areas.

For projects with four to 49 units, at least 10 percent would have to be set aside to meet the mandate. For projects with 50 or more units, the requirement jumps to 35 percent.

Markus explained that in the case of HERE Kansas, which comprises 237 luxury apartments, “we would’ve been asking for a sizable number of units to have been affordable.”

The percentages were chosen as a baseline to introduce the concept, Markus said, noting “there could be some growth in that percentage.”

Crum-Cano said those amounts would help the developments be mixed-income, to avoid concentrating low-income housing into a single area of Lawrence. Markus agreed, remarking the requirement applying to all subsidized residential developments would lead to “scattered sites” of affordable housing, or as Dan Partridge — Lawrence-Douglas County Health Department director — explained the “scattered sites” concept: “invisible, and everywhere.”

The first in Kansas

The implementation of affordable housing into subsidized properties isn’t unique in coastal cities, but it’s rare in the Midwest and unheard of in Kansas, said Fred Bentley, rental-housing director with the Kansas Housing Resources Corporation. The KHRC administers the federal low-income housing tax credit program in Kansas.

“I haven’t seen this in Kansas anywhere. I’ve heard about it in other states, but not here,” Bentley said, adding that he didn’t know whether it would be well received.

“I don’t know what the development community would think of this,” he said. “I would think developers would not be in favor of it, because it would increase difficulty and put more burden on them to make it all work.”

The proposal was put before its first audience Monday.

The affordable housing provision, and some other changes to the policies, drew some concern from the Joint Economic Development Council. Like Bentley, Brady Pollington, vice president of the Economic Development Council of Lawrence and Douglas County, questioned if the percentages were so high the requirement would turn developers off a project.

And later last week, one of Lawrence’s most active developers said it would.

‘Not a good solution’

When asked if the requirement would lead them to not pursue a project, Bill Fleming, an attorney for a group led by Lawrence businessmen Doug Compton and Mike Treanor, responded: “I think 35 percent would make it very, very difficult to make the numbers make sense.”

Since 2011, Compton has undertaken three major downtown apartment projects, all of which have received some level of city incentive and, if they were developed with the proposed mandate in play, would’ve required 35 percent low-income units.

Fleming said the proposed changes showed a “total lack of understanding” on how incentives work and would “kill the economics of these deals.”

Compton’s under-construction “The Lofts at 888 New Hampshire” is part of a City Commission-approved tax increment financing district, meaning new property and sales taxes generated by the development will be rebated back to developers to pay for infrastructure improvements, including a below-ground parking garage.

“Somebody needs to explain that having a TIF district is a good thing in sharing the cost of infrastructure and parking in downtown,” Fleming said. “If we as a community want a strong downtown and people to live down there and we want development, we need to support it. If we want our downtown to be sleepy, lazy, ultimately degrade and decay and become irrelevant like so many others across the country — that’s fine, too.”

If the affordable housing requirement were imposed, Fleming said, the cost would be pushed onto those renting units at market rate.

“I have to make it up someplace or drive those projects out of the realm of being feasible,” he said. “Either one is not a good solution.”

Bentley, like Fleming, said the lower rents would reduce cash flow and create more difficulty in paying debt. Because it would be more unaffordable for smaller residential developments, Bentley said he’d suggest creating an exemption for developments 10 or 20 units or smaller.

If the amount of required affordable housing units was capped at 10 or 15 percent, Fleming said, “Maybe you could make that work.”

Creating an understanding

In Iowa City projects, the city asked developers in some subsidized projects, such as the CA Ventures development, to commit to providing 10 percent of units as affordable housing.

And, while developers in Iowa City were supportive, Markus said, he also told the Affordable Housing Advisory Board that Lawrence used incentives less liberally than Iowa City, making it “a little less palatable” for Lawrence developers.

“Our incentives packages tend to be pretty conservative [in Lawrence],” Markus said.

“Some people may look at this and not be real comfortable with it,” he added later.

But Markus also said this approach to creating affordable housing could act as an opportunity to build a relationship between developers and the city.

“There’s this nexus that can be created between inducing development and the affordable housing issue,” he said. “Tie-barring it to incentives, at least I hope, creates an understanding in the development community that this is another of the public purposes the city is trying to achieve.”

“In Iowa City, I was pleasantly surprised as to how supportive they were, and that’s a consciousness that you would find knowing developers understand the environment and culture they work in,” he said. “You would hope they would buy into that kind of approach. And I think they will here, too.”

To Rebecca Buford, director of the Lawrence Community Housing Trust — which, among other services, offers a stock of affordable homes at subsidized sales prices — the proposal is “extremely exciting.”

But she anticipated blowback from developers.

“If you’re going to build luxury apartments that don’t address this huge demand for affordable apartments, there’s going to be a tradeoff for any kind of incentive package,” Buford said. “With something like this, they may learn, ‘Hey, I still made some money on this project.'”