Affordable housing is in short supply throughout Michigan — and state housing officials are hoping a proposed expansion of redevelopment subsidy programs will help close the gap.

A four-bill package recently approved by the Michigan Senate would allow local governments to offer subsidies on certain affordable housing redevelopment projects through tax increment financing.

Currently, tax increment financing is primarily reserved for commercial developments in Michigan, and as of now, Maine is the only other state using it regularly for affordable housing.

If signed into law, local governments could opt in to the program and offer developers of rentals or single-family homes additional subsidies if they plan to sell or rent to people whose annual household income does not exceed 120% of the region’s median income.

The program would be tailored to brownfield sites, typically a plot of land that’s been previously developed and is now contaminated or otherwise blighted.

In Michigan — where urban communities and rural regions alike have increasingly encountered affordable housing shortages and residents are feeling the squeeze — the additional financing options could be a game-changer for rebuilding neighborhoods, inserting more housing into existing subdivisions and finding options that best meet local housing needs, Michigan State Housing Development Authority Executive Director Amy Hovey told Bridge Michigan.

Unlike many other housing funding sources from the federal or state government, there’s not a finite maximum amount for obtaining funding under the plan and offers more locally-driven flexibility, she said, adding that getting the bills signed into law is MSHDA’s top legislative priority.

“It could have quite a large impact,” she said. “It is really the will of these local governments to pass these brownfield plans and then send them up through the state…it will just be another tool that helps communities meet their housing needs as they have them.”

How it would work

If the bill is signed, local authorities in areas in need of more affordable housing options could add housing and housing-related activities to the list of what’s eligible for tax increment financing under the state’s Brownfield Redevelopment Financing Act.

In other words, developers in communities that opt in to the program could get tax subsidies for site preparation, demolition, renovation or other rehabilitation efforts if their eligible project is specifically designed to meet low- and middle-income housing needs.

The subsidies would be available to developers aiming to sell or rent to people whose annual household income does not exceed 120% of the region’s median income. Local housing development plans seeking the funding would need final sign-off from MSHDA to proceed.

The policy is designed to be flexible, meaning eligible projects could range from transitional housing to low-income rentals to affordable single-family homes in areas where housing stock doesn’t meet the needs of the local workforce, Sen. Sam Singh, D-East Lansing, told Bridge.

“We definitely are trying to deal with the whole spectrum of housing needs,” he said, noting that in several geographic areas in Michigan, people have significant commutes between the area they can afford to live and where their job is. “Wherever there is need, I think we want to be able to address that.”

What supporters say

In addition to MSHDA, local municipalities, business groups, developers and affordable housing advocates have supported the proposal, arguing the changes could make Michigan a national leader in addressing affordable housing needs.

During a recent Senate hearing on the bills, Stephen Wooden of the Grand Rapids-based housing nonprofit Dwelling Place said the proposals could expand their ability to sell more homes at lower price points and open up opportunities for other projects, including building on smaller plots in already established neighborhoods.

If the Senate bills become law, Wooden told lawmakers, “We could make scattered-site, single-family construction that’s affordably sold feasible.”

The nonprofit is currently building 42 three-bedroom homes in Southeast Grand Rapids to be sold under appraised value to target households below 120% of the area’s median income. The project got $2 million in brownfield funding, but developers estimate the project could have captured another $500,000 had the proposed legislation been in place.

Brent Forsberg, president of Okemos-based real estate company T.A. Forsberg, Inc., said the legislation “isn’t an end-all, be-all,” but rather one tool that will empower local leaders to take on housing affordability in their communities.

“I think that this is one of the great starts that can really bring the tools and bring us to the forefront in the country of what leadership is in addressing the attainability of housing,” he said.

What opponents say

During a Senate floor debate on the legislation, Sen. Lana Theis, R-Brighton, said while the bills are well-intentioned, there is “a lot of opportunity for abuse” if developers aren’t operating in good faith.

Theis said one of her other major concerns is that a developer or landlord would use the money to improve their property “and then turn around and raise rent rates, making it yet more difficult for our low-income individuals to find housing. And this time, they’d be doing it with the taxpayers’ help.”

The proposal would also likely reduce the amount of funding available for schools, as an increase in eligible redevelopment projects would decrease state and local tax revenue, according to the nonpartisan Senate Fiscal Agency. That has prompted opposition from school groups.

“While we recognize and understand the need for affordable housing in our state, we don’t want to see that housing created on the backs of the School Aid Fund and the revenue for that fund,” Jennifer Smith of the Michigan Association of School Boards told lawmakers at a March 21 committee hearing.

What’s been done, and what’s next

All four bills in the Senate package were passed 25-13 last month. They’re now before the House and would need to pass that chamber and be signed by Gov. Gretchen Whitmer to take effect.

It’s the latest effort by lawmakers, the Whitmer administration and housing officials to tackle Michigan’s affordable housing needs. MSHDA’s current goal outlined under the Statewide Housing Plan is to build or rehabilitate 75,000 housing units in the next five years, including options for affordable rentals, market-rate units and homeownership opportunities for low- and middle-income households.

In December, Whitmer signed a bipartisan bill package that, among other things, allows communities to create “attainable housing districts” and provides tax exemptions for certain residential rehabilitation projects, as well as expanding incentives for neighborhood enterprise zones to encourage more affordable housing in cities.

And early this term, Whitmer signed a $1.1 billion spending plan that included an additional $150 million to create a new gap financing program to help preserve and build affordable housing. The state recently announced funding for building nearly 700 affordable housing units across 17 projects in Michigan.

Hovey, MSHDA’s executive director, said she’s been encouraged by the interest from state-level officials in investing more in affordable housing, and said she’s hopeful more community partners will buy in over time.

“I think we’re at a crisis that is quickly becoming an emergency,” Hovey said. “We need everyone to work together. We need some more non-traditional partners to come to the table to help address the issue … we’re looking to be as creative as we possibly can.”