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A look over time at the affordability squeeze of downtown’s development

by HPR Contributor | .(JavaScript must be enabled to view this email address) | News | April 3rd, 2019

Design by Raul Gomez

By Meg Luther Lindholm

It’s no secret to anyone who has lived or worked in downtown Fargo for a long time that the area has changed dramatically – and not always for the better.

There’s no question that downtown badly needed a facelift which it has now with new shops, restaurants, bars, and businesses aligned on and around Broadway. Many recent graduates of the area’s colleges now choose to stay rather than leave, working at startup companies and taking jobs in the area’s thriving economy. And construction is flourishing, as new buildings sprout up seemingly overnight. It’s hard not to feel a small thrill looking up at cranes moving large concrete slabs into what will soon be Block 9 – Fargo’s newest quasi skyscraper.

Yet, all this new development is displacing many people who have long called downtown home.

Lynn Fundingsland witnessed the renaissance of downtown over his 18-year career as Director of the Fargo Housing Authority. When he first started the job in 2000, affordable apartments downtown were plentiful – mostly because no one else wanted to live there. This was before the Donaldson Hotel was the Hotel Donaldson. In its previous incarnation, the Donaldson Hotel was essentially a flop house. Same with the Fargoan, across from the Fargo Theater, and many other buildings that back in the early aughts were old and falling apart.

“A lot of these buildings were built in, you know, turn of the century or in the 20s and 30s and 40s, they're old,” Fundingsland said. Most of the tenants in the city’s downtown during this pre-gentrified era were low income. Some were homeless. “In the wintertime three or four would rent one of those units for the winterand you know you had three guys in a one bedroomor a no bedroom apartment with the bathroom down the hall,” Fundingsland says. “You could get an apartment for 300 bucks. where you're going to get that these days? Nowhere.” 

Today, the HoDo is a flourishing hotel, thanks to its restoration by Karen Stoker. The Fargoan also got a makeover and now consists of upscale condos.

Greg Danz encountered the same desolate, seedy atmosphere when he opened Zandbroz Variety in 1991. Danz chose Broadway as the home for his business because he saw downtown’s great potential. His vision was of an economically diverse mix of students, middle income and high-end people that moving into the area. To that end, he got involved in civic improvement projects like the Broadway Streetscape Project which installed benches, ornamental fences, decorative brick pavers and flower baskets along Broadway.

Yet the economic mix of people who can afford to live downtown is now skewing towards higher income residents. Many people on the lower end of the economic scale have been pushed out by rising rents they can no longer afford.

The fact that low-income people have always lived downtown isn’t what justifies maintaining a quality supply of affordable housing. It’s that for low-income people “being able to walk to the grocery store or the doctor’s office is important,” Fundingsland said.

Even when downtown rents were far less than they are today – there were always lines of people seeking housing assistance from the Fargo Housing Authority. The FHA manages several public housing buildings. Yet, the primary form of rental assistance comes in the form of federally subsidized rent vouchers. These vouchers, funded by the Federal Housing and Urban Development program (HUD), make up the difference between what landlords charge and what tenants can afford to pay. A person must fall within specific income guidelines to qualify for rent vouchers. Federal caps on these subsidies have reduced the number of vouchers available. Yet the need has never been greater.

According to Fundingsland, back in 2000, there were approximately 500 people on the waiting list for HUD rent vouchers. Today, according to Tara, the FHA’s current eligibility specialist, there are 3000 people on the waitlist with an estimated wait time of four years. 

“We only get so many vouchers from HUD, so until someone comes off the program, we can’t give any (rent vouchers) out," she said.

There are also growing numbers of people who earn too much to qualify for rent subsidies but who don’t earn enough to live downtown.

“If you'rea bank teller or in any kind of entry-level job you aren't eligible to live in the subsidized housing, which is all that’s left for real affordable housing in the downtown. All the new development is much higher rents, so it forces the entry-level workers out,” Fundingsland said.

Greg Danz extends this concern to people who rent retail space. “If you look downtown, there are more independently-owned and women-owned businesses than anywhere else. That’s part of what has made downtown successful. Downtown has always been the place for independent, creative businesses. I don’t want them priced out,” Danz said.

The downtown vision Danz hopes never to see is of an area filled with nothing but corporate franchises. And he says this is already starting to happen as stores like Insomnia Cookies, a corporate chain store, move in. “Franchises have no interest in going into areas that have to be developed,” Danz said. “Franchises want to come in when it’s already a vibrant area.”

Property values are at an all-time high, Danz says, which puts pressure on commercial rents because when property owners have to pay more in taxes, they have to raise their rents accordingly. As a commercial property owner, Danz has watched his property tax go up every year, usually by a moderate five to eight percent.

But last year was different. “In the twenty-five years we’ve been here there hasn’t ever been a year when taxes haven’t gone up - but last year in 2018, my property taxes went up 80 percent more than in 2017.”

One approach favored by some affordable housing advocates, including former City Commissioner Mike Williams, is offering tax breaks to developers in exchange for creating a percentage of units of affordable housing. 

“I have suggested that when there is a public incentive for mixed-use projects that twenty percent of the residential units be set at a rate that is affordable according to HUD standards," Williams said. "I’ve seen this in cities I’ve visited like Austin Texas.”

Fundingsland doesn’t think downtown’s developers should be required to provide affordable housing. But he sees a dilemma between the competing needs of developers to make a profit and the needs of people who need affordable housing but can’t find it.

Fundingsland, Williams and other civic leaders are working together on ways to provide more affordable housing and retail in the downtown area – where stores, clinics and other services are within walking distance or are an easy bus ride away.

One approach involves creating Community Land Trusts in which the city of Fargo owns the land on which affordable homes sit - thus allowing home ownership to qualified buyers at lower prices. A person can buy a home, fix it up and resell it for a degree of profit, determined by the Community land Trust. But the city retains ownership of the land.

The other strategy involves creating Community Real Estate Investment Trusts (REITs for Good) to create capital for the construction of affordable housing and retail. “These generate working capital by greatly broadening the pool of potential community focused investors that want to see their money helping improve the community,” Williams said. 

This is done by lowering the amount required to participate. People who invest in these funds receive a rate of return that is lower than what market rate housing REITs offer. This allows developers to build housing and retail at a lower cost and sell or rent at a lower cost since they don’t have to provide a higher or market rate of return to investors.

Those engaged in these affordable housing efforts see light at the end of the tunnel in creating the economic inclusivity that they feel downtown shouldn’t lose.

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