A new apartment building in Missoula's Old Sawmill District is expected to break ground next month, completing the vision of a local nonprofit that provides affordable housing in a city where affordability has long been an issue.
Despite the project’s benefits, though, one member of the Missoula City Council believes the public subsidies are too high, and that the housing no longer meets the definition of “affordable” where funding is concerned.
Last week, the City Council agreed on a 10-1 vote to purchase property in the Old Sawmill District from the Millsite Revitalization Project for $488,775.
The city will then sell the land to Homeword for $238,775. The Missoula nonprofit plans to build 26 units of affordable housing targeted at those earning 40 to 60 percent of the city’s median income, which stands at roughly $45,000 for one person.
But while Ward 2 Councilman Adam Hertz said he supports Homeword’s mission, he’s been critical of its latest project, known as Sweetgrass Commons. He believes the Old Sawmill District has been heavily subsidized, given the city’s $12 million investment to clear the former industrial site and lay the infrastructure needed for new development.
“This parcel has been subsidized already through those funds,” Hertz said of Sweetgrass Commons. “Now we’re looking to further subsidize it. Yet when it’s all said and done, this parcel is removed from the tax base, so there’s no tax revenue coming off it.”
Hertz said the public funding given to the Sawmill District came with the promise of an expanded tax base and a return on the city’s investment. As new building projects take place, they’re expected to come onto the tax rolls and help lift the entire district.
But the Homeword project is classified as a nonprofit and, as such, it can and will seek relief from paying state property taxes. Hertz suggested the cost of the project and the subsidies needed to make it pencil out went beyond his definition of affordable housing.
“I appreciate the work that Homeword does, I just differ in my view of affordable housing,” said Hertz. “I don’t believe spending $228,000 per unit is affordable by any means. It might be subsidized – that’s an appropriate word to use – but affordable is not.”
The total cost of the project, including land, is estimated at $5.9 million. Hertz said that places the value of the 26 units at just under $228,000 each. By purchasing the lot for Homeword, Hertz added, the city will spend roughly $19,000 to subsidize each unit.
“Similar multi-family land and private developers are generally seeking to spend half that,” Hertz said. “This will be used as a comparable sale and ultimately drive the cost up for multi-family land and make renting in Missoula more expensive as developers continue to develop Missoula.”
Heather McMilan, director of Homeword, disagrees with Hertz and his take on the project and its public costs. She said it’s unfair to compare market-rate projects with those under a deed restriction – a definition that brings additional costs to meet all state and federal laws.
Sweetgrass Commons must also withstand the test of time – 46 years to be exact. McMilan believes that some market-rate projects won’t last that long. She said Homeword is also beholden to its funding sources and will offer units as low as $375, well below the market rate.
The project breaks ground next month.
“There’s a maximum rent we can ask for,” she said. “We’re also obligated to promise that this will last 46 years. It’s durable and built with the right materials. It’s built in a way that’s economical for operations. Our residents will pay a fraction of what you’d pay at some market-rate developments in utility costs.”
McMilan believes that rental rates at the new facility are good for the community, given the city’s cost of housing. The median price of a Missoula home now stands at $245,000, while the median price for a two-bedroom apartment sits at roughly $700 a month.
McMilan also disputes Hertz’s claim that Sweetgrass Commons will drive up the cost of multi-family housing in Missoula. She said land values, amenities and title restrictions are all considered in appraisals.
The deed restriction, she said, will devalue Homeword’s property and will have little effect on market-rate appraisals elsewhere in the city.
“We’ll have a deed restriction saying we can only charge these rents for the next 46 years,” she said. “That appraisal is not comparable to market rates. Deed-restricted land appraises differently than market rates. Our value is less because we can only charge so much in rent.”
McMilan believes affordable housing should have been required in the Old Sawmill District from the start, given the city’s needs and the public cost of preparing the 46-acre property for future development.
Private projects slated for the district include student housing and high-end apartments. The first phase of a condominium project known as Polly’s Square is under construction, with units starting at $269,000.
“There’s a lot that’s going to be happening there, and from my understanding, none of it is actually slated to be affordable,” McMilan said. “All the public subsidies going into this site should require some deed-restricted affordable housing, or opportunities for affordable housing.”
Homeword, which also built Orchard Gardens, Fireweed Court and Equinox, has been interested in the Sawmill property for 20 years. McMilan said the Missoula Redevelopment Agency’s willingness to help subsidize the land costs creates a policy that will help nonprofits buy down the cost of property for deed-restricted housing.
“That’s the first time in Missoula and the first time in Montana, and it will be a precedent for others to use around the state to do true affordable housing,” McMillan said. “I’ve heard speculation about our cost per unit, but I would say we were one of the most competitive in the last round of tax-credit applications.”
As written in Homeword’s agreement with the city, the deed restriction will require the Sweetgrass units to be rented at a price based on Missoula’s average median income for the next 46 years.
The AMI for Missoula stands at $45,000 for a single person. Those who make 60 percent of that, or $27,400, are qualified to live at the facility. A recent market study suggests Missoula currently needs 1,700 deed-restricted units.
“This project is a drop in the bucket,” McMilan said. “But it’s an important project. It’s pretty straightforward and we’ve worked really hard to come to this point.”
Homeword has also faced criticism for choosing to build in higher-cost areas when less expensive land may be available elsewhere in the city. But McMilan said Homeword secured the lot for its Sweetgrass project at below the market rate and looks to build in the city’s core, not on its fringes.
She said the lot in the Old Sawmill District was bare, with infrastructure to the site, making it a valuable find. The cost of abatement, demolition and infrastructure won’t be an issue with the project, she said, as it has been with others.
“We should be building in the core neighborhoods, in the core of Missoula,” she said. “That’s where workforce housing should be, along those corridors so it complements the overall fabric of the city.”