Council Approves Affordable Housing Set-Aside, Offers Developers Olive Branch

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Flaherty & Collins is proposing a 12-story apartment tower for a parking lot immediately west of the City Market. (Rendering by KEM Studio)

By Kevin Collison

The City Council approved an affordable housing set-aside mandate for projects receiving tax incentives Thursday, but also offered an olive branch to developers who warn it could sabotage further investment in the city.

The ordinance by Councilwoman Melissa Robinson will require developers who receive tax incentives such as property tax abatements and sales tax exemptions to set aside 10 percent of their apartments as affordable and another 10 percent as “extremely” affordable.

Council members said the ordinance, which was approved unanimously, was a long overdue measure to help address the affordable housing needs in the city.

“There have been dedicated affordable housing advocates who’ve asked for the city to have a stronger commitment to the provision of affordable housing,” Mayor Quinton Lucas said.

“I want to commend them for the ongoing work they’ve done and the work they’ll continue to do.”

But developers say they were not given adequate opportunity to participate. They believe the set-aside requirement, particularly the extremely affordable, would make projects financially unfeasible.

An amendment to the affordable housing set-aside requirement exempts historic renovation projects like this one underway at West Bottoms Flats.

Affordable was defined as a household with an income at or below 70 percent of the Metro Kansas City median family income (MFI), according the the U.S. Housing and Urban Development Department. Extremely affordable was defined as 30 percent of MFI.

Development attorney David Frantze estimated that under the new ordinance, maximum monthly rents developers could charge for an affordable apartment would be $853 for a studio, $990 for a one-bedroom and $1,091 for a two-bedroom.

To meet the extremely affordable standard, maximum monthly rents would be $252 for a studio, $302 for a one-bedroom and $317 for a two-bedroom.

In arriving at his estimates, Frantze included utilities. The new Council ordinance mandates the combined cost of rent and utilities take up no more than 30 percent of the tenants income.

“Creating a system that takes a low developer rate of return and decreases it even further will not drive the creation of additional affordable housing,” Frantze wrote the Council.

“The result of implementing the current ordinance proposal will be that developers…will stop building multi-family housing in Kansas City.”

Gib Kerr, a broker with Cushman & Wakefield, wrote Council members the prospect of the ordinance prompted a developer he was working with to abruptly drop a plan this week for a $30 million downtown apartment project.

“How many projects like this have we already lost?” Kerr wrote the Council. “How many more will we lose?

“What good does it do for our city to chase away developers? They have plenty of options and are happy to take their money and develop in North Kansas City, Lee’s Summit, Kansas or elsewhere.”

Other developers including Block Real Estate Services and CBC Real Estate Group also told the Council similar stories about apartment projects that would either be put on hold or built outside the city.

But in the run up to the vote, Council members received dozens of letters in support of the legislation, many of them using the same boilerpoint argument.

CBC Real Estate Group, the developer of the proposed Third and Grand apartment project, has expressed concerns about the new affordable set-aside and its affect on its financial viability. (Rendering from 3G Development)

“Currently, it takes $18.81 per hour or an annual salary of $39,120 to meet the minimum market rate rent requirements in Kansas City,” the letters stated.

“This reality leaves essential workers like those working in food services, at grocery stores and in health care support unable to afford decent housing or leaves them heavily cost burdened (spending more than 30- to 50 percent of their income on housing costs) in doing so.”

In a compromise amendment intended to address developer concerns, Lucas proposed delaying the effective date of the affordable housing ordinance by 60 days to allow more discussion.

He said the delay “reinforced the Council can consider alternative means of providing extremely affordable housing opportunities.”

The amendment, which was approved unanimously, also exempted apartment developments from the ordinance that receive state low-income housing tax credits (LIHTC) and projects involving the renovation of historic buildings.

It also grandfathered projects that already have applied for incentives if they receive their award within three years of the effective date the ordinance goes into law.

Attorneys representing developers welcomed the exemption of LIHTC projects and historic rehab projects, and believed the additional 60 days may be an opportunity to resolve the thorny issue of the extremely affordable set-aside.

“I hope this signals people realize there is a problem and we need to work through it,” Frantze said. “It will hopefully lead to a collaborative approach to fix the problem.”

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2 COMMENTS

  1. Under the new rent control rule, the city may need to increase the amount of abatements and exemptions available for developers to get them to build affordable units. It may end up being a trade off between affordable housing and tax receipts.

  2. yep the affordable is attainable – barely but the extreme is NOT. Two part disharmony in that midwest wages are very low while construction costs are correspondingly not. Second are the other “hooks” that come with incentives in prevailing wages, etc – i.e. mandates on union, worker types or non-market forces that exacerbates the construction costs even more. Drop the hooks, reduce unit sizes, reduce the % of units required and maybe it gets closer. Taxes are already burdensome enough in the core and will push developers to JOCO or further. Fear is also that this backfires and results in crappy construction, crappy design, materials, etc for those that care more about their product/contribution. KCMO is digging a hole; perhaps this might work better where land is cheaper, need is higher?

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