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Monday, December 19, 2016

The most expensive low-income housing project... ever?

In May, we published a report on the rise of white-segregated subsidized housing in Minnesota and around the nation.  These projects, which we called Politically Opportune Subsidized Housing, or POSH, take advantage of the range of different subsidies available to private and nonprofit affordable developers. By combining Low-Income Housing Tax Credits with Historic Tax Credits and other sources of funding, developers are able to produce architecturally striking, monumental buildings that resemble luxury condominiums more than traditional affordable housing.

Typically, using housing subsidies to construct units with luxury stylings and top-flight amenities would raise eyebrows. But developers have discovered a workaround: it turns out that nobody objects too heavily to subsidized housing, if the occupants are young, childless, moderate-income, and white. In the most extreme cases, the owners of these buildings have taken advantage of a specially-created "artist housing" exemption in federal law to screen for applicants who can demonstrate a commitment to the arts.  In practice, in many buildings, this has meant screening out anyone who doesn't fit the mold of the young, white "creative" -- and letting anyone who fits the mold in, regardless of whether they actually produce any art at all.

When the report was first released, it received coverage in the New York Times, Atlantic Monthly, and American Prospect, much of which centered around the A-Mill Artist Lofts on the Minneapolis riverfront. For good reason, too: this project is enormous, spectacular, and extraordinarily expensive. It provides striking views of the river and downtown, a rooftop clubhouse and deck (fully equipped with a bar, sound system, and grills, of course), and in-house art and yoga studios. State housing occupancy data indicated that residents were more than 85 percent white -- whiter, in fact, than the residents of the wealthy surrounding neighborhood. In many ways the A-Mill is the poster child for POSH development.

But truth be told, we never quite locked down the total cost of the A-Mill. News reports were all over the map, with reported costs gradually increasing throughout the development process, from $112 million to $138 million, to $151 million, finally topping out at $170 million, which was the figure we ending up using. This put per-unit costs in the range of an astonishing $665,000 for each of the building's 251 units. It was strange, though, that we couldn't find a detailed final cost figure anywhere; usually, accurate cost figures are relatively easy to locate in city documents. Here, they were nowhere to be found.

A few weeks ago, we received from the city the final cost certification for the A-Mill, after several months in data request limbo. And it's easy to see why no one was eager to publish the final numbers. The total project cost is $180,913,145, or $720,770 per unit, far above any public estimate that we're aware of. The new data proves, conclusively, that the A-Mill is the most expensive subsidized housing project in Minnesota history, by a large margin. On a per-unit basis, it might be the most expensive publicly funded low-income housing project in history.

The cost certification also reveals the the final developer fees for the project were $28,447,819. Developers' fees are typically calculated as a percentage of project costs, so it should be little surprise they're sky-high here. This system may also create an incentive to push those costs as high as funders will allow.

If $28 million in developers' fees and a $180 million flagship project weren't enough reward for the developer, keep this in mind: while federal law typically requires 30 years of affordability for tax credit projects, it includes an escape clause that lets owners switch to market rate rents after only 15 years. Most Minnesota developers waive their ability to do so, but the A-Mill's owners have not. One can't help but wonder if Minneapolis just spent tens of millions in taxpayer money building 2030's hottest new riverfront condominium complex.

Segregation and Neighborhood Growth

A common misconception about segregation in America is that segregated neighborhoods are dense hubs where large numbers of people are clustered -- the overcrowded inner cities of the popular imagination.

The reality of segregation is very different. Segregated areas often do not teem with people, and are rarely becoming more crowded. Instead, most are emptying out. This process, which can be traced through decades of neighborhood change, has left terrible scars on the social and economic fabric of cities and their suburbs.

For a poor or moderate-income neighborhood, there are few long-run trends more alarming than a decline in density. Falling density and population typically results in declining tax base, lowered school attendance, and underfunded municipal government. In places that are poor, out-movers tend to be wealthier than those that stay, concentrating poverty.

And falling density in a neighborhood spells trouble for the surrounding areas, too. Because the overall population is growing in most regions, reduced density generally results in sprawl elsewhere.

In the city centers where segregation is often the most pronounced, population declines disrupt the tendency of a region's economy and infrastructure to cluster around a geographic center. The result is the displacement of jobs and development to the urban fringe, which not only taxes financial and environmental resources but places economic opportunity out of reach for many. City centers are economic engines for entire regions; when the centers begin to decline, the engine begins to rust or break down entirely.

Segregation helps drive an unsustainable feedback loop of neighborhood decline. When segregated neighborhoods empty out, schools and public services take a hit. The community becomes less and less attractive to existing residents and potential newcomers, leading to further population loss. The feedback loop is particularly acute in suburban cities: when a disproportionately large share of city revenues are drawn from residential property tax, the negative impacts of residential flight are amplified.

Integrated neighborhoods, by contrast, not only break this cycle, but may be able to reverse it. Integrated neighborhoods are the fastest growing of all -- in the aggregate, faster-growing than even predominantly white areas, which are often a region's most affluent. (This is illustrated in the table at the bottom of this post.) By contrast, most integrated places are neither wealthy nor impoverished -- they are, instead, middle-class boom towns where the dream of economic advancement for the working class seems to still be alive.

Longitudinal census data lets us see the deleterious effects of segregation on a large scale, across many different places. Areas that were segregated in the past have consistently become less densely populated. In this regard, they differ noticeably from more integrated places.

This is illustrated in the graph below, which displays data from approximately 33,000 census tracts in the 50 largest American cities. The horizontal axis shows a tract's racial concentration in 1980 while the vertical axis shows change in density in that tract over the next twenty years. The dividing line is at the 100 percent mark -- any tract above this point grew more dense, while any below emptied out.

Despite the huge number of data points, a racial pattern is very clear: at high levels of segregation, declines in density become far more common. In neighborhoods where segregation nears 100 percent, very sharp declines in density become much more likely than not.  Meanwhile, very few neighborhoods in this range experience any sort of rapid growth.

This trend, suggested by the graph, is confirmed by the numbers. In the least white 10 percent of tracts, population fell 11 percent and two-thirds of tracts shrank. By contrast, in the whitest 90 percent of tracts, population increased 34 percent, with two-thirds of tracts growing. This is illustrated below.

Correlation, of course, does not imply causation, and there are a variety of confounding factors at play. Most notably, segregation is highly correlated with poverty -- at times so much so that economic and racial concentration are nearly impossible to disentangle.

However, the sharp downtick in neighborhood outcomes at the most segregated end of the spectrum makes the effect of race hard to ignore. It is unlikely that this cluster of census tracts experiencing sharp decline can be explained by reference to poverty alone.

The relationship between racial composition and density is further explored in the table below, which uses the same data. Of "hypersegregated" tracts where more than 90 percent of the population was nonwhite in 1980, only 5.4 percent saw rapid growth. Even in less severely segregated tracts where between 10 and 40 percent of the population was white, 12.1 percent saw rapid growth -- and over three times as many saw a decline in density.

Although predominantly white areas did not suffer the rapid decline, they still faced a degree of stagnation. Nearly one in three became less dense between 1980 and 2000, with fewer grew rapidly.

But there was a marked increase in population density in one kind of neighborhood: integrated places where 20 to 60 percent of the population was nonwhite in 1980. Over a third of these places grew rapidly -- in fact, rapid growth was more likely than any degree of decline.

For many cities and neighborhoods, segregation has been the first step on along a road to ruin. But these places can be restored, and others protected, by the proactive and thoughtful embrace of housing integration.

Thursday, December 15, 2016


Welcome to the new blog for the Institute on Metropolitan Opportunity. Based at the University of Minnesota Law School, the Institute investigates the ways that laws, policies and practices affect development patterns in U.S. metropolitan regions, with a particular focus on civil rights and the growing social and economic disparities within regions.

Through top-level scholarship, mapping and advocacy, the Institute provides the resources that policymakers, planning officials and community organizations need to address reform in taxation, land use, housing, metropolitan governance and education.

Myron Orfield, a professor at the University of Minnesota Law School and one of the country's foremost authorities on metropolitan governance, directs the Institute on Metropolitan Opportunity, working with leading environmental and criminal justice law faculty.

This blog will be periodically updated with our observations on school, housing, and regional policy, both in Minnesota and around the nation. Stay tuned!