The “Workforce Housing” policy adopted by Traverse City, recently applied by the City and Grand Traverse County to two downtown developments, subsidizes high-end apartments that are highly unaffordable for most regional workers.
Rather than paying developers with tax breaks to support effectively market-rate developments, we should tailor “Workforce Housing” policies to increase housing that is affordable to the local workforce.
Limited and unaffordable housing is affecting everyone in our community — homebuyers and renters, workers and retirees, high-earners and gig-workers — and everyone in between. Counties, cities and townships should use all available tools to address this community need. At bottom, we need regional planning to identify priorities and develop effective strategies, resources from within and beyond to have meaningful impact, and political will to tackle this complex issue.
Different tools serve different interests. When giving out tax breaks for some taxpayers, we must ensure public benefits proportionate to the reciprocal burden imposed on the remaining taxpayers.
State law allows cities and townships to abate landlord property taxes for 15 years for “Workforce Housing” and instead collect a payment in lieu of taxes (PILOT). While the city or township sets its own policy parameters, the effect is tax abatement for all taxing entities — libraries, schools, veteran and senior services, roads and more. Only counties are empowered to capture their full operating tax, but we must act quickly (45 days after a city or township agrees to abate a landlord’s taxes) and per a policy.
This new tool is complicated, but — done right — provides an opportunity to move the needle on housing that’s affordable to our local workforce. Done wrong, it puts tax dollars in landlord pockets and subsidizes high-end rents for high-end earners. We are currently on the latter path.
Traverse City and Grand Traverse County recently used this tool to approve large tax abatements for two downtown developments: Breakwater is an existing mixed-use building on the Boardman/Ottaway River on Garland Street. Godfrey on Hall Street is a long-in-the-works development that just got back from a trip to the Michigan Supreme Court over its top 2 feet. Breakwater and Godfrey are both projects owned by for-profit developer Innovo. These apartments would make convenient downtown second homes for retirees, and the tax breaks just handed them allow exactly that.
The Traverse City “Workforce Housing” policy abates all property taxes and collects the PILOT (10% of rents) for the maximum 15 years for rentals at the top-end of the income scale. Grand Traverse County declined to modify that policy so, in effect, adopted it.
As applied to Breakwater and Godfrey, the policy saves Innovo an estimated $779,000 annually for the next 15 years, as projected by the county treasurer. Grand Traverse County declined the opportunity to collect $67,000 annually for the 15-year abatement period, which would have reduced Innovo’s estimated tax savings to $712,000 a year.
Setting the policy at the top end of the eligible income scale subsidizes rentals that are unaffordable to most local renters. Monthly rents at 120% AMI level are about $1,800 for a studio, $2,000 for a one-bedroom and $2,400 for a two-bedroom. Rents at 120% AMI are considered affordable to a single person earning more than $75,000 and a couple earning more than $86,000 annually in Grand Traverse County. A recent study confirms what most of us already know: These are rents way above what most local renters presently pay and what most local renters could afford.
These authorized rents also are effectively above-market rents. Breakwater currently lists studios for $1,450 and one-bedroom apartments for $1,850 monthly. The policy gives Innovo a tax break while letting it raise rent at Breakwater to $1,800 for studios and $2,000 for one-bedroom apartments.
Unsurprisingly, the recent housing study shows serious need in this county for rentals affordable to people earning at the lower end of income scales, with declining need as incomes increase — 10 times as many rentals needed for people earning below 80% AMI (3,091 units) as earning 80-120% AMI (288 units).
At bottom, most renters don’t earn close to 120% AMI and can’t afford apartments starting at $1,800 for a studio, and there is less need for rentals at the top of the income scale and more at the low end.
While termed “Workforce Housing,” the policy allows retirees and non-residents to rent the subsidized apartments at Breakwater and Godfrey. There is no asset or residency test. These may be convenient downtown second homes for retirees. (Anecdotally, those are in high demand.)
I proposed that the county consider a policy to capture county tax amounts unless rentals are affordable to people earning up to 100% AMI. That means rents under $1,700 for a couple earning around $72,000 annually. That proposal, if adopted, would have left most Breakwater and Godfrey taxes abated, but captured $67,000 annually for 15 years (about $1 million) for the county. The proposal was sent to committee for study, while the full Breakwater and Godfrey abatements sailed through.
Had the county enacted a policy to support more rentals in line with what local workers could afford, we would have kickstarted real action to address the acute regional rental shortage.
Had we captured, rather than abated, the additional county dollars from Breakwater and Godfrey, we might have dedicated more than $50,000 annually to a county housing trust fund for 15 years. We might have developed a realistic housing plan with attainable outcomes or distributed funds to community partners already developing affordable housing — or both.
We missed our chance with Breakwater and Godfrey. Opportunity was hidden by complexity, and that ship has sailed. But more developers are already asking for PILOTs for “Workforce Housing.”
Rather than continuing to subsidize high-rent apartments under a mislabeled “Workforce Housing” policy, the county should now align our policy to reflect what most local workers earn and can afford in rent.
Surrounding jurisdictions also might tailor their own policies to support the local workforce.