Minnesota lawmakers approved up to $1 billion for housing. Where is it going?
Amina Deble’s heart breaks every time she visits her elderly aunt or another Somali-American senior trying to get by in a cramped, one-bedroom Twin Cities apartment. She likens the housing units she’s seen to small prison cells.
“They take depression medicine,” said Deble, who lives with her daughter, a doctor and homeowner. “They’d love to live like other people.”
One of the key challenges confronting her community isn’t so much financial as cultural. Based on the tenets of their faith, many Muslims reject giving or receiving interest-bearing loans, referred to in Arabic as “reba,” or “exploitive gains.” In other words, traditional mortgages are culturally off-limits, though fee-based workarounds are not.
“For the Muslim community, it’s really hard for them, even if you make enough income,” said Deble, of Columbia Heights. It’s just one aspect of what many call a housing crisis in the Twin Cities.
Those challenges haven’t fallen on deaf ears at the state Capitol, where lawmakers and Gov. Tim Walz approved this year more than $1 billion in funding for a wide array of housing initiatives, on top of a new metro-wide sales tax that goes into effect on Oct. 1. The housing omnibus bill, signed into law in May by Walz, represents the largest single spending on housing in state history, and it’s in addition to housing efforts backed by the state infrastructure, bonding and tax bills.
In other words, state funding for housing programs just grew more than tenfold.
“Most of the $1 billion is one-time money,” said state Rep. Michael Howard, DFL-Richfield, chair of the House Housing Finance and Policy Committee. “That’s part of the reason why we pursued the metro-wide sales tax. That will be ongoing and provide $150 million to $200 million” annually for state housing vouchers, as well as city and county housing programs.
Among the many initiatives in the housing bill is a $10 million effort to be led by NeighborWorks Home Partners, a St. Paul-based nonprofit, which is expected to work with the Minnesota Housing Finance Agency to design a homebuying program aimed specifically at clients who adhere to the rules of Islamic finance.
Ahmed Makaraan, a constituent services coordinator with the Minnesota House DFL Caucus, said several companies in the Twin Cities offer “reba”-free loans, or fee-based workarounds instead of interest-bearing mortgages, but they often require large down payments.
“During COVID, the issue of housing was No. 1 — ‘Where can I get a loan interest-free?'” Makaraan recalled.
How it works
The hope is that opening up the housing market to more Muslim-American buyers will add up to progress for everyone — the homebuyer, the seller, the lender and everyone in between.
How that initiative will come together remains to be seen, but NeighborWorks Home Partners ran a $160,000 pilot program from 2020 to 2022 that assisted 16 families with significant down-payment assistance.
Jason Peterson, executive director of NeighborWorks, said a final contract with Minnesota Housing has yet to be signed, and it remains unclear whether the down-payment assistance will be structured as a separate zero-interest loan, or potentially as a “forgivable” loan whose principal is automatically reduced each year for five years until it disappears entirely, effectively becoming a charitable grant.
NeighborWorks hired a bilingual housing specialist just this month, and if the contract with Minnesota Housing is signed soon, the expanded program could be ready to go even before its projected start date next spring. An outreach event, held last month with state Rep. Samakab Hussein, DFL-St. Paul, at the Rondo Community Library on Dale Street, drew upwards of 40 interested families.
“We have nothing official, but likely it’s going to be at least $50,000 per down-payment loan,” Peterson said. “It’s a really large incentive to have the first mortgage providers work with us. Down-payment (costs) continue to be the biggest barrier for Twin Cities families to buy a home. We have some rather large racial disparities in our state, some of the worst in the country.”
‘Neighborhood Legacy’ programs
During a media event held this month at the offices of the Rondo Community Land Trust on St. Paul’s Selby Avenue, Howard, the state lawmaker, said some of the many initiatives to be funded by the record $1.07 billion in state housing spending will need time to be crafted from the ground up, while others are in progress and ready for expansion.
The housing omnibus bill represents an increase of $950 million from a base budget of $115 million, with an estimated $625 million continuing or expanding existing programs and $440 million launching more than 15 new programs or activities.
The Rondo Community Land Trust will receive a direct appropriation of $2 million toward its “Neighborhood Legacy” home repair and homebuying programs, which aim in part to help Black seniors remain in their existing homes within the historically Black Rondo neighborhood, as well as to draw back families who moved away.
Mikeya Griffin, executive director of the Land Trust, said the organization — which is also focusing on job creation — will offer homebuying incentives.
“We want it to be affordable, and we want to provide economic opportunities for people who come back,” she said. “It all starts functionally with housing.”
State Sen. Sandy Pappas, DFL-St. Paul, chair of the Capital Investment Committee, said her committee alone invested an additional $72 million into restoring existing public housing.
“We have 16 high-rises in St. Paul. They all are desperate for repairs,” Pappas said. “That’s the highest amount that the Capital Investment Committee has ever invested in public housing in St. Paul, Minneapolis and throughout the state.”
Major spending in housing, tax and bonding bills
When it comes to funding direct housing assistance, the state’s biggest effort was the creation of state-based housing vouchers to support renters, much like the federal Section 8 program. Between nearly $200 million from the 0.25% metro-wide sales tax and additional general fund dollars, Howard said the goal is to fund more than 5,000 vouchers statewide.
In addition, nearly $100 million will support Family Homelessness and Prevention, the state program that helps with rental and emergency assistance statewide. Spending also includes $4.5 million from the tax bill for a grant program targeted to small cities in Greater Minnesota as part of a new statewide Local Housing Aid program, which can support emergency rental assistance, existing affordable housing, new construction and homeownership opportunities.
The largest slice of the $1 billion will build and preserve more affordable homes, both multi-family and single family. That includes $200 million for housing infrastructure dollars, the state’s best source of dollars to build deeply affordable housing, Howard said. Another $4 million is geared toward lead-safe homes.
Another $100 million will go toward preserving naturally occurring affordable housing, or “NOAHs,” the state’s first significant investment in maintaining non-subsidized housing that already exists in the private market and happens to be affordable due to its age.
The state created a lower property tax rate for homes enrolled in the 4(d) program, which seeks to preserve existing, non-subsidized affordable housing through tax incentives, as well as a lower property tax rate for homes in community land trusts.
‘First Generation Down Payment Assistance’
To narrow the state’s significant racial gap in homeownership, a $100 million “First Generation Down Payment Assistance” program will be targeted to homebuyers who are the first in their family to buy a home. A study by the Minnesota Homeownership Center found that given the growing cost of renting, the biggest obstacle toward buying a first home for many was the down payment, as opposed to the monthly mortgage payments. For 100,000 renters, less than $10,500 in down-payment assistance could help them become homeowners, an important step toward the creation of generational wealth.
“Historic doesn’t even come close to talking about how big this is,” said Howard, in an interview Tuesday. “It’s so needed. It’s fantastic to finally move the needle in ways we never had before. Previous to this year, if our entire general fund budget was a jug of water, we’d been spending less than a teaspoon on housing. Hopefully, this is a gamechanger moving forward. … We’re hoping that we’ve set a new normal.”
The session’s housing efforts were not limited to spending items.
Policy changes related to tenant protections include mandating a 14-day notice prior to filing evictions, limiting eviction reporting until a judgment is rendered and expanding expungement requirements. State law now requires disclosure of non-optional fees to residential tenants, including whether utilities are included in rent, a minimum temperature of 68 degrees from Oct. 1 through April 30, and other tenant safeguards.