Welcome to the Suburbs
Twin Cities Business
July 2007
“If you could afford to live here, you’d already be home!”
Even some middle-income employees can’t afford homes near their suburban jobs, and their employers are feeling the consequences. One solution: In Chaska, companies are supporting affordable housing developments for the middle class.
By Sheila Mulrooney Eldred
Central Community Housing Trust had never broken ground on a project outside of the Twin Cities urban core until this summer – a fact that wouldn’t merit mention if the trust were just any developer of housing. But CCHT serves a special niche in the housing market, and its current work on the Clover Field Marketplace project in Chaska is significant for several reasons: for what it says about a growing gap in the economy, for the shift it represents in Chaska’s approach to economic development, and as a sign of success for some Chaska employers.
“Chaska is one of many suburban communities at risk of losing residents because of increasingly unaffordable housing prices,” CCHT said last fall when it announced a celebration of Clover Field Marketplace, a $22 million mix of retail and residential space that will be part of the city’s larger Clover Ridge development. “Local businesses are especially eager to see the stock of affordable housing increase.”
CCHT develops and manages “affordable” rental housing, a term that’s widely understood to mean housing that costs no more than 30 percent of the occupants’ gross incomes – and one that’s typically associated with urban inner cities. (To a lesser extent, CCHT works on market-rate housing; its Chaska project, for instance, comprises 117 rental units, 59 of them designated affordable for people who earn 60 percent or less of the area’s median income.) Since it started in 1986, the nonprofit trust has developed more than 1,400 units of housing for low- and moderate-income residents, virtually all in Minneapolis. A few years ago, it expanded its service area to include the whole Twin Cities region and redeveloped the Crane Ordway building in downtown St. Paul.
Then in 2003, it found a motivated partner in the City of Chaska and got involved in Clover Ridge. That might not have happened had the city not taken some heat on the topic of affordable housing from local employers. In particular, Chaska’s city leaders and Chamber of Commerce had been hearing from executives at Lake Region Manufacturing, which employs nearly 800 people at its Chaska headquarters plant and offices.
The city “enticed industry and manufacturing businesses like ours [to locate here], but it’s outpaced affordable housing,” says Kate Roehl, an executive vice president and co-owner of privately held Lake Region Manufacturing. “We spoke out and said, ‘You can’t bring in this much business without matching housing to jobs.’”
More than speaking out, Lake Region became a financial supporter of the Central Community Housing Trust. Lake Region and a handful of other local employers have become contributors to the Chaska Community Land Trust, another of the city’s affordable housing efforts in recent years.
Now, Roehl says, “Chaska is a city that I consider extremely proactive in listening to the needs of employers.”
It also might be a city at the forefront of a suburban trend to come. Central Community Housing Trust began work on a project in Roseville last year, the redevelopment of the Har Mar apartment building. And this winter, another developer, Bloomington-based Hartford Group, announced that it had closed on financing for Lakewood Apartments in Lino Lakes, a project “designed for workforce families with qualifying incomes.” Meanwhile other Twin Cities suburban communities have established land trusts similar to Chaska’s, and some of their civic and business leaders are taking steps to ensure that there’s housing stock for a range of workers and incomes in their communities.
“I don’t know that many employers are aware of this issue yet,” Roehl says – but more should be.
$18,000 Trial Periods
A household would need to earn $76,056 to comfortably afford – at no more than 30 percent of gross income – a $240,000 home, the median price in 2006 Carver County, where Chaska is located. That puts home ownership well beyond the practical or prudent reach of most hourly wage earners, even those working in skilled manufacturing jobs.
Affordability has gotten harder to come by for many people, not just in Carver County, but around the state. As the median home price in Minnesota rose 32 percent, from roughly $150,000 to more like $200,000, between 2000 and 2005, the median income fell slightly, according to the a December 2006 report from the Minnesota Housing Partnership, a nonprofit affordable housing advocacy group.
Is the problem simply that employers aren’t paying their employees enough? For its part, Lake Region Manufacturing, a 60-year-old company that’s an original-equipment and contract manufacturer of medical devices and components, says it provides a “very competitive” wage and benefits. Production workers start at $12.40 to $14.35 an hour, Roehl says, and can earn up to $19.55 an hour as they gain experience.
Nonetheless, Human Resources Director Clayton Benish says Lake Region has had difficulty attracting workers, something he first noticed a little more than a decade ago, when the company underwent an expansion and needed to ramp up its work force and about the same time that a run-up in local housing prices began. Benish knew he needed to recruit workers from Minneapolis and St. Paul, and he looked especially to communities of recent immigrants from southeast Asia and Russia; Lake Region had already had good experiences with the work ethic and skill level of immigrants from those regions, he says.
But he saw a pattern in his efforts to grow the company’s employee rolls: Either the lack of affordable housing in Chaska came up during the interview process and cut the conversation short, or “in some instances, we would be successful in attracting them for a period of time,” Benish says. But when new employees tired of their long commutes after a few months, “they would seek an area to live and find that there was no availability here for them, so then they would quit.”
The cost to the company was substantial. Because the microassembly and other production positions at Lake Region Manufacturing require skill and several months of intensive training, those employee “trials” of three or four months were happening at a price of about $17,000 to $18,000 per hire, Benish says.
Benish and Roehl made themselves fixtures at Chaska Chamber of Commerce meetings and took every opportunity to get the mayor’s ear with a message that Chaska needed to do something about its lack of affordable housing. And initially, they encountered some resistance, Benish recalls. The city wanted the jobs and tax base that came with companies like Lake Region, he says, but its citizens, who still number only about 25,000, wanted their community to stay “rural,” a place where they could feel they knew their neighbors and where there weren’t a lot of strangers around.
Roehl, too, says it took time to get their message across, and that it was good fortune that “the mayor here in Chaska – the previous mayor and the current mayor – were proponents of a healthy community. That’s something you’ll hear a lot here in Chaska these days,” she says, “that a healthy community is a place that you can live in the place you work and go to school, and you provide housing commensurate with the people working in your area.”
Trusts and Progress
Chaska eventually chose to go about that in a couple of ways. Kevin Ringwald, the city’s director of planning and development, helped form the relationship with Central Community Housing Trust that began four years ago. He says he’s watched opportunities to find affordable housing in Chaska narrow over the past 15 to 20 years, and now he sees people overcome by the prices they’re confronted with.
“They tell me, ‘Wow, it’s more expensive than I thought’,” he says. “And I’m hearing that more from middle managers. Whether it’s medical device manufacturers or teachers, if they can’t live here, eventually they’ll find another job. The longer they’re here, the stronger our companies and schools will become. And people being more connected to their community means they’ll invest more dollars and energy in it.”
What Central Community Housing Trust brought to bear in Chaska is the same public-private funding model that it’s used successfully on other projects. The trust’s housing developments are paid for mostly – about 70 or 80 percent – with private funds, explains Gina Ciganik, a vice president with the trust. Private funding is derived from a variety of sources: commercial loans; limited partner equity from investors who get federal tax credits in return for their backing of affordable housing; foundation grants; and individual and corporate donations and in-kind services.
Public money is often in the form of a loan with a long-term deferral of payments. Loans come from cities, counties, the Metropolitan Council, or the state, particularly the Minnesota Housing Finance Agency.
For Chaska’s Clover Field Marketplace project, about 23 percent of funds came from public sources and 77 percent from private sources. At the same time, the Central Community Housing Trust picked up critical ongoing support for its mission from local employers. Lake Region Manufacturing is just one of several companies that made multi-year commitments of several thousand dollars annually to the trust.
When Clover Field Marketplace opens next summer, qualified renters – those whose income is about 50 to 60 percent of the metro area’s median income of $78,500 – will be able to rent the units that are designated “affordable” for rates that range from $650 to $900 per month for a one- to three-bedroom apartment.
Ringwald is fielding so many inquiries from other communities about Clover Ridge and the mixed-use Marketplace at its core that he has to turn down many invitations to speak on the topic. He says he hopes the development, which includes a range of housing types and affordability throughout its various segments, will serve as a model not just for other cities but also other developers to bring housing of all types to Chaska.
“With an expanding work force, it was certainly needed – and there needs to be more,” Ringwald says. “We want to be equally welcoming to CEOs, middle-income workers, and those at the bottom of the pay scale.”
Another City of Chaska initiative will help in that regard: the Chaska Community Land Trust, incorporated in 2002. In essence, the trust takes land out of the home-buying equation, making home ownership feasible for buyers who are generally at 50 to 60 percent of the area’s median income by selling them only the house itself and leasing them the land the house stands on for a nominal fee of $25 or $30 a month.
Soon after it established the trust, Chaska amended it comprehensive development plan to require that 25 percent of all new housing constructed in the city be affordable, and that and additional 5 percent be “permanently affordable.” Permanence is what the trust brings, allowing not just the first homeowner but also subsequent owners to buy the house at a manageable price, while each in turn has a chance to gain some equity.
The trust sells its homes – 15 so far, with plans to add another 5 this year – at 25 percent or more below their market value. It can do that because, most often, the lots have been donated to the city by developers in exchange for expedited processing and discounted fees on their projects. In other cases, the trust has received grants from the Minnesota Housing Finance Agency, the Metropolitan Council, and other public or private sources to a buy a property.
When a trust homeowner is ready to sell and move on, that homeowner is allowed to capture 25 percent of his or her equity in the house, 100 percent of the appraised value of any improvements made to the house, plus 25 percent equity in the land – although the trust remains the deed holder on the land. The trust then goes on to sell the house to a new qualifying buyer.
Like the Central Community Housing Trust, the Chaska Community Land Trust has multi-year commitments of financial support for local employers – 10 of them, including Lake Region Manufacturing, Ridgeview Medical Center, animal feed ingredient maker Quali Tech, and high-tech materials-handling company Entegris.
“Larger businesses are willing to participate because they have bigger issues with [employee] attraction and retention, so they’re interested in trying to build a community,” says Mary Welch, executive director of the land trust. “They support long-term investment because they have a stake in it.”
Lake Region’s Benish calls the land trust “a stroke of genius.” Currently, about 32 percent of Lake Region Manufacturing’s production workers are from Minneapolis, St. Paul or inner-ring suburbs, and some have commutes of an hour or more one way. Benish says he hopes that the land trust and projects like Clover Field Marketplace will allow some of them to move closer to their jobs.
“They’re anxious to move out closer to where the plant is,” Benish says. “Often times, they indicate to us it’s more of an issue than they ever expected.”
Roehl, while definitely an advocate of the affordable rental and ownership options represented by the two trusts, says she hopes the families who rely on this help to move into Chaska can eventually move out of trust properties. “To me the ultimate is to get land and homeownership,” she says. “But if they have these steppingstones, it actually gives them hope.”
Coming Soon to a Suburb Near You?
There are signs that other communities and employers are looking for steppingstones, too. In 2001, Minnetonka – which has a median home price of $335,000 – helped create the West Hennepin Affordable Housing Land Trust, which works on the same principles as the Chaska Community Land Trust.
Minnetonka Mayor Jan Callison says the struggle to find affordable housing is not healthy for the community. Some of the people who are being priced out of Minnetonka, “those younger families with children, bring vitality to the community,” Callison says. “And more housing options give our employers a wider base of employees to draw on. And getting more people off the road helps with congestion.”
At Cummins Power Generation, a Fridley company that manufactures and services power-generating systems, President Tom Linebarger is concerned about the long commutes many of his employees are making.
“This is a problem that has an increasing – not decreasing – effect,” Linebarger says. Employees who drive 30, 40, or 50 miles to work are not only prone to more turnover, but have higher absenteeism and are more likely to arrive late and arrive tired.
When Linebarger moved to the Twin Cities from Indiana in 2003, he says he quickly learned that the traditionally urban issue of affordable housing was seeping into the suburbs, and that people who made wages in the range of Cummins’ newer factory-floor workers ($10 to $12 per hour) probably couldn’t afford to live in Fridley.
“Cummins has a basic principle to improve the communities in which we operate,” Linebarger says. “As I visited a number of agencies that we support via the United Way, it became clear to me that affordable housing is an issue that could affect a significant portion of Cummins’ work force.”
Getting hard data to support that suspicion has proven more difficult than he thought because of privacy issues. But like Roehl, Linebarger believes this is an issue that more Twin Cities employers need to educate themselves about. In house, he’s asked his human resources department to develop a way to gauge employees’ difficulties with housing so the company can create support programs targeting those problems. Beyond that, Cummins is sponsoring a study by the Amherst H. Wilder Foundation that will measure the benefits of affordable housing from a business perspective.
“Everybody says it’s a good deal,” Linebarger says. “But if you can prove a financial return, that’ll give businesses extra incentive.”
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