Rising construction costs almost derailed the creation of nearly 500 units of housing units in Detroit, but a tranche of federal tax incentives will help keep them on track.
City and state officials alongside developers Wednesday announced that Detroit received $12.1 million in Low Income Housing Tax Credits, also known as LIHTC, from the Michigan State Housing Development Authority to support six housing developments in the city.
Without the aid, those projects were at risk of pausing or reducing the number of income-based units, officials and developers said. Some of the developments previously received the LIHTC award.
“If you go back and look at the construction costs when the projects were originally underwritten, and you look at when they started, the graph looks like a hockey stick and it just goes through the roof,” said Mike Essian, vice president of American Community Developers, which is building one such project, the Brush Watson project in Brush Park.
The American Community Developers faced high costs, material delays and supply chain hiccups, Essian said.
Half of the 300 units at Brush Watson are set aside for rents starting out as low as $500 a month, the lowest price point, he said. The multiphase project is slated to wrap up by the end of this year and 2023. The schedule had gotten pushed back by about a year.
Brush Watson received roughly $3.8 million in the low income housing tax credits.
The increase in construction costs were about $3 million for each building and the LIHTC award allows American Community Developers to increase the amount of equity and is key to maintaining affordability, Essian said.
“When the costs started to rise, (the developers) weren’t going to be able to afford to do the low-income housing. They were gonna have to go to market-rate housing, and we would have had another very expensive project in the city,” Detroit Mayor Mike Duggan said.
Amin Irving, president and CEO of Ginosko Development Company — which is building a project at 7580 E. Jefferson where 150 units will be reserved for a one person household earning $37,620 or less — said his company is looking to break ground in September. His project got $2 million low income housing tax credits.
Irving said timelines for housing projects are based on construction costs, getting materials in on time and interest rate risks.
Chad Benson, MSHDA rental development director, has seen the same thing.
“Over the course of the last year or two years, we’ve seen a lot of rising construction costs,” Benson said. “We’ve seen issues with the supply chain companies causing delays and increases in costs. We’ve seen rising interest rates that’s been a challenge in terms of bringing that housing to fruition.”
The cost of building materials rose 20% year over year and 33% since the start of the COVID-19 pandemic, according to an April analysis of Bureau of Labor statistics by the National Home Builders Association.
Fannie Mae also reported that a combination of rising material prices, land prices and higher labor costs have hit multifamily developments.
Four other Detroit-based projects received the low income housing tax credits. Among them:
Anchor at Mariners Inn: The development received roughly $1.4 million in MSHDA tax credits. Forty-four of the units will be permanent supportive housing for formerly homeless residents and is expected to break ground by the end of the year.
La Joya Gardens: Slated to begin construction later this year, the southwest Detroit project got $876,474 in tax incentives. Forty-two of the 53 units will be for a one person household making as low as $25,080.
Left Field: The project at the former Tiger Stadium got about $3.4 million in tax credits and may break ground next month.
The Ruth Ellis Clairmount Center: The 42-unit development for at-risk LGBTQ youth received $691,900 in tax credits and is on deck to open up this fall.
More than 40% of the 486 units supported by the tax credits, across the projects, are for a one-person household making up to $31,350 or a family of four bringing in $44,750, said Kelly Vickers, chief development and investment officer for the city’s housing and revitalization department.
‘”Over 100 of the units will be available to Detroiters who have next to no income at all,” Vickers said.
The federal LIHTC program is meant to spur and preserve affordable rental housing. Under the incentive, developers can claim a credit against their tax liability each year for a decade, according to MSHDA.
Last week, the city announced that four projects, including a former Catholic school, received $38 million in federal low-income housing tax credits over 10 years. The tax incentive will help create 183 units of housing, with rent prices ranging from $470 to $940 a month for a one-bedroom.
“We’ll probably have to knock on the doors of our MSHDA partners again … and see how they can help for other projects that are in the pipeline,” said Donald Rencher, group executive of Planning, Housing and Development.
Affordable housing is an ongoing concern in Detroit.
Roughly one third of Detroiters missed at least one housing payment in the past year and about 39,000 households are spending more than half of their income on rent and mortgages, according to a May survey of city residents done by the University of Michigan late last year.
That amount exceeds what the federal government considers affordable. The U.S. Department of Housing and Urban Development says that families spending more than 30% of their income on rent and utilities may have trouble paying other bills, whether that’s food or medical care.
“We know that people deserve to lay their head at night in a place that is safe, that is clean and that is truly affordable,” Detroit City Council President Mary Sheffield said.