City Council Meeting Date: April 2, 2024
To: Honorable Mayor and City Councilors
From: Melissa Hanson, Housing Coordinator
Jake Reilly, Community Development Director
Title
Northcountry Cooperative Foundation (NCF) Update and Request.
Body
Action Requested:
The City Council will hear an update from Northcountry Cooperative Foundation’s (NCF) on activities related to the existing Memorandum of Understanding (MOU) and NCF’s request for an amendment to extend the due diligence period for a period of at least six (6) months.
Summary Report:
This agenda item has been included at the request of Mayor Pownell. The following background information is provided related to this request. Staff will provide a overview of the background information in this memo that is also provided to the HRA. They are scheduled to discuss this item at their next regular meeting on April 4th. Staff can entertain questions and comments of the Mayor or City Councilors. Questions, feedback or action of the Council would be provided by staff to the HRA for their board meeting.
Background information From HRA Memo
On November 2, 2023, the Northfield Housing and Redevelopment Authority (HRA) and NCF entered into a memorandum of understanding outlining the roles and responsibilities offered and assigned to NCF in its pursuit of a potential subdivision of the remaining HRA-owned undeveloped land in the Southbridge area. The MOU offered NCF a six-month due-diligence period to explore the financial and physical feasibility of said subdivision. The six-month period is nearing a close and NCF approached the HRA to provide an update and ask for an extension.
Table 1 shows the expectations of NCF as stated in the MOU and the status of those expectations. Sections of the MOU not directly relevant to NCF’s work are not included in the table.
Table 1: Expectations stated in MOU
Background
The HRA owns approximately 7.27 acres of undeveloped land in the Southbridge area near Spring Creek Park. Adjacent to the HRA land, the City owns additional land. The HRA has been exploring a variety of development options to create affordable, environmentally sustainable, workforce housing citywide. Alongside a goal to incorporate a single-family ownership option in the Southbridge neighborhood, the HRA has stated a desire to fill the gaps in the Northfield housing market identified in both the 2021 Northfield Housing Report (Attachment 1) and the April 2022 Housing + Education in Northfield Technical Assistance Assessment Findings (Attachment 2) report commissioned by the Northfield Promise collaborative, of which the City is a member.
NCF has developed an affordable homeownership concept that may fit what the HRA is looking for. The proposed concept would subdivide the parcel as a single-family neighborhood, with infrastructure built to City standards, using factory-built homes for the product and a resident-owner cooperative model likely handled through a common-interest-community plat as the underlying legal framework. The entire subdivision would meet or exceed requirements in the City’s Land Development Code.
NCF presented the initial concept plan at the HRA’s May 4, 2023 regular meeting. At that meeting, the HRA Board authorized staff to move forward with a non-binding, time-limited-yet-exclusive agreement that would not hold the HRA to a commitment to sell property to NCF but would offer assurances regarding site control to funding organizations, including not-for-profit funders and state and federal grantors. The HRA and NCF entered into the MOU November 2, 2023 (Attachment 3).
NCF is a 501(c)3 nonprofit organization founded in 1999 in Minneapolis. NCF’s goal is to “transform lives and communities through cooperative (co-op) enterprise.” The website states that they carry out this charge by providing technical assistance and education to cooperative organizations. Primarily, NCF provides co-op development and support services to affordable housing co-ops. Over its 20-year history, the organization has worked to create an ecosystem that supports housing co-ops through organizing and educating stakeholders about the benefits of the model and by advocating for the creation of financial and operational tools that housing co-ops need to succeed. As one of several cooperative development centers around the country, NCF delivers ongoing education, organizational development, and support to homeowners.
The concept plan, New Leaf: Housing for Workforce Families is a novel approach to affordable homeownership, long-term affordability, and sustainable, energy-efficient homes.
As part of this project design and concept, NCF is actively engaged and working with:
• FannieMae (the fiscal sponsor of the concept);
• NeighborWorks (commits to creating a lending product similar to existing products that they offer in New Hampshire, Vermont, and Maine);
• Street Front Development (a Minnesota-based developer with nearly 20-years of relevant development experience, including in sustainable energy);
• Cardo Design an urban design firm (prepared the overall site plan);
• Locus Architecture (reviewed house plans from several manufacturers to help select floorplans); and
• Tekton Engineers (prepared four foundation designs for cost evaluation).
The New Leaf concept envisions a neighborhood of 55 factory-built homes offering ownership attainable at all workforce incomes. NCF’s goal is to keep the total monthly housing cost to New Leaf homeowners to 30% of their monthly income or less. For example, a family of four with income not more than $65,000 annually, which is approximately 60% of Rice County Area Median Income (AMI), or a single person making not more than $23.15/hour, their monthly income would be $5,417. The target total monthly housing cost (home, monthly dues, and utilities) would be $1,625 or less.
The New Leaf neighborhood is proposed to be built and sited on land that is subdivided to meet a municipalities’ existing zoning code standards and supported by infrastructure built to city standards including water, wastewater, roads, sidewalks, trails, and trees. The initial concept plan as proposed in 2023 and the revised concept shared at the February 29, 2024 community housing meeting, meet Northfield-specific Land Development Code and infrastructure standards.
The HRA entered into the MOU agreement in November 2023 with the stated desire to have more information about project financing, siting of homes, house design, long-term affordability, resident-owner cooperative models, and a stated desire to have a clearer policy for the disposition of HRA-owned parcels/properties.
In order to provide additional, specific, and relevant information to decision makers and policy advisors, members of the HRA, City Council and Planning Commission, and City staff toured Schult/Clayton Homes in Redwood Falls on two separate occasions. Schult/Clayton Homes is one of several prospective Minnesota-based factory-built home manufacturers who could provide homes for the development. Schult/Clayton Homes is one of the first factory-built home manufacturers in the United States to produce homes that meet the net-zero-ready standards for manufactured homes, jointly set forth by the United States Environmental Protection Agency (EPA) and the United States Department of Housing and Urban Development (HUD) in 2021 (Attachment 4).
Separate from the recent creation of an EPA standard for a HUD-certified net-zero-ready manufactured home, in 2021 HUD updated relevant sections of the Code of Federal Regulations relating to the construction and siting of manufactured homes (Attachment 5). These updates removed some barriers to and enhanced the practicability of siting manufactured housing units, including (but not limited to) adding/amending standards for placement, for multi-level manufactured housing and for both attached and detached garages.
Staff has shared a list of the HRA, City Council, and other interested parties’ concerns about foundation and footing requirements; emergency storm shelter requirements; size, quality, durability, and environmental sustainability/energy efficiency of the home; financing structure; purchase, loan, and lender requirements/availability; and additional information about how a cooperative ownership structure for a single-family home neighborhood works with the staff and consultants at NCF. NCF has prepared responses to many of those concerns and questions and has assembled the New Leaf Neighborhood Frequently Asked Questions booklet. (Attachment 6).
Policy Context
In October 2023, Up for Growth, a national, cross-sector member network committed to solving the housing shortage and affordability crisis through data-driven research and evidence-based policy released a report called, 2023 Housing Underproduction™ in the U.S. (Attachment 7). That report details housing production in the United States, including historical information about how national, state, and local housing policies have impacted housing unit production since the 1920s, and a crisis precipitated by the Great Recession and shifts in family preferences and migration trends that was further complicated by an unexpected global pandemic. The report suggests a number of units needed to be produced - nationwide - in order to meet not just future demand, but also existing demand. It further identifies numbers of needed units by state and by sub-jurisdiction. The numbers in this report align with similar research produced by other national organization as well as local groups (with national influence) such as the Family Housing Fund and Minnesota Housing Partnership and the State of Minnesota Housing Finance Agency. At baseline, research around housing production in the US in 2021 concluded that the US needs at least 3.89 million housing units to meet existing demand. For Minnesota, that looks like 106,000 homes.
Perhaps most important to a community like Northfield is the conclusions made about rural communities and housing shortages. For example, the report notes that, “between 2019 and 2021, massive new household formation and shifting demand for lower-cost suburbs led to an 11% spike in the housing deficit of non-urban America, officially moving the center of housing
underproduction away from large coastal cities to, quite literally, everywhere else.”
Additional research by multiple organizations has identified that the current cost to produce units, especially for single-family and ownership opportunities far outstrips the ability for many working families to afford to purchase a home without significant subsidy, if at all. According to Ehlers, the City’s financial advisor, one-to-two-bedroom units in new multifamily structures must not cost more than approximately $185,000 to build (per unit, for a unit size of about 800 square feet) in order for a builder to qualify for financing. And in many communities, developers have demonstrated that they would rather pay $150,000 to $175,000 per unit into a city’s affordable housing trust fund than produce affordable units, even at an affordability level of 125 percent of area median income (AMI).
Rice County’s AMI is $93,000 and Dakota County’s is $124,300. Lenders typically consider a family or a person to be “home ready” at or above 80% of area median income, which is still considered “low income” by HUD and the US Census Bureau. Subsidies are typically available to those who make less than 125% of AMI. The most recent data produced by the Saint Paul Area Association of Realtors (whose reach includes Dakota and Rice Counties) shows that the average home sale price in their area was $380,000. New construction homes exceed that number, on average, when taken separately.
In 2023, through a direct appropriation by the state legislature, thanks to Representative Kristi Pursell’s efforts to mitigate housing shortages statewide, especially in rural communities, the City has been given $300,000 toward infrastructure for a cooperatively owned community that has factory-built homes. Additionally, the 2024 state legislature is actively reviewing an additional direct appropriation that was chief-authored by Representative Pursell. This $10 million request would establish a grant program for cities to receive up to 50% of the capital costs of public infrastructure necessary to construct a new cooperative manufactured housing development.
State and national leaders have recognized the existence and severity of the housing shortage crisis, which only continues to grow, and those organizations have similarly recognized a need for a new model for housing unit production. In fact, the Habitat for Humanity affiliate in Lacrosse, Wisconsin has become a modular and manufactured home dealer, working directly with a MN-based factory, based on the idea that offering only stick-built new construction is not necessarily a sustainable future for the national, well-known not-for-profit home producer to continue to be as successful as it has been.
Northfield has been offered a unique opportunity to work with an organization that may be able to mitigate some of the elements described above. And to work with them to create a neighborhood that meets standards expected by and worthy of all Northfielders.
Request
The HRA is being asked by NCF at their April 4, 2024 meeting to extend the Due Diligence period of the agreed MOU an additional six months. (Attachment 8) Given the original request was for one year (365 days) and the MOU was not executed until November, at which point the Community Development Director felt confident in directing staff time and resources to work with NCF to complete pre-development activities, a six-month extension would allow for the full one-year term.
NCF is requesting an amendment to the MOU to extend the timeframe to:
1. Receive and incorporate the Maxfield Research [housing] report and the City’s full housing study into our pricing and phase planning.
2. Allow the [2024 state] legislature to complete its debate of [NCF’s] funding request.
3. Commission updated and site-specific geotechnical analyses.
4. Allow city staff to evaluate how best to incorporate development plans for the neighboring Koester property.
5. Pursue funding in Minnesota Housing’s upcoming consolidated RFP this summer.
6. Engage a civil engineering firm to prepare preliminary design documents that are consistent with Northfield public works requirements.
7. Allow for the HRA to complete its disposition policy to inform next steps.
Staff has prepared an Amendment to the MOU (Attachment 9) for the HRA’s consideration.
The HRA also has the following alternative options for action at their April 4, 2024 meeting:
1. The HRA Board could choose not to extend the timeline. The MOU would then expire on Thursday, May 2, 2024.
2. The HRA Board could choose a different timeframe.
Alternative Options:
The City Council is not being asked to take any formal action but can choose to offer informal guidance to the HRA or take an official stance in advance of the April 4, 2024 HRA meeting.
Financial Impacts:
Complete financial impacts are to be determined.
Tentative Timelines:
Timelines are to be determined.