An initiative to spur the development of affordable housing in Tempe has generated millions in contributions and pledges in its first year.
Tempe has used the money to jumpstart work on several parcels where developers will build as many as 390 affordable apartments and homes, and to purchase more properties.
The Hometown for All initiative, which the City Council approved in January 2020, funnels a portion of city permit fees to a dedicated fund to accelerate the creation of housing for lower-income earners. Developers can contribute to the fund, too.
About $6.1 million went to the fund as of Dec. 31: nearly $2.5 million in cash from permits and developer contributions and $3.6 million in pledges from developers and expected revenues from the sale of city land. City housing staffers expect the rest of the cash to trickle in throughout the year as construction projects move through the development process.
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The initiative came about after city leaders acknowledged using one-time money and partnering with nonprofits to develop affordable housing wasn’t enough to meet future housing needs. A city-funded housing study last spring found that Tempe has become less affordable over the last few years and that the city needs an additional 11,500 rental and owner-occupied units for the city’s lowest-income earners.
‘We have to find solutions’
Cities across metro Phoenix are grappling with how to increase the affordable housing stock as rising costs and loss of existing cheaper homes puts a squeeze on renters and homebuyers. The COVID-19 pandemic heightened the need for more housing options as evictions rose because of job losses and as moratoriums on rent and mortgage payments ended, said LeVon Lamy, Tempe’s deputy human services director, who oversees housing.
But local elected leaders often say efforts to develop affordable housing are hamstrung by state laws. State law prohibits cities from requiring developers to limit rent prices or set aside units in a project as affordable unless developers are asking for a financial incentive.
Mayor Corey Woods, who spearheaded the creation of the fund, said residents rank affordability as one of the most pressing issues affecting the city.
Tempe had just 35 affordable and workforce homes and apartments units under construction or in planning as of the end of January. The initiative puts the onus on the city to create affordable housing rather than relying on developers to bring affordable projects to the city, Woods said.
“As leaders, we have to find creative ways to address the issues that our residents have told us are challenges,” he said. “We can’t just blame state preemption or talk about how our hands are tied, we have to find solutions.”
Hometown for All funnels 50% of building permit fees from all construction projects into the housing pot.
The fees are expected to generate upward of $2 million each fiscal year for the fund, though that could fluctuate based on construction trends, and the city will make one-time payments into the fund each year.
The city brought in more than $4.3 million in building permit fees during the 2020-2021 fiscal year that ended June 30 and $1.8 million in the first six months of the current fiscal year, according to the city.
Developers contribute to the funds, too
Developers also play a role.
Under Hometown for All, the city suggests developers contribute 20% of the total cost of permitting fees for residential projects and 10% for commercial or industrial projects.
The developer of a market-rate apartment going up near Rio Salado Parkway and Smith Road contributed $125,000, and developers behind several other projects have pledged anywhere from $70,000 up to $331,000.
Lamy and Woods said the city received or anticipated receiving nearly $6 million in the first six months, largely from developers, exceeding expectations.
“We estimated it would generate $2 to $4 million annually but this has shown the program works and has clearly been a success,” Woods said.
The amount of money coming in has slowed since, but the city is having conversations with developers and expects to see a steady stream of funds, Lamy said.
What does the money pay for?
Money in the housing fund can be used to:
Purchase land that will be developed into affordable and workforce housing.
Purchase existing properties to be converted to or preserved as affordable and workforce housing.
Redevelop city-owned properties.
Expand home ownership opportunities by providing down payment assistance to lower-income earners.
Incentivize developers to include affordable and workforce housing in their projects by offering financial incentives through a process where the city puts out a notice of funding availability in exchange for certain public benefits.
Tempe has used the money to conduct environmental and archaeological assessments and other site work to get five mostly city-owned parcels on a stretch of Apache Boulevard ready for construction. The cost of that work, which is expensive, can often be a deterrent to developing affordable housing, Lamy said.
The city bought a vacant lot near Escalante Park, and the city plans to put out a call to developers who would turn the property into permanently affordable homes through the creation of a community land trust.
Part of the money was used to buy a single-family home that the city’s nonprofit housing affiliate operates as an income-based rental available to families that don’t have a housing voucher or qualify for other income-based assistance.
Changing relationship with developers
The initiative has changed the city’s interactions with developers.
Woods and Lamy said the initiative made the process more transparent and collaborative.
“This has changed the paradigm,” Woods said.
Prior to the program, developers sometimes voluntarily contributed to city arts and public transportation efforts when they asked for a sweetened deal but there were no guidelines. Discussions about how developers could incorporate affordable housing into projects often went nowhere.
Lamy said when he and staff would talk to developers about building affordable housing “they tended to look at me like I had three heads and seven eyes.”
Building affordable housing doesn’t necessarily pencil out financially for developers, especially amid soaring land prices.
Those conversations have changed in the last year, he said.
The city’s commitment to use permit fees to grow the affordable housing stock showed developers the city was serious about addressing the issue, Lamy said.
Developers have been more open to working with the city on how to incorporate affordable units into their projects or contributing financially to the effort, and those conversations are happening earlier in the development process now, he said.
“It’s not just big brother telling them you should build affordable housing but we now have skin in the game. That entire conversation with developers changed,” he said. “It completely changed from an adversarial relationship to how can we make it work in partnership.”
What’s next for housing efforts
Tempe plans to continue growing the fund in 2022.
City permit fees will be deposited in the summer, and elected leaders and housing staff are working with developers as they shop around their projects to get more pledges.
The city will leverage money from the fund and revenue from the city’s nonprofit housing affiliate to increase the number of affordable and workforce homes the affiliate owns and manages. The affiliate now owns 60 units and manages 102.
Lamy plans to add to that by focusing on buying and preserving existing housing. The city will move away from purchasing single-family homes, which have become expensive, and look to buy duplexes, triplexes and small apartment complexes that are a better bargain and can help serve more residents.
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The city also is looking to policy changes that could help create more housing options.
The City Council earlier this month adopted a formula for calculating public benefits when developers ask for financial incentives or when they seek to lease or purchase city property. The city will use the formula to ask developers to set aside a number of units as affordable and workforce housing for a set timeframe equal to the tax breaks or other financial help the developer seeks.
The council also approved a measure that would allow the city to initiate an up-zoning process on properties where the city would like to see more density, even if there isn’t a development proposed on the land. City staffers hope it could address housing demands by increasing supply and in turn bringing down housing prices.
The Hometown for All initiative isn’t the only expenditures the city is making to grow its affordable housing supply.
Long-term, Tempe plans to redevelop the 40-room Rodeway Inn into affordable housing for permanent residents. For now, the city is using the property to provide transitional housing for people experiencing homelessness.
City officials would like to expand this model with federal and grant funds; acquiring more motels to address emergency housing needs upfront and later turning the properties into long-term housing for lower-income earners, Lamy said.
City staffers also are looking at next steps for the Food City plaza on Apache Boulevard that the city purchased for $10.7 million in December. The city needs to assess the building’s condition to determine whether it can be renovated into affordable apartments or razed and rebuilt into affordable apartments.
The city used other funds to purchase the motel and Food City, but Hometown for All funds could go toward redeveloping the properties in the future, Lamy said.
Reach reporter Paulina Pineda at firstname.lastname@example.org or 480-389-9637. Follow her on Twitter @paulinapineda22.
AUTHOR: Paulina Pineda