We suggest that Minvilla’s per-unit cost is reasonable, and that there are several other ways to look at that per-unit cost and at the complementary relationship between historic preservation and affordable housing.

Mixed marriages make sense for some projects

It is not at all uncommon to combine historic preservation and affordable housing. Companies actually specialize in it. There are numerous examples of historic + LIHTC (Low-Income Housing Tax Credit) projects, several in the Carolinas and Georgia in particular.

The marriage of historic preservation and affordable housing can make good sense. Often historic properties like Minvilla have been abandoned and/or neglected for years. Due to their deteriorated condition, they are too expensive to develop as typical market-rate projects.

• That’s why no private for-profit developer ever came forward with a viable redevelopment plan for Minvilla prior to its purchase by VMC.
• It’s why no such developer has come forward inquiring about purchasing and redeveloping the property since its purchase by VMC.
• It’s also why no such developer would be able to make a market-rate project work at Minvilla in our present economic environment.

The historic tax credits and low-income housing tax credits provide access to equity for difficult-to-develop projects like Minvilla. Qualification for and sale of the tax credits is what makes these challenging projects possible. The equity is only obtainable because of the building’s historic character and the project’s designated use as affordable housing.

80% of the funding for Minvilla is specific to this particular project. The money cannot simply be transferred to another project. The tax credits and grants are competitive and they were awarded solely to Minvilla based on the merits of the project.

With this funding comes an extra measure of accountability. Minvilla was required to undergo a “Subsidy Layering Review” because of its federal sources of funds. That review examined cost per unit and other factors to determine that the project was financially feasible and not over-subsidized.

Approximately $123,000 per unit will not be the typical cost to develop permanent supportive housing for the Ten-Year Plan. But Minvilla is not an either/or proposition. As we’ve discussed elsewhere, we will develop Minvilla and simultaneously pursue other, less expensive PSH options.

Benefit: Public money saved over time

The amount of public money saved over time by ending the chronic homelessness of Minvilla’s residents will greatly exceed the amount of public money invested in Minvilla. Remember, each of these residents, if they continued living on the streets, would cost our community somewhere around $40,000 per year in 2008.

What if we reduce that figure by 25%, or $10,000 per year per resident? Our community would save $570,000 per year a result of Minvilla operating at full occupancy. Over the 15-year minimum time period that the building would be committed to this use, its residents would cost the community over $8.5 million dollars less than they would if they kept living on the streets.

Pretty amazing, but is it real? Well, no. It’s probably too conservative, and it’s purely hypothetical.

The Denver Housing First Collaborative released a cost benefit analysis in December 2006.

The Cost Benefit Analysis focused on examining the actual health and emergency service records of a sample of participants of the DHFC for the 24 month period prior to entering the program and the 24 month period after entering the program. … The findings document an overall reduction in emergency services costs for the sample group. The total emergency related costs for the sample group declined by 72.95 percent, or nearly $600,000 in the 24 months of participation in the DHFC program compared with the 24 months prior to entry in the program. The total emergency cost savings averaged $31,545 per participant.

This study demonstrates one of the main benefits of permanent supportive housing like Minvilla, which is its return on investment in the form of cost savings. The Denver study plays out over four years. Click on the graphic to the left to see a revealing before and after picture of the effects of permanent supportive housing on costs to community emergency services systems. The light blue bars represent costs during the 24 months prior to entry into PSH. During this time, subjects were living on the streets and were heavy consumers of emergency services. The purple bars represent costs during the 24 months after the same individuals were housed. During this time, their utilization of emergency services fell drastically.

At the same time, their quality of life improved. The Denver Study also demonstrates significant improvement in the health of its subjects. The study also points out that

…the overall quality of life for the community can be significantly improved as the
negative impacts of individuals living and sleeping on the streets are reduced.

Click here if you’d like a copy of the entire study.

Private investment and cost compared to similar projects

Minvilla’s projected cost of approximately $123,000 per unit is actually at the lower end of the cost scale compared to other historic preservation projects used as permanent supportive housing.

Are historic-affordable projects expensive compared to new construction? They are. But they are invariably funded by the same sorts of funding: low-income housing tax credits, historic tax credits, Federal Home Loan Bank Affordable Housing Program funds, etc. These funding sources represent significant private investment via purchase of tax credits and direct grants. These investments come precisely because they will help to fund historic rehab into affordable housing. They also generate community development.

It costs money to generate this level of investment. Tax credit projects incur more legal, accounting and transactional fees than traditional development. However, these expenses are necessary to qualify for the tax credits and, in fact, the additional expenses themselves generate more tax credits.

Additional cost is also incurred by retaining the building’s historic character, but again, the private equity generated by doing that far outweighs the added expense. The real cause for Minvilla’s unusually high expense is the poor physical condition of the building, not its historic status.

Expensive isn’t the same as extravagant. Precisely because Minvilla is affordable housing, it’s apartments will not be “gold plated” units, contrary to what some have suggested. The units will actually be quite modest in size and finish. The project’s expense is related to

• bringing a severely neglected property back up to code and
• adapting 13 townhomes into 57 one-bedroom and efficiency apartments with their individual kitchens, baths, plumbing, electrical, mechanical, etc.

Furthermore, these investments will be made somewhere. It seems wise to bring their advantages to our community. All of Tennessee’s Low-Income Housing Tax Credits will be allocated to build affordable housing somewhere in our state. Why not bring that $2,300,000 investment here? The same is true for the $1,000,000 that will be generated by the sale of Historic Tax Credits. Who here doesn’t want to see that investment made in Knoxville? The Federal Home Loan Bank will invest its $500,000 to stimulate some local economy somewhere as it constructs an affordable housing project. We want to see that money used to preserve historic property in our community as it provides jobs for the people who will do the work necessary to preserve it, and as it provides permanent supportive housing for our neighbors who need it.

Finally, when you look at other projects comparable to Minvilla, you see that its cost is reasonable in its proper context. You might debate whether or not public investment of any kind should be used to preserve historic property or build affordable housing, but those are arguments that have already been resolved in favor of preservation and housing.

Some concrete examples are listed below.

Project Name: Ohio Avenue Commons
Location: Dayton, OH
Total cost: $4,000,000
Number of units: 27
Cost per unit: $166,666

Project Name: St. Barnabas Apartments
Location: Minneapolis, MN
Total cost: $7,400,000
Number of units: 52
Cost per unit: $142,307

Project Name: Nantucket Lofts
Location: Kinston, NC
Date started: 2005
Total cost: $5,100,000
Number of units: 28
Cost per unit: $182,143
2008 cost per unit: $210,853

Project Name: Courtyard at Highland Park
Location: Rock Hill, SC
Date started: 2006
Total cost: $13,200,000
Number of units: 116
Cost per unit: $113,793
2008 cost per unit: $125,457

Project Name: Cleveland School
Location: Clayton, NC
Date started: 2005
Total cost: $3,500,000
Number of units: 25
Cost per unit: $140,000
2008 cost per unit: $162,068

Project Name: Lassiter Square
Location: Madison, NC
Total cost: $4,500,000
Number of units: 36
Cost per unit: $125,000

Project Name: Pacific Hotel
Location: Seattle, WA
Date started: 1992
Date completed: 1995
Total cost: $8,534,694
Number of units: 112
Cost per unit: $76,202
2008 cost per unit: $143,690

Project Name: Shelly School Apartments
Location: West York, PA
Date started: 1997
Date completed: 2001
Total cost: $1,884,700
Number of units: 17
Cost per unit: $110,865
2008 cost per unit: $155,998

Project Name: Northern Hotel
Location: Fort Collins, CO
Date started: 1998
Date completed: 2001
Total cost: $11,691,725
Number of units: 47
Cost per unit: $226,631
2008 cost per unit: $318,893

Project Name: Van Allen Apartments
Location: Clinton, IA
Date started: 2000
Date completed: 2003
Total cost: $3,180,706
Number of units: 25
Cost per unit: $127,228
2008 cost per unit: $162,379

These are fair questions. Minvilla is expensive compared to new construction for a comparable use. Its expense is mostly due to several years of neglect by previous owners, neglect which led to its deteriorated condition; the unique challenges posed by the changes the structure will undergo as it’s adapted for its new use; and certain requirements related to the historic character of the building. Those additional costs are more than absorbed by the considerable equity made possible only by historic designation, but even so, some people ask, “Why not take the money going towards Minvilla and put it towards more, cheaper, readily-available units?”

Here’s why:

• The City wants to preserve Minvilla. VMC brought forward the only viable approach to doing that in approximately three years on the market. Other developers tried and failed to make their numbers work, but VMC’s project made preservation a real possibility.
• Minvilla Manor serves two purposes, not just one: historic preservation AND permanent supportive housing. The community had a strong enough desire to save this building that City Council voted to approve a significant CDBG grant for its preservation, and to the best of our knowledge, that was before VMC was in the picture. Rehabbing the building for use as PSH enabled access to more than $2,000,000 of funding that would not have been available for any use other than affordable housing.
• Most of the funds aren’t portable. Minvilla’s total project cost is right around $7,000,000. You can’t spend most of that money elsewhere. About 80% of it is tied specifically to the Minvilla Manor project, and the funding that’s most firmly attached is some of the most challenging to get in the first place. Click here for a PDF version of a table that compares dedicated versus portable funds in Minvilla’s financing.
• We DO look at lower-cost properties than Minvilla. Frankly, that’s pretty easy to do, because Minvilla is unique. Some people in the community have suggested specific properties. We’ve approached several different owners concerning several existing properties that we think might be appropriate for PSH, but we have not been able to come to terms with any of them yet. Keep in mind, too, that the simple fact that an apartment complex is super-cheap does not mean that it’s suitable for permanent supportive housing.
• We need to grow our capacity to deliver good case management. This is important. If we acquire a large number of PSH units and place residents in them before we have built a good case management infrastructure and assured its funding going forward, those residents will fail. They will not remain housed. This is why “housing more people sooner” won’t work. In PSH, housing and support are linked. You don’t have PSH without housing, and you don’t have it without case management. The case manager relationship is essential to a resident’s success in housing, and that is one reason PSH has to be developed at a pace that makes sense.

Does all this mean that Minvilla serves as a model for future PSH projects in Knoxville? No. When it’s completed, we believe Minvilla will be a great project, a symbol of our community’s commitment to ending chronic homelessness, a beautiful historic anchor property in the area in which it’s sited, and a home that will change the lives of hundreds of people who are now chronically homeless. But we intend to focus in the future on projects with less complexity and cost.