Does this type of tax-subsidized apartment perpetuate segregation?
Affordable housing sometimes has a bad reputation: The name often conjures crumbling public towers or far-away pre-fab units built by private developers.
But there’s another kind of affordable housing, built with tax credits and city loans, typified in a place like the A-Mill lofts. Set on the Mississippi River in Minneapolis, the A-Mill lofts include a penthouse resident lounge, a fitness center, a yoga studio, free wi-fi, dishwashers, and studios for painting, pottery, dance, and music.
The A-Mill lofts sound like that the type of opportunity that most poor families would dream of. But a new report suggests that the lofts are not accessible to most poor families. Though they were built with affordable-housing tax credits and city loans, they’re too expensive for most voucher holders to afford, the report finds. Instead, they go to mostly to white artists, who have incomes below the median for the area but above the average affordable-housing tenant.
This type of majority-white subsidized housing is not unique. According to the report, from the Institute on Metropolitan Opportunity at the University of Minnesota, about 6 percent of housing built using low-income tax credits in Minneapolis and St. Paul is built for artists. And those buildings don’t look at all like traditional affordable units. The artist housing is 82.4 percent white, and the average income of tenants is $29,890. Only about 3.3 percent of tenants receive rental assistance. All other housing built with low-income-housing tax credits in those two cities, by contrast, is 19.8 percent white, with an average income of $17,140, and 67 percent of tenants receive rental assistance.
“There’s a dual system of subsidized housing in Minneapolis and perhaps other cities,” Myron Orfield, one of the study’s authors, told me. “There's the traditional form of subsidized housing, heavily concentrated in minority neighborhoods and heavily occupied by poor, non-white voucher holders. And then you have another system of affordable housing—artist housing in white neighborhoods that's predominantly occupied by non-poor, white artists.”
“Developers have figured out that there's a glitch that they can exploit to build not-so-low-income housing,” Will Stancil, the study’s other author, told me. Here’s how it works: When erecting or renovating buildings, developers can apply for low-income-housing tax credits, which provide a financial incentive for builders to create affordable apartments in expensive, crowded cities. The tax credits are granted by the state, and in Minnesota’s case, by cities like St. Paul and Minneapolis, too. If a developer is approved for tax credits, a certain number of restrictions are placed on the units. For example, for a specific period of time, rent must be set at a level that is considered affordable for people who make only 60 percent of the area’s median income. And these units have to be available to anyone who fits the income criteria. Though they’re not allowed to screen for race or gender or family status, the people who run the buildings can screen for profession, according to the law. Artists often fit the bill when it comes to income, so developers can get tax credits to build housing specifically for them.
The report calls these buildings POSH developments, Politically Opportune Subsidized Housing. They’re priced in such a way that families with children or those who are extremely poor could not afford them. To be considered affordable for those whose income is 60 percent of the area median income, rents can be 30 percent of the set income level. But often, the rents for these buildings are at the very upper end of the spectrum. For a one-person household in Minneapolis, the maximum allowable rent is $910. A-Mill studios rent for $898. Most tax-credit developers don’t set the rents that high because their projects are in lower-income neighborhoods and because they are targeting lower-income tenants. But developers of POSH properties do. The buildings also require application fees and reservation fees (to keep a unit off the market while the application is processed), additional costs that would make units out of reach for low-income families, the authors say.
In 2007, the IRS tried to crack down on subsidized housing that gave preference to artists. They said that doling out credits for such properties potentially violated the tax code because such housing was not “for use by the general public.” Soon after, lobbyists succeeded in inserting an item into 2008’s Housing and Economic Recovery Act (HERA) that exempted artists’ housing from the tax rules requiring projects using tax credits be used by the general public. Since then, according to Orfield and Stancil, subsidized artists’ housing has grown rapidly in Minneapolis and other areas.
The artist properties share a few characteristics. They’re usually conversions of historic buildings (which can more easily win developers tax credits). They have restrictions on the professions of the tenants (usually artists). They’re located in hip neighborhoods where the market rent is among the highest in the city. And they are often built with loans from the city to promote the public good, by making a place for artists to live.
There’s nothing inherently wrong with promoting the public good and building more affordable apartments in trendy and expensive neighborhoods. POSH properties can help high-income neighborhoods become more economically diverse. And the not-in-my-backyard objections that often come with affordable housing are less likely to be present for POSH properties, because neighbors rarely object to artists’ buildings that look like luxury condos and hold mostly white tenants. POSH properties help lower-income white people and artists who want to live in cities but otherwise would be pushed further out into suburbs.
What disturbs Orfield and co-author Will Stancil is that the tenants in these buildings are predominantly white, and the low-income population of the Twin Cities is not. POSH properties like A-Mill Artists Lofts are 86 percent white, the Buzza Historic Lofts, Carleton Place Lofts, and Schmidt Artists lofts are 81, 88, and 80 percent white, respectively.
“You have to try really, really hard to find 80 or 85 percent white people in the poor population of Minneapolis,” a Legal Aid lawyer, Jay Wilkinson, says in the report.
Lately, the segregation inherent in traditional subsidized housing— units built with low-income housing tax credits and usually located in high-poverty neighborhoods—has drawn a lot of attention. Such tax credits were at the center of a Supreme Court case last year, in which the court ruled that the state of Texas had violated the Fair Housing Act by awarding tax credits only to developers building in poor areas. Building these units exclusively in low-income neighborhoods, is one way segregation is perpetuated. But segregation is also perpetuated by building affordable housing for artists in high-income neighborhoods, but restricting access for most of the low-income minorities that traditionally use low-income housing.
This suggests screening practices or at least pricing practices that weed out the low-income minority people these tax credits were designed to help. For example, many of the apartments require residents to submit an application that includes a portfolio or some other proof of artistic pursuits. The application process often includes an essay and an interview with a screening committee. “A process that allows project owners and residents to conduct a hunt for like-minded neighbors may be inherently troubling from a fair-housing perspective,” the authors write.
The developers of the properties mentioned in the report say their properties are diverse and their selection methods are fair. Melodie Bahan, a spokeswoman for ArtSpace, one of the nonprofits that develops and advocates for the spaces mentioned in the report, was hesitant to comment without seeing the full report (it was released to the public Wednesday afternoon), but questioned the idea that the properties are majority white. “I can say that our projects all over the country are very diverse in terms of income, artistic type, age, and artistic medium,” she told me. “They are also very reflective of the neighborhoods in which they are located.”
Representatives of Dominium, the developer that built A-Mill lofts and other units, say the company takes pains to make the units available to everyone, and that it markets “aggressively” to people in the appropriate income levels. Residents don’t need to earn a living through art, but have to be able to demonstrate a commitment to the arts, the company said.
“Dominium does not discriminate based on race or gender but selects residents based on HUD guidelines,” Mark Moorhouse, a senior vice president and partner, said in a statement. “We follow and aggressively support all federal and state fair housing laws.”
Even so, POSH properties, the authors argue, use resources that could otherwise be used to create more affordable housing for more poor families. They take advantage of tax credits and loans from cities that could be put to more efficient use. Building POSH units is expensive—more expensive than building traditional affordable-housing units. POSH units cost, on average, $347,500 to build. This is compared to $266,000 per unit in average housing development in the central city. A-Mill lofts cost $665,000 per unit to build, according to the report. Four of the POSH developments cost more than $460 million, the report finds, an amount which could have bought nearly 1,600 suburban homes in Minnetonka, Minnesota.
In the past year, the Obama administration has spoken out in favor of a principle called affirmatively furthering fair housing, which encourages local governments to build affordable housing in high-opportunity neighborhoods and to make sure that low-income people have the opportunity to live in areas with good schools, transportation, and amenities. The Supreme Court has ruled that policies that segregate people, intentional or not, violate the Fair Housing Act. But the cities of Minneapolis and St. Paul keep awarding tax credits to developers who will build properties that perpetuate segregation. This, the authors say, is perhaps the most disturbing part.
The policies that allow the construction of POSH properties help contribute to low-income white people living in high-opportunity neighborhoods, while low-income minorities remain in impoverished areas. Even if this helps white artists, the authors say, it may be violating the law. “Rather than promoting integration, or even preserving pre-existing segregation,” they write, “subsidized housing in Minneapolis is creating new and greater segregation.”
This article originally appeared on The Atlantic.