One of the biggest misconceptions about affordable housing is that it somehow hovers outside the realities of local market conditions – that the ideas of financial feasibility and economic pressures have no bearing on the development of this kind of housing. However, affordable housing is very much dictated by market conditions on several levels.

For many years in most of North Dakota, the majority of market rate rents were at a level that was “affordable” because that’s what the market would bear. Because demands generally were being met by the private sector and with sufficient housing inventory, there wasn’t as great of a need for affordable housing.

Now we are seeing affordability changing because of a steady influx of people, higher incomes and limited housing options. Demand outstripping supply coupled with increased numbers of people with the ability to pay is increasing housing costs. Those tenants who could afford the rent before, now are being priced out as the units become affordable only to a new economic class of tenants. And as these people are being priced out they are looking for affordable housing alternatives. 

What do I mean by “affordable housing”? We consistently get this question when touting our message to state and community leaders, developers, etc. It is simply a function of the cost of housing compared to household income. A home is considered affordable if no more than 30 percent of household income goes to its housing expense. You first must look at monthly income to determine the affordability price point of population segments. Average wages for starting teachers suggest what they can afford to pay for housing. The same goes for law enforcement, day care providers, wait persons, etc.    

Right now, the development of affordable housing in North Dakota is behind the curve and that delay is a function of the market and the economic realities of the situation. Private development of affordable housing is minimal due to the lure of profitable market rate rents and home prices. Two-by-fours, concrete and plumbing fixtures cost the same for an affordable home as they do for a market rate one. Add in high land and labor costs that accompany economic booms and the challenges are exacerbated.

Thus, financial feasibility for affordable housing projects requires public/private partnerships. These partnerships can come in two forms. At the local level mitigating excessive regulatory burdens –zoning, building code, permitting, hookup fees, etc – are proven to be effective in reducing development costs. In addition, local communities may have land that could be made available at minimal costs.

There are federal and state programs that provide equity subsidies that reduce borrowing cost. However, these programs are limited and have become highly competitive adding to the complexity inherent in developing affordable housing.

There are those who expound on the theory that supply and demand over time will solve the shortage of affordable housing – as the private sector builds enough homes, prices will moderate. I find two fallacies with this. In the perfect world with economic equality among households this may work. However, there is no perfect world. There are traditional fixed income residents, as well as young families just starting, to name just a couple of examples, who are unable to ride the economic boom train. 

But, just as important are the questions of when will the time come that enough housing is built for prices to moderate? And what do we do with these residents in the mean time? With the rapid pace of North Dakota’s economy today, we must deal with the growing need for affordable housing now. That requires the continued and even an enhanced commitment to public-private partnership.

There is sometimes the thought that the need for affordable housing is somehow a failure of the community and its economy. That is just not true. In reality, the need for affordable housing follows prosperity and, in fact, is necessary for economic growth. Communities will always be diverse with people of differing ages and incomes. There should always be traditional residents and young families for communities to thrive. They consume its health care services; contribute to its commerce on Main Street; keep its schools relevant; and provide a source of its future leadership.

Market rate housing is being built at an accelerated rate. We are working with impacted communities to ensure that continues to happen as long as the demand is there. However, our primary focus is to make sure that there is the requisite supply of affordable housing as part of that housing development strategy. That means traditional and new programs, like the federal Low Income Housing Tax Credits and the state Housing Incentive Fund, are being utilized efficiently and effectively. It also means we will continue to seek additional resources to meet the growing need for affordable housing not only in energy impacted communities but across the state. To that end, the discussions and planning process for the next legislative session have already begun. Your input and support are welcome.

North Dakota Housing Finance Agency

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