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City fee-reimbursement program set to spur housing options, but builders see limits to its reach

Pilot program seeks to test impact of passing fees to homebuyers, with goal of spurring future development.

Dewitz Builders
Jean Dewitz of Dewitz Builders in front of compact flats Monday, May 23, 2022, at the Pebble Creek subdivision along Sandstone Street Northwest in Rochester, Minnesota.
Traci Westcott / Post Bulletin
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ROCHESTER — Jean Dewitz said changes to Rochester’s development fee reimbursement program could help build some homes this year, but the number is likely to be limited.

“It depends on what people do with the sale prices, and what they want to add,” the owner of DeWitz Home Builders said of the city program that returns fees for homes built with a cost of less than $350,000.

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She currently has 18 compact lots and six larger lots in the Pebble Creek subdivision in Northwest Rochester that could qualify for the revised program, which can contribute up to $20,000 in reimbursements for qualified new home construction.

However, she said meeting the price on the larger lots would require potential buyers to agree to scaled-back features in the home.

The Rochester City Council recently approved reimbursing 75% of select fees for homes where development has already started, which Dewitz said means a return of $6,300 to $6,500. That's a sum that a qualified future homeowner will be able to use toward a downpayment.

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In an effort to spur future development, 100% of the same fees will be returned under the pilot program that started this year and is set to run through the end of January,

Dewitz and others said the short timeframe presents a challenge, since developing a site for home construction takes years.

Mike Paradise, president of Bigelow Homes, said the time required to develop and build new homes means the city should look at different approaches to address a need that’s existed for years and will continue.

“We are going to need a program that is more long term,” he said.

While Bigelow Homes has townhome sites in its Harvestview subdivision that could qualify for the city program, Paradise said current program limits make it hard to consider for new development.

Timing flexibility

Taryn Edens, Rochester’s manager of housing and neighborhood services, said the city is aware of the constraints, but pointed out that the reimbursements are part of a pilot program that could be altered or extended when it expires.

Additionally, she said the current expiration date isn’t when payments need to be made under the pilot program, which is supported with $500,000 from federal COVID-related funding.

“We have it available through the end of January 2023, but generally speaking folks could request reimbursement ahead of time,” she said, adding that approvals for future reimbursements will be good for a year, with the possibility of extensions.

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She said that means development plans initiated this year could benefit when homes are actually built two to three years from now.

“We certainly acknowledge it takes a couple years to start from scratch,” she said, adding that city staff has been hearing from potential developers who are considering subdivisions that could include homes that qualify for the program this year with construction expected at a later date,

Jennifer Woodford, president of the Rochester Area Foundation, said the foundation’s First Homes program is counting on that flexibility.

The program already has six housing units in row houses planned for Ninth Avenue Southeast that are expected to benefit from the program. Since the development has already started, the new owners will see home prices reduced with 75% fee reimbursements.

Another project, a single home being built on a tax-foreclosed lot, is expected to receive the full benefit, she said, while a third project could benefit if details are finalized before the end of January.

“The timeline and timing is a challenge,” she said, pointing to uncertainty whether the third project, which is expected to create up to eight homes, will be ready for approval by the deadline. “Whether it’s a private developer or a nonprofit developer, it’s the same.”

Woodford said one difference is that the price reduction on First Homes housing will be passed on from owner to owner, since the program maintains ownership of the property while the homeowner passes the house to qualified buyers in a sale.

“These will benefit homeowners for decades,” she said of the fee reimbursements to First Homes projects.

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Securing benefits

Rochester City Council members have voiced concerns about ensuring that the savings for fee reimbursements are benefiting homeowners, rather than builders or others involved in the sale.

During a recent meeting, council member Patrick Keane said homeowners would apply for the funds under perfect conditions, but that’s not how things are likely to work.

Dewitz said qualified Pebble Creek homes will see the fees applied to downpayments, reducing the mortgages for new buyers.

Other projects could use the funds to reduce the price of the home at sale, but Edens said all will be required to show how the buyer benefits.

“Applicants have to prove the amount being applied does indeed benefit the homeowner, whether it’s through downpayment assistance or proof that the price of the home has been lowered,” she said.

Builders and others acknowledged that a key to the program’s potential success will be ensuring the funds benefit the homebuyer at a time when costs are rising due to supply and workforce concerns.

At the same time, they said more will need to be considered, from alternate support programs to addressing costly building requirements that are unique to Rochester.

“It’s really kind of a drop in the bucket, but it’s a start,” real estate agent Jim Miner said of the fee reimbursement program.

Randy Petersen joined the Post Bulletin in 2014 and became the local government reporter in 2017. An Elkton native, he's worked for a variety of Midwest papers as reporter, photographer and editor since graduating from Winona State University in 1996. Readers can reach Randy at 507-285-7709 or rpetersen@postbulletin.com.
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