Affordable Housing

Patrick Priggen inspects and cleans a bathroom fan Friday morning while doing minor repairs to a small apartment that is turning over to a new tenant.

Patrick Priggen said he’s slowing his investment into affordable housing.

“We haven’t even been looking at new projects, because we just can’t make cash fast enough for a downpayment or all the upgrades,” the 30-year-old Rochester resident said. “All the cash we have, we’ve put in our current properties.”

Landlords like Priggen say increasing property costs and taxes on older rental units are hindering efforts to keep units affordable.

Priggen said he and his wife, Jill, started investing in the rental market five years ago, focusing on what’s considered “naturally occurring affordable housing,” meaning rents are low without government incentives.

Such apartments generally rent for much less than the $1,200 that can be asked for a two-bedroom unit in a complex receiving state tax credits or other support.

The Priggens offer similar-sized units for approximately $700 a month.

Priggen said he’s keeping the rents as low as possible while still covering costs, but it can be a challenge, which is why he and his wife maintain full-time day jobs while working to maintain the three duplexes and three fourplexes they own.

“In order to continue to improve the properties, you have to dump enough money into them, and in order to keep rents low, that’s tough to do,” he said. “It’s kind of finding that balance.”

‘Race to the bottom’

Pat Ryan, owner of Krystal Bay Apartments, said he’s also feeling the impact.

With 32 units renting for $795 to $895 a month within walking distance to Saint Marys Hospital, he said it’s rare to see extended gaps between tenants.

Today, however, he has five unoccupied one-bedroom apartments. While he’s using the time to update the units, he said it appears to be part of larger trends.

“One bedrooms are hard because you have to charge a decent amount for a one bedroom, where a lot of the people coming in will partner up, and two of them or three of them will go together and rent a higher-dollar place,” he said.

At the same time, housing that is receiving government help is creeping into the market.

He said the result will likely lower prices and force landlords to consider cutting costs to compete with newer apartment complexes that are receiving financial incentives to keep costs down.

“It will be a race to the bottom,” he predicted.

Dave Dunn, director of Olmsted County’s Housing and Redevelopment Authority, said work is being done to offer options to landlords willing to maintain affordable rental units amid rising expenses in the city.

City and county officials have been making plans to join forces to help maintain older, existing affordable housing options.

Following in the footsteps of Minneapolis, a tax program is in the works to offer landlords a break on property taxes in exchange for agreeing not to limit rent increases.

Work continues on defining the program, but Dunn said it’s likely to be rolled out for the 2021 tax year, meaning landlords will be provided information this fall or winter.

Tax cuts for rent caps

As proposed, the program would reduce tax rates to the same levels seen in new developments receiving state support. That means a potential tax reduction of 40 percent or more.

In turn, participating landlords would be required to restrict rent increases to 6 percent a year. They would also be restricted to renting to tenants earning no more than 60 percent of the area median income, meaning $54,300 or less for a family of four in Olmsted County.

Tom Hill of Matik Management, which oversees operations of many older rentals in the city, said the proposal has potential to help reduce costs for property owners wanting to provide affordable rents. Hill is already working with other HRA pilot programs.

Priggen agreed, noting increasing property taxes, largely based on rising property-value estimates, have continued to reduce his ability to keep rents affordable for his tenants.

“If the city wants us to keep our rents down, I think a tax credit would be one way we can factor in some savings,” he said.

Another option periodically discussed would provide low- or no-interest loans to property owners who need to make repairs that could drive up rents.

Hill said a similar federal program provided help in the past, which benefited the tenants, as well as the landlord, by improving the rental units and keeping rents low.

Dunn said access to the program has been reduced since 2011, following reports of financial concerns, even as it was shown the problems were limited and the program helped maintain affordable housing prices.

Political considerations

Dunn said creating a similar local program might be challenging.

“It’s a harder sell because there’s, I think, a perception that landlords are rich and they ought to be able to maintain their own property, which isn’t entirely true,” he said, noting the cost of improving properties can easily outpace income from rents.

Steve Borchardt, housing initiative director for the Rochester Area Foundation, said such an effort would likely need support from an outside agency, which could benefit from money set aside by the Coalition for Rochester Area Housing.

“We need the owner of a program to come and make a proposal,” he said.

As someone who has made a side-career out of buying buildings in need of renovation and maintaining their affordable rents, Priggen said the program would likely benefit the market.

He said the current market provides challenges, but he’s been able to work with people who might not have otherwise found an affordable apartment, which is one reason he plans to continue his efforts as a landlord.

While he knows the value of his properties is rising, he said it’s not time to cash out.

“I think it’s a good investment for us,” he said.

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Local Government Reporter

Randy is the Post Bulletin's local government reporter, covering the city of Rochester and Olmsted County, as well as Destination Medical Center efforts. He joined the Post Bulletin staff in 2014.