At the Detroit Policy Conference earlier this month, Mayor Mike Duggan announced a new Downtown Development Authority (DDA) fund to invest in more substantial affordable housing units for residents. The $24 million investment works as a tax break, beginning with District Detroit.
The DDA’s decision to provide direct financial support for affordable housing marks an unprecedented move since the authority’s inception in 1976.
“We have a clear vision to create a city, including our downtown, where Detroiters of all income levels can afford to live side by side in the same buildings as people of much higher income,” said Mayor Duggan, who chairs the DDA and appoints board members. “This new fund gives us the ability to make downtown living accessible to Detroiters of all income levels.”
District Detroit is the envisioned epicenter for downtown Detroit, boasting a centralized sports and entertainment sector of Little Caesars Arena, seven theaters, big profit companies such as Google and more. DDA’s timely decision comes while the growing demand for multi-family housing is still high, as seen by the area’s low 5.9 percent vacancy rate (down from 12.1 percent in 2020).
HOW THE DDA LOAN PROGRAM WORKS
Under the DDA program, loans would be made available to development projects if at least 20 percent of the residential units were set aside for families earning between 50 percent and 70 percent of the area median income (AMI). This amounts to an individual household income of between $31,350 and $43,890 or a family of four’s household income of between $44,750 and $62,650.
“What we do is provide loans to help with construction costs and we provide those loans on a sliding scale basis,” said Kenyetta Hairston-Bridges to executive vice president, economic development and investment services at the Detroit Economic Growth Corporation (DEGC), which supports the DDA. “For example, a development offering units at 50% AMI can apply for a loan of up to 40% of the Hard Construction Cost for its affordable units, with a maximum amount of $200,000 per affordable unit.”
The loan amounts are determined on a sliding scale with larger loans offered to developments that make units available to residents of lower incomes.
District Detroit’s mixed-income residential buildings will be providing low-interest and forgivable loans to developments located in the DDA’s downtown development area wherein at least 20% of the residential units will be reserved for households making between 50% and 70% of the area median income (AMI). This means that an individual living in one of the units would pay rent at $850 monthly compared to a market rate closer to $2,400.
DDA’s funding tool will review annual progress reports from developers to assess progress between a range of 50%-70% AMI goals overtime. Only developments in the DDA’s downtown development area that offered rentals for occupants earning earnings below that threshold would be eligible for the new incentive.
After a 34-year period, developers can then apply for a portion of the loan to be forgiven, provided that they maintain Detroit residency in those years.
“The developer has to report every year about the tenant space, said Hairston-Bridges. “Are there Detroiters that we define as Detroiters staying in those units? We define Detroiters as someone who has been living in the city for a minimum of three years.”
ADDRESSING TAX CAPTURE CONCERNS
According to state law, DDA has the authority to take a portion of Detroiters’ property tax money and use it to subsidize developers in the larger downtown area. This has raised concerns about the expected issues higher property values will have on downtown residents and businesses.
Hairston-Bridges said the issue of higher property taxes is a not a direct result of a tax capture and is often misunderstood.
“The tax capture in itself doesn’t drive up property values,” said Hairston-Bridges. “I think that’s a normal market condition when you see values rise, which is a good thing. It’s development that comes into an area, it improves the area and there’s positive trends and property values. By no means should we look at these projects as a displacement because a lot of this is driven by the rental market.”
The city’s infrastructure developments over the last decade have been in large part to the systemic normalization of tax incentives for big developers. Proponents of this tactic to draw more investments downtown reason that as economic development tools, the tax incentives allow for the construction of developments that would not have been possible without the authorized incentive.
Tax abatements also facilitate development by offering the project a temporary reduction in the tax rate on the new upgrades. All tax incentives are performance-based and only become available after the project is up and running.
As it relates to the DDA affordable housing tool, the developers—in the case of District Detroit, Related Olympia Predevelopment Company LLC— will not receive funds for these projects until the project begins and meets the terms and conditions of “deep affordability” for residents.
Related Olympia Predevelopment Company LCC’s proposed projects in District Detroit include the construction and operation of 10 renovated historic or new projects, including four mixed-income residential buildings, four commercial office buildings and two hotels, along with additional open public and green space.
Here are the District Detroit projects that have been approved for the affordable housing tool:
- 2250 Woodward: $10.9M loan request; $216M total cost
- 408 Temple: $4.0 million loan request; $69 million total cost
- DCI Residential: $8.8 million loan request; $150 million total cost
The funding is contingent upon a strict timeline with the date of January 1, 2029, at the latest for projects to commence. Upon any delay, the developer will not receive the funding for the proposed projects and the money will be redistributed to other requests/projects.
Hairston-Bridges said most of the projects are expected to break ground between 2024 and 2026.
“My hopes and goal is a true integration of mixed use income buildings,” said Hairston-Bridges. “ Having that deep affordability is exciting for me because [in] a lot of downtowns, you do not see that deep level of affordability.”
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