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02-27-2024 (Strategic Planning Session - Housing)STRATEGIC PLANNING SESSION — HOUSING FEBRUARY 27, 2024 - 3:45 P.M. MINUTES Members present: Mayor Gary Forcier called the session to order. Members present were Tim Burley, Pat May, Dave Sebesta and Chad Czmowski. Others present were Matt Jaunich, City Administrator and other city directors and staff. 1) Introduction to the Topic Matt Jaunich, City Administrator, explained that this is the first session in a cycle of strategic planning sessions set by the City Council. The topic for today is on housing. He noted that today is a work session — it is not a public hearing — and no action items will be taken today. Mr. Jaunich also explained that these strategic planning sessions are for the purpose of the City Council to set the vision for the future along with establishing the goals and objectives that need to be achieved to reach those visions. Mr. Jaunich noted that a core value focus of Housing was added to the City's core value statements last year. The focus states that the City will advocate for safe and affordable housing, and encourage collaboration with other agencies and the private sector to meet community housing needs. Mr. Jaunich asked the Council what are their perceptions, values, assumptions and/or attitudes regarding housing in Hutchinson. Mayor Forcier commented that he feels the city needs more apartments. Council Member May commented that he has learned that due to building costs, developers have to charge rent in the $1000-$1500 range to cover costs. He's unsure how the City can mitigate any of those costs. It was noted that the current interest rates of course have a lot to do with the overall costs of building. Council Member Burley commented that he feels the elderly are staying in their homes longer due to the high costs of assisted living facilities and others are staying in their "starter -type" homes longer because of higher mortgages and interest rates, which then does not provide starter - type affordable homes for first time home owners. 2) State of Housing in Hutchinson Various information was provided to the Council such as historical housing data, current housing programs available, current housing land/lot information, housing permit costs and a review of the housing study. There have been 292 rental units built since 2017. The current vacancy rates for market rentals are at 3.6% and the median sales price of homes in 2023 was $261,750. There were 236 home resales in 2023 and four home foreclosures in 2023. Housing programs available through the HRA include Live & Work in Hutchinson — 1st Homebuyer Workforce Initiative; Hutchinson Emergency Home Repair Grant; City Home Repair Grant; and City Accessibility Grant. Rehabilitation housing programs available through the MHFA include the Fix -up Home Improvement Loan Program and Rehabilitation Loan Program for owner -occupied homes. In addition, Minnesota Housing, USDA Rural Development and Veterans Affairs offer loan programs and housing programs for homebuyers. Mr. Jaunich noted that Hutchinson received $68,658 in 2023 and will be receiving another $68,658 in 2024 from the Statewide Affordable Housing Aid program. This money must be spent by 2027 & 2028. Qualifying projects that can be used with these funds include emergency rental assistance for household earning less than 80% of area median income as determined by HUD; financial support to nonprofit affordable housing providers; construction, acquisition, rehabilitation, demolition or removal of structures, construction financing, permanent financing, interest rate reduction, refinancing and gap financing for homeownership projects that have 115% of the greater of state or area median income as determined by HUD and rental housing projects that have 80% of the greater of state or area median income as determined by HUD; and use of funds for new construction or substantial rehabilitation of a building containing more than four units. The area median income in Hutchinson is $100,000 and the median home value in Hutchinson is $187,300. Interest rates for 30-year, fixed mortgages as of February 2024 range from 6.64%-7.75%. It was noted that there are 88 vacant lots currently in Hutchinson. Approximately 15 of these appear to be bought with the purpose of having a "double lot" and aren't really available for development at this time. Approximately 50 lots are owned by builders/developers. Another 23 lots are owned by individuals that may or may not be looking to sell. Dan Jochum, P/Z/B Director, noted that the Planning Commission just recommended approval of an additional 13 lots near Northwoods Park. There appears to be about a three-year supply of lots available for development. Building permit costs were reviewed with the average building permit cost for a new home being about $8000 in 2023. Half of that amount is for sewer availability charge and water availability charge and have is for the cost of all city permits/inspections/plan reviews. Building permits including these items in the metro area are often $15,000- 20,000 for a new home. Dan Jochum and Judy Flemming, HRA Director, provided an overview of the housing study completed in 2023 and spoke to house sale price points, trends related to household income and population, and areas identified for growth. The findings from the study show that there is a demand for 560 general -occupancy units through 2030; there is a demand for 950 senior housing units by 2027; and there is a strong demand for all senior types except for senior subsidized housing. 3) Infrastructure Costs for Housing Matt Jaunich explained that infrastructure costs for water/wastewater/storm installs have doubled since 2014 and costs approximately $1025/LF. For example, for a typical city block, it would cost approximately $338,250 for infrastructure. The City's special assessment policy states that new developments are 100% covered by developers/property owners. For existing infrastructure, 20-25% are covered by property owners/developers. 4) Financing Housing/Debt Impact and the Tax Value of Housing The tools available for funding housing and new developments include: developer equity and private financing; state funding; city fee reductions; housing trust fund; low or no cost for city land; city or HRA reserve funds; municipal bonded debt; tax increment financing; tax abatement and/or a combination of all of these options. 5) Vision for Housing in the Years to Come Mr. Jaunich asked the Council what they hope to accomplish by 2029 as result of the strategic planning session today or this year and what type of housing does the Council want? Council Member Czmowski noted that the City cannot necessarily determine the type of housing being built versus the developers that approach the city and want to develop in Hutchinson. It was noted that the majority of recent developments have been slab on grade for the 55+ population. Mr. Jaunich asked if the City needs to market out development opportunities. He also noted that the City is having about 25 homes built each year and asked if the Council feels that is enough? Does the city need to look at different types of homes, such as smaller in size or other things and not focus on what the city has seen typically built over the years? The "typical" homes cannot be built for under $350,000. The Council asked the realtors in the audience what do they see for demand — they responded everything is in demand, from condos to the dream homes. 6) Current Challenges/Barriers to Housing Mr. Jaunich expressed that perhaps the biggest challenges/barriers are construction costs and lower rent needs. Council Member Czmowski also noted that the salaries in Hutchinson can't necessarily support the costs of owning a home. 7) Questions/Conversations/Developing Ideas and/or Directions What are the specific actions we need to take to address the barriers and move us towards our vision? How much does the City want to get involved in housing? What do you consider to be "affordable" housing? Are there certain policies that the Council would like to see changed? Should the City be pursuing any land for purchase? Community -living concepts were mentioned, condo strips were mentioned, smaller homes were mentioned. Council Member Burley expressed that the City needs to be open to new ideas. Council Member Czmowski is open to loosening the assessment policy for new developments to match the existing streets costs. Mr. Jaunich spoke about bonding for infrastructure and passing the costs along to developers when developments are made. There is some risk to the City with this concept if development should diminish. A problem the City has is not having developers that build condos and row -type housing. Many local developers build single-family homes and townhomes, but not necessarily multi -family housing developments. Mayor Forcier noted he is a big believer in maintaining what we have. 8) Next Steps/Action Items/Developing a Plan Council Member Czmowksi noted that he would like to see examples for each funding tool to see what the break even is on each option. Can safeguards be put in place with the funding tools? i.e. bonding and making the developers pay back the costs. It was noted that most time funding tools are easier to utilize for a multi -family housing unit on a single parcel versus individual developments. How much risk is the City/Council willing to take on funding developments? Mr. Jaunich encouraged realtors, developers, the public to let the Council know how much risk they would like them to take. Council Member Czmowski asked staff to reach out to developers to determine the costs to develop rowhouse developments and/or condo strips. This topic will need to be revisited in the future, hopefully after the Council has received feedback from the public and interested parties. Motion by Burley, second by May, to close strategic planning session at 5:10 p.m. Motion carried unanimously.