How tax incentives will help make a new affordable-ish housing project happen

Megan Raposa -

Simplified: City Council on Tuesday approved a plan to use a special incentive – known as tax-increment financing – to bring a new affordable-ish housing project to northeast Sioux Falls.

Why it matters

  • It's unusual for City Council to use tax-increment financing (TIFs) on a housing development – a point that led to much discussion during Monday's council meeting.
  • TIFs are a tool to incentivize developers to bring large projects to Sioux Falls by offsetting their costs. Historically, TIFs are used for large multi-use developments like Cherapa Place and the now-under-construction Steel District.
  • As the city tries to address an ongoing housing crisis, the planning department has been working on a plan to use TIFs to help offset construction costs on new homes in an effort to keep prices under $340,000 for homebuyers.
"We are targeting this toward those who are ready for home ownership, but have struggled getting there because of price," Planning Director Jeff Eckhoff told council Monday. "(And) we wanted to make sure whatever we came up with worked in the market."

How will the TIF work?

TIFs essentially take what a property would've paid in taxes to the city's general fund and instead divert that money back to the developer to help cover their costs.

  • Then, the taxes collected on the newly developed property will go to pay off the TIF over the next 20 years.

This affordable housing TIF is unique because state law doesn't allow TIFs to be used in constructing single-family homes, but the city can use the financing method to offset infrastructure costs.

  • The $2.14 million TIF will give Nielson Development – the group behind the project – help with the costs of getting the site ready for homes, designing, etc.

What's the plan for this affordable housing project?

The project will be a $20+ million development that brings 65 single-family homes to a nearly 10-acre plot near Veterans Parkway and Madison Street in northeast Sioux Falls.

  • Homes will range in price from about $230,000 to $323,000.
  • Construction is expected to start as early as next spring with a goal of having 15 homes completed in 2023.
"This is going to give 65 families an opportunity (to own a home)," Councilor Marshall Selberg said.

Why are we calling $300,000 homes "affordable"?

It helps to see what framework the city is using to make decisions on what constitutes "affordable" or "accessible."

  • In this instance, the city is using the state's first-time homebuyer program as a benchmark.
  • The first-time homebuyer program sets a cap on the home price for buyers using this type of loan. As of this year, that price is $340,000. The most expensive property in the proposed Nielson development falls below that cap by about $15,000.

Councilors and city officials have also been using the phrase "accessible housing" instead of "affordable housing" – meaning they're focused on helping provide housing at all levels.

"I don't see this as creating affordable housing ... that's accessible workforce housing," Councilor Rich Merkouris said. "Do we need it? Absolutely. Do we make a public investment in it? Absolutely ... It's not an either-or, it's a both-and."

What happens next?

The goal from the city is to now use this type of TIF to attract more developers to build affordable and accessible housing.

"What I'm looking for is something that's a repeatable process," Merkouris said.