Sioux Falls latest affordable housing project? $300,000 new-construction homes.

Megan Raposa -

Simplified: A planned development in northeast Sioux Falls hopes to offer new-construction homes for between $232,000 and $323,000 in a plan to make more accessible housing in the city. And, to that end, the developer is asking the city for special financing to help offset costs.  

Why it matters

  • Housing is a major issue in Sioux Falls at all income levels. And while the problem is greatest for those in extremely low-income situations, it's also becoming increasingly difficult for people with middle incomes to find a home.
  • Developer Kelly Nielson said his team has been looking at the best way to design new construction homes at a low-enough price that the sale price is accessible to first-time homebuyers. The question from some city councilors, though, is, "Are these homes accessible enough?"
  • The last big piece of the puzzle to make it happen is approval from the City Council to authorize tax-increment financing to the tune of $2.14 million. If that happens, Nielson could start construction on the 9.7-acre, $20+ million development next spring.
"The vision of this isn't for just Nielson Development," Nielson told councilors Tuesday. "I’m hoping this concept works so you see these larger developers doing this same concept."

How is a $300,000 house 'affordable housing'?

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.  

It's worth noting there won't be any income checks on folks buying the properties, Powers said. But there will be other contingencies to help ensure these homes go to the people who most need them.

It's also worth noting that these numbers are based on the maximum sale price for the first-time homebuyers program. They're not based on the income limits for that program.

  • Income limits for the state's first-time homebuyers program are between about $90,000 to $104,000 – depending on how many people are in the household.
  • Those numbers are about $30,000 to $40,000 above the median household income in Sioux Falls, which, according to the U.S. Census Bureau's 2020 data is around $61,738.

What did councilors have to say?

Largely, they're grateful for Nielson for taking the risk of trying to build these new houses at a lower-than-market rate.

That said, some did raise concerns that the costs may still be out of reach for folks.

"I know you’re trying to do the most affordable houses that you can to try to help people, working families, first time buyers get a good home," Councilor David Barranco said. "But those prices are still a little bit high for people in those communities."
"Who are we trying to help? Really, who qualifies for a $300,000 house?" Councilor Pat Starr said, adding that he wants to know if nurses, firefighters, etc. would be able to afford these homes.

What strings are attached to the project?

Good question.

The developer commits to having homes constructed within five years and restricting price points to within 60% to 100% of that $340,000 number.

Once constructed and purchased, buyers must use the homes as their primary residence.

  • And if they sell within five years of purchase, they can't sell for more than what they paid, plus the increase in the average median income.

Ok, so break down the $2.14 million ask

This isn't the first time the city has used tax-increment financing (TIF) to help attract a big project – look to the Cherapa Place expansion and the Steel District as recent examples.

  • However, it is the first time a TIF will be directed at affordable housing.

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 needed to make the development happen, Business Development Coordinator Dustin Powers said.  

The $2.14 million would help with the costs of getting the site ready for homes, designing, etc., and it'd be paid back to the city over the next 20 years via property taxes.

  • Essentially, the tax money collected goes to pay off the debt instead of to the city's general fund.

What happens next?

All of these plans are contingent upon the developer receiving this $2.14 million TIF.

  • The city planning department and Nielson Development will have to present the plan to the County Commission, and it'll need to pass both a first and second reading in front of the City Council.

If passed, the TIF would be effective as of October 31st, and Powers said construction would start as early as next spring with a goal of having 15 homes completed in 2023.