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Missoula City Council approves soft-cost loan to subsidize permanently affordable housing

White Pine Area Scott Street
Posted at 10:28 AM, Apr 14, 2022
and last updated 2022-04-14 12:28:26-04

MISSOULA - Calling it a risk intended to meet a growing need, most members of the Missoula City Council on Wednesday approved a $479,000 soft-cost construction loan to Ravara LLC to help subsidize a permanently affordable housing project on the north side.

The donation is just one of a long list of deep public subsidies going toward a project expected to deliver around 78 units of affordable homes reserved for those earning up to 120% of the area median income.

The city is also giving three acres of land to the project and will pay for infrastructure while Ravara will serve as the construction manager. The North Missoula Community Development Corp. will administer the land trust upon which the 78 units will be constructed.

If successful, the results would emerge as one of the more complex but beneficial projects the city has undertaken as it addresses Missoula’s lack of affordable housing.\

“This is a loan to Ravara, but it’s functionally a loan to ourselves with Ravara acting as our construction manager,” said John Adams, the city’s administrator of strategic projects. “The result, with the three parties coming together, is permanently affordable, income-qualified housing. There are three parties without any of which the whole thing would not hold together.”

The city purchased 19 acres off Scott Street in 2019 for roughly $6.6 million. The property once served as an industrial site and nine acres were recently cleaned to residential standards.

Of those nine acres, the city is donating three to serve as the community land trust and has sold the other six acres to Ravara for market-rate housing with a small retail component. Proceeds from the sale of those six acres will further subsidize the construction of the land trust.

Adding to the complexity, proceeds from the first 50% of units sold within the land trust will go toward further construction while proceeds from the other half will be used to repay the city the cost of providing the initial loan to Ravara.

City officials admitted it was a complex project that still has a number of moving parts. Given inflationary costs and other factors, the composition of the housing units within the land trust could change.

But Adams said the end goal is to provide permanently affordable housing for income-qualified buyers. As it now stands, the land trust will provide homes ranging from studios to four bedrooms.

“There is some risk attached to the project,” Adams said. “Ravara is doing this for us and we can’t hold them responsible and extract some kind of lean, and because we own the land, we can’t pull that back either. Beyond the work product that the loan will pay for, there’s no obvious other means of security.”

But given the city’s rising cost of housing, most housing advocates are backing the project. They contend that many working families can no longer afford the cost of buying a home in the Missoula market, with the median price now standing at around $500,000.

Given such costs, a family of four would need to earn around $123,000 to afford a median-priced home in Missoula with 5% down. In comparison, the median family income is around $70,900. The disparity has a wide range of implications, including economic and workforce.

But with 78 units within the land trust reserved for those earning up to $120% of the area median income, a two-person household would qualify with earnings of just $72,000. For a family of three it would be $81,000 and for a family of four around $90,000, according to the North Missoula Community Development Corp.

“People who make up to 120% don’t even come close to affording the houses on the market right now,” said NMCDC director Bob Oaks. “We hope the developers are able to bring homes in for households that are between 80% to 120% of the area median income, or the missing middle that we’re always talking about.”

The result would bring quality homes within reach of many working households looking to enter the housing market. But with the land-trust component, those buyers would be limited on how much equity they could build in a single property.

“The first owner can’t simply purchase a home and flip it,” said Adams.

While the city is assuming the risk, it may have support from other means, including the Affordable Housing Trust Fund and the Missoula Redevelopment Agency.

The latter is funding a good deal of the project, including infrastructure costs. To many council members, the project wouldn’t be possible without MRA’s assistance.

“This is going to be a great example of that,” said council member Amber Sherrill. “We do hear some misinformation around tax increment financing, and this is exactly why you invest in economic development to support your community after you have built that fund up.”

West also supported the project but had reservations on a number of fronts. The city is using public funds to subsidize the project and is taking on financial risk, she said. She also fears that developing the land trust could end up using a disproportionate amount of funding from the Affordable Housing Trust Fund.

City CAO Dale Bickell said options were still available if cost became an issue.

“We have a number of tools to deploy to be able to try and do this,” Bickell said. “Right now, we’re working from estimates. This first step allows us to get to some better design and a lot better estimates.”

Councilmember Sandra Vasecka opposed the loan and the 1.5% interest rate. She was the only member of the council to do so on Wednesday.

“I’m really uncomfortable with the inflation rate and interest rate we’re getting on this loan,” she said without providing alternatives.