EDITORIAL: Fee-forgiveness could help jump-start new housing

Apr. 27—The first two paragraphs of an April 21 article in the Post Bulletin might have caused some readers to do a double-take.

The story, by PB reporter Randy Petersen, concerned the results of a two-year pilot program launched Feb. 23, 2022, in which Rochester used federal American Rescue Plan Act funds to reduce the impact of city fees when building a new home. In that now-concluded pilot program, 35 owners of new homes in Rochester qualified for up to $20,000 in fee reimbursement.

To qualify, the homes needed to cost $350,000 or less — a price that the story referred to as "lower-cost."

We suspect that more than a few people swallowed hard at the notion that a $350,000 home is "lower-cost." Initially, we did, too.

After all, at current mortgage rates, the buyer who makes a $70,000 downpayment on a new $350,000 home would face a monthly payment (including taxes and insurance) of roughly $2,600. If we follow the oft-repeated adage that you shouldn't spend more than 30% of your household's gross income on housing, then that "lower-cost" $350,000 home would require an annual income in excess of $100,000.

That's not affordable, low-cost housing, is it?

No, it isn't — but this program doesn't promise affordable housing. Rather, it promises to spur housing growth by encouraging the construction of new, moderately priced, single-family homes within the city limits of Rochester.

And here's the kicker: The median price for the 125 homes that were sold in Rochester last month was an all-time high of $355,000. So, while we'd have a hard time using the term "starter home" for a new, $310,000 walkout ranch with a two-car attached garage and an unfinished basement, we'd have a hard time arguing with someone who did.

So we applaud the Rochester City Council's decision on Monday to continue (and indeed expand) the Home Ownership Creation Program, which will reimburse city fees up to $20,000 for new homes with a sales price that is deemed affordable for people earning 115% or less of the area's median income.

The program will cover new homes up to $429,000 this year, and that figure will be reset each year based on federal guidelines. Continued funding for the program (to prevent a hole in the city budget) will initially come from state housing support but could eventually use local sales tax funds that are designated to support housing construction.

This is good news not just for would-be owners of new homes but also for developers, builders, and anyone who swings a hammer, hangs drywall, finishes concrete or runs electrical wiring. Just as important, however, will be the trickle-down effect that should open doors to first-time homebuyers.

Such buyers generally enter the housing market somewhere below the median price. They don't go from a rented apartment to a new $355,000 home. They buy an existing home — a true "starter" — perhaps a fixer-upper or even a townhouse.

The problem is that Rochester has very few such properties available right now, and those that do hit the market sell very rapidly, often above asking price.

We expect the fee reimbursement program to create a trickle-down effect, and that could gain momentum over time. With up to a $20,000 "discount" on the table, current homeowners who might otherwise sit tight in their 1980s-built, 3-bedroom, $275,000 home will be more likely to take the plunge and build their dream home — and put their current home on the market, where it could become someone else's first home. Those buyers will likely vacate an apartment that might be occupied by a new arrival to Rochester, or perhaps by a 23-year-old who is ready to move out of his parents' basement.

You get the idea. Rochester has a shortage of affordable housing, and one way to address that problem is to encourage people to "move up" when their incomes allow them to do. The construction of one $400,000 home could ultimately open doors for three or four families or individuals.

And this wasn't the only housing-related action taken by the council on Monday. By a 6-1 vote, the council approved the sale of six city-owned lots in the Homestead Trails neighborhood. The purchase price was $1 per lot, with the land being placed in the First Homes Land Trust for the construction of housing that will be affordable for people earning up to 80% of Rochester's median income.

Will new, low-cost housing on six lots end Rochester's affordability probem? Of course not. Nor will the construction of another 35-50 moderately priced, fee-free new homes. No single effort, project or initiative can solve such a complex problem, and a lot of heavy lifting remains to be done.

But we think Rochester is on the right track, and we're not alone in that assessment. A recent column by veteran Star Tribune business writer Evan Ramstad held up Rochester as an example that the entire state should emulate, citing the success of a six-year effort that has greatly streamlined zoning codes and the process of getting the go-ahead for construction of new housing, while keeping current residents informed and mitigating potential changes to their neighbhoods.

This quote from Ramstad's piece speaks volumes: "The city (Rochester) has done much of what legislators focused on housing are thinking that all Minnesota communities should do with zoning and building regulations."

Six years ago, no one would have said that about Rochester.