Racial Equity Impact Analysis (REIA)

The Housing Tax Credit (HTC) Program is a federal program that provides a reduction in tax liability to owners and investors of qualified low-income rental housing. The objective of the program is to allocate HTCs to owners of rental projects to produce new and preserve existing affordable rental housing that serves households earning at or below 30% up to 80% of area median income, with an emphasis on deep affordability, and to ensure long-term affordability of these rental housing units.

The City of Minneapolis (through its participation in the Minneapolis/St Paul Housing Finance Board) is a sub-allocator of HTCs. As a sub-allocator, the City is required to establish priorities that will be used to allocate HTCs, which is done through the Qualified Allocation Plan (QAP). The Tax Credit Procedural Manual is a companion document to the QAP and describes how the City will administer its HTC Program. Through these documents, the City allocates both 9% and 4% HTCs to qualified projects.

Staff is proposing the following substantial changes in the 2022-2023 Housing Tax Credit Qualified Allocation Plan, which will be the primary scope of this analysis:

• Overall
  • Continued evaluation of cost reasonableness through the use of the Minnesota Housing’s Predictive cost model and elimination of the separate cost containment scoring category to better account for factors that help deliver on City priorities such as serving larger families, energy efficiency, and greater geographic distribution of affordable housing
• 9% HTC
  • Addition of the Equitable Development scoring category to ensure equitable community engagement through the development process
  • Combination of homelessness and supportive housing scoring criteria
• 4% HTC
  • Change the minimum affordability period from 20 to 30 years in 4% HTC projects, and reset long-term affordability scoring criterion to incentivize a minimum of 40 years
  • Addition of scoring incentive for projects with units that serve at 30% AMI or less

The 2022-2023 Housing Tax Credit Qualified Allocation Plan sets forth criteria for prioritization of applications based on project and tenant characteristics for allocation of 9% and 4% HTCs. The 9% HTC scoring criteria prioritizes new construction outside of ACP50 areas to provide greater locational choice when seeking out affordable housing and supports rehabilitation projects in ACP50s to improve housing stability for current residents.

According to the 2015 – 2019 American Community Survey 5-Year Estimates, the racial demographics of Minneapolis is 18.9% Black, 1.1% American Indian, 5.9 Asian, 9.6% Hispanic or Latino, 4.2% Two or more races alone, and 63.6% white.

The HTC program also supports the development of units for people that are experiencing homelessness. Data shows that African Americans and American Indians are disproportionately affected by homelessness. According to the 2018 Minnesota Homeless Study by Wilder Research, in Hennepin County 49% of adults (age 18 or older) experiencing homelessness are African American, and 15% are American Indian, compared to being only 9% and 1% of the 7-county metro population of adults, respectively. This is compared to 23% of adults experiencing homelessness are white, compared to being 76% of the county metro population of adults. Similar racial disparities exist for unaccompanied youth age 24 or younger.

In Minneapolis, BIPOC households are more likely to be renters compared to white households. According to the 2012 – 2016 ACS 5- Year Estimates, in Minneapolis about 20 percent of Black and American Indian, 25 percent of Latino, and 34 percent of Asian households owned their home, whereas 58% of white households owned the home they occupied.

Housing affordability continues to be a growing issue that Minneapolis residents face. Housing costs have risen relative to incomes for renters in Minneapolis, but not for homeowners. The rising cost of rental housing is disproportionately impacting households of color who are paying a large percentage of their income on housing costs. According to the 2015 – 2019 ACS 5-Year Estimates Public Use Microdata Sample, at least 50 percent of Black and American Indian households, 45 percent of Hispanic or Latino households, and 38 percent of Asian households are housing cost burdened, whereas only 28 percent of white households are housing cost burdened.

Evictions also disproportionately affect BIPOC households compared to white households. While court filings do not collect racially disaggregated data of tenants, according to a 2016 Minneapolis Innovation Team’s report, Evictions in Minneapolis, of the sample of the 174 cases that were reviewed, 93% of the stated reason for eviction filings was because of nonpayment of rent. When looking at the geographic distribution of eviction filings, and for cases that reached judgements, a disproportionate number of filings and judgements occurred in neighborhoods that are racially concentrated areas of poverty – which includes north Minneapolis and areas south of Downtown in the Phillips and Powderhorn Communities.

Data shows that African Americans and American Indians are disproportionately affected by homelessness. According to the 2018 Minnesota Homeless Study by Wilder Research, in Hennepin County 49% of adults (age 18 or older) experiencing homelessness are African American, and 15% are American Indian, compared to being only 9% and 1% of the 7-county metro population of adults, respectively. This is compared to 23% of adults experiencing homelessness are white, compared to being 76% of the county metro population of adults. Similar racial disparities exist for unaccompanied youth age 24 or younger. 

The COVID-19 pandemic has also exacerbated the racial disparities and housing instability experienced by BIPOC households. The City of Minneapolis established a gap fund for housing programs in April 2020 to respond to the immediate needs created by the COVID-19 pandemic. The program established the Emergency Housing Assistance (EHA) program and the expansion of the Stable Homes Stable Schools (program). Of the 1,127 approved applications for the ERA program, 40.9% of the applicants were Black, 1.3% American Indian, 34.0% Latinx, 2.4% Asian, 3.3% multi-ethnic, and 9.5% white. Of the 528 approved applications for the SHSS program, 42.2% of applicants were Black, 2.2% American Indian, 34.3% Latinx, 2.1% Asian, 3.4% multi-ethnic, and 6.5% white. While the approved applicants were selected based on a randomized lottery system from a pool of nearly 6,500 applicants, it underscores the disproportionate impact of the pandemic on BIPOC households as it relates to housing stability.

Racially disaggregated data on income, housing, and housing tenure for Minneapolis is generally available. Staff will continue to track Housing Tax Credit allocations as well as reporting on citywide housing trends and its impacts on racial equity. Additional work should be done to provide narratives around housing outcomes for BIPOC communities to support future program changes in its role in addressing racial equity in housing.

The Housing Tax Credit Program creates new and rehabilitates/preserves existing housing units that are affordable to households earning at or below 30% up to 80% of area median income, with an emphasis on deep affordability, and will directly serve households that meet the federally imposed rent and income restrictions. The changes to the overall HTC Program, and targeted changes within the 9% and 4% HTC selection criteria will support housing outcomes that close racial disparities in housing. It is important to note the competitive nature of the 9% HTC Program in which projects are required to meet the minimum scoring threshold and are ranked, whereas projects applying for the 4% HTC must meet the minimum score set by the City and the selection criteria.  

The proposed changes to further incentivize the creation of 30% AMI units in 4% HTC projects will help the City achieve racial equity by providing affordable units to cost-burdened tenant households, who as discussed are over-represented among households of color. The proposed extension of the minimum affordability term in 4% HTC projects will provide further stability for low income households, which is aligned with City policies and Minneapolis 2040 to ensure longer term affordability that can serve targeted households that meet income restrictions.

Another proposed change is to continue evaluating cost reasonableness through use of Minnesota Housing’s Predictive Cost model and eliminate separate cost containment points that disincentivize housing production that meets important needs and goals. Cost containment remains a guiding principle, given great need for affordable rental housing and constrained resources, and continues to be incentivized, required through bidding requirements, and evaluated throughout project underwriting and selection. Elimination of this point category allows cost containment principles to better account for necessary factors related to City priorities of serving larger families, expanding the geographic distribution of affordable housing, increasing the energy efficiency and sustainability of housing, and supporting long term affordability by considering long term cost savings as opposed to only the cost of construction.

In the 9% HTC program, another substantial change is the addition of the Equitable Development scoring criterion. While community members may participate through a neighborhood and community organizations through organized meetings, there is often underrepresentation of people of color, low-income residents, families, and other impacted populations due to barriers of the methodologies that are used for outreach. The draft criterion will incentivize applicants seeking these points to be explicit in identifying project stakeholders, which will encourage specific strategies in order to ensure communities can fully participate and provide meaningful feedback that informs projects.

Applicants should prepare engagement strategies that ensure a feedback loop with community members to ensure that the experience is not extractive and builds trust due to the historical and current day harms experienced by communities of color around housing. As this is applied to the 9% HTC Program, this will promote applicants to engage with impacted communities early on in the development process to build relationships and collect feedback that will help inform decisions that will impact the project.

A final notable change in the 9% HTC program is the consolidation of the homelessness and supportive housing scoring criteria. The scoring criteria clarifies the thresholds for the number of units provided for homeless households, and the commitments needed from a social service agency to provide support services. Applicants should consider partnerships with social service agencies that provide culturally accessible services and can address historical trauma, especially when working with African American and American Indian populations who are disproportionately impacted by homelessness as part of the strategy to end homelessness.   

Staff will continue to monitor and track housing tax credit allocations and housing outcomes such as the number of affordable rental housing units that are produced and preserved through City investments, and the number of units that are serving households at various levels of affordability.

CPED staff currently reports on their work through various public reports and data dashboards. CPED continuously strives to identify more consistent and accessible ways of tracking the state of housing in Minneapolis as well as outcomes for residents disaggregated by race and other important factors. This includes a partnership with the Federal Reserve Bank of Minneapolis to develop a dashboard on housing indicators in Minneapolis with a goal of having this information available online for residents, staff, and policy makers to access.