New Bills Headed For Approval Could Help Address Local Housing Crisis

A package of four bills is headed for enactment in Michigan that leaders say could provide a major boost to communities trying to build more workforce and attainable housing – particularly in areas like northern Michigan. The Ticker spoke with Yarrow Brown, executive director of the nonprofit Housing North – a key supporter of the legislation – about what’s in each bill and how the changes could benefit the region.

Senate Bills 362, 364, 422, and 432 were “crafted to address various obstacles to workforce and attainable housing development in areas including land use, financing, and taxation,” according to Housing North. The bills were drafted after Housing North and the Housing Michigan Coalition – a group of 60-plus organizations advocating for housing led by Housing North, Home Builders Association of Michigan, Michigan Municipal League, and Grand Rapids Chamber – collected input on ways to develop “missing middle” housing opportunities.

Specifically, the bills aim to spur housing development for individuals making 60-120 percent of the area median income (AMI), or the household income for the median/‘middle’ household in a particular area. The bills were approved by the Michigan House of Representatives last week after previously passing the state Senate; they now go back to the Senate for a concurrence vote before being forward to the governor’s office for formal approval. It took almost two years to get the legislation approved – “I think I underestimated how long it would take,” Brown acknowledges with a chuckle – but represents a “huge” opportunity to address the housing crisis, she says.

Senate Bill 364 – sponsored by Senator Jeremy Moss – would extend the opportunity to use Neighborhood Enterprise Zones (NEZs) to all Michigan cities, villages, and townships. Previously, only “eligible distressed communities” could use NEZs – and only within a downtown revitalization district. An NEZ is a defined zone where property tax exemptions are available in exchange for developers constructing or rehabilitating residential housing. The district must include at least 10 platted parcels of land – with the land being compact and contiguous – and be approved by the local unit of government. Participating properties within the NEZ would receive a 50 percent reduction in taxes for a period of years – 6-15 for new and rehabilitated facilities, 11-17 for projects in qualifying historic buildings – in exchange for constructing or improving residential and/or mixed-use buildings.

“NEZs in the past were limited to a handful of communities,” says Brown. “Now it’s open to any community who wants to support housing. It’s for the redevelopment and rehabilitation of housing and providing infill in communities.” In northern Michigan, Brown says Traverse City and Manistee were among the only locations eligible to create NEZs; now, all communities in the region can use them. “It’s important,” says Brown. “For example, if you have a building that’s been sitting vacant awhile, it’s an opportunity for a developer to be part of an NEZ and have their taxes reduced, which could make it a more viable project.”

Along with the NEZ legislation, Brown says Senate Bill 432 – sponsored by Senator Wayne Schmidt – could have the most immediate impact in northern Michigan. The legislation allows communities to enter into payment-in-lieu-of-taxes (PILOT) agreements with developers to offer tax breaks in exchange for developing affordable housing. A PILOT agreement allows developers to pay a percentage of rental income to the city – for example, six percent over 30 years – in place of traditional taxes to offset costs associated with developing affordable housing and charging below-market rent.

The City of Traverse City, Garfield Township, and East Bay Township have all used PILOTs to support multiple workforce and low-income housing developments. However, previously communities weren’t allowed to award PILOTs unless developers applied for – and received – highly competitive tax credits from the Michigan State Housing Development Authority (MSHDA). The new legislation ends that requirement. Local communities can negotiate PILOT agreements – including their length, amount, and income ranges for tenants – regardless of whether or not the project receives other state or federal tax credits. Freeing up communities to approve more PILOTs on their own provides “a needed tool for governments and developers/builders to partner together to address local workforce housing needs,” according to Housing Michigan.

“This is a huge one,” says Brown. “As one example, in Petoskey they recently had the loss of Lumber Square as a low-income housing project because they couldn’t get MSHDA funding. They got approved for the PILOT, but they couldn’t move forward. This now is a tool that can be opened up for any housing project (with tenants who have) up to 120 percent AMI. It’s a huge win for our communities. A lot of our work at Housing North now will be getting communities ready to use these tools.”

The other two bills will require more groundwork for implementation, Brown says, but will still be impactful for the region. Senate Bill 362 – sponsored by Senator Winnie Brinks – allows local governments to create “attainable housing districts” where property owners can apply for partial tax exemptions if they meet certain criteria. The local government can reduce real property taxes (not land or personal property taxes) by 50 percent for up to 12 years if developers meet affordability requirements set by the community – no more than 120 percent of the county-wide AMI. Developers would sign an agreement to conduct yearly income certifications for residents in the attainable housing units, which must make up at least 30 percent of the total residential units on the property.

Senate Bill 422 – sponsored by Senator Ken Horn (Rep. John Roth backed it in the House) – would allow communities to create Residential Facilities Exemption districts, similar to Industrial Facilities Exemption districts that exist today. “The abatement would enable renovation and expansion of aging residential units and assist in or encourage the building of new residential units in these districts,” according to Housing Michigan. Qualifying new housing developments with single-family or multi-family homes could earn up to 12 years of relief on property taxes if geared toward tenants earning below 120 percent AMI, “with assurances that the units are occupied as a principal residence (year-round) to eligible households,” according to Housing Michigan.

For Housing North – an organization that’s only four years old – helping get the four bills passed is a major milestone in fulfilling its mission to help communities find solutions to the housing crisis, according to Brown. “We are beyond excited,” she says. “It was bipartisan and bicameral, which shows the support and need for this in our region. It’s not going to solve everything, but it’s a huge step forward.” In addition to helping northern Michigan communities understand the new bills and get prepared to use them, Brown says Housing North is still working with Housing Michigan and other partners to pass more legislation – including TIF, community land trust, and principal residence exemption bills (the latter of which could make it less tempting for homeowners to convert their second homes to short-term rentals). As the new legislature takes office in 2023, Brown is hopeful even more pro-housing reforms could be on the horizon.

“There’s still a lot more work to do,” she says.