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Workforce housing bill: Developer handouts or helpful for housing costs?

Joshua Haiar

A bill that provides $200 million for workforce housing infrastructure is designed to give municipalities and developers the flexibility to pitch projects aimed at their local workforce needs.

But some affordable housing advocates and Republican lawmakers are worried the funding could end up helping developers profit in an already hot market, while doing nothing to make housing more affordable.

Rep. Roger Chase, R-Huron, supports the legislation.

"We don't have any federal regulations that we have to abide by," he said. "It'll be very flexible and user-friendly, and hopefully something communities and developers can work out very easily and obtain and get to work on providing workforce housing across South Dakota."

Scott Engmann, executive director of Habitat for Humanity in the Black Hills, supports the bill if the funding goes toward affordable projects, but not if it goes to market-rate developments which he says are already successful without state aid.

"That to us is a misuse of the funds," he said.

Gov. Kristi Noem introduced Senate Bill 53 after a summer legislative study on workforce housing needs. Chase, who works in real estate and farming, served as the chair.

The study was prompted by South Dakota's affordable and overall housing shortage that is only expected to grow as more people and businesses move to the state.

Sen. Mike Diedrich, R-Rapid City, said the takeaway was that South Dakota has a shortage across all housing levels: low income, middle income and people who can afford market rates.

The funding, offered in grants and revolving loans, would be for housing infrastructure, such as ground leveling, roads and pipes. Municipalities, tribes, for-profit developers and nonprofits would all be eligible to apply.

Chase said the bill focuses on infrastructure because preparing land and infrastructure is a major cost of home development.

The $200 million would come from the state's general fund and COVID-related aid from the federal government.

It would be evenly split between the Housing Opportunity Fund at the South Dakota Housing Development Authority, and the Local Infrastructure Improvement Program at the Governor's Office of Economic Development.

The housing fund would provide loans while the infrastructure program would provide grants.

The grant would cover up to a third of the infrastructure cost. The remaining cost would be matched by the municipality and developer.

Noem said the applicants would have to submit a workforce housing study.

"So we're making sure that they're building the appropriate housing for that community and the needs that they have to recruit those workers to fill the jobs in that town," she said.

The Senate Commerce and Energy Committee unanimously endorsed SB 53 after hearing from 19 proponents and zero opponents.

The committee also unanimously endorsed SB 65, which updates a law about the Housing Opportunity Fund so it can accept the new housing infrastructure funding.

But House Bill 1033, which makes updates to a Local Infrastructure Improvement Program law, received criticism from Republican lawmakers who cautioned against government intervention while questioning whether the funding would do anything to help with costs and rents.

The House bill passed a committee on a 9-3 vote before the full House passed it 41-27.

What is the bill for?

SB 53 does not define what counts as "workforce housing" except that it's not government-subsidized housing. Beyond that, it does not require particular rents and prices, or target specific incomes.

Some in the housing community say workforce housing is for people who make too much to qualify for government-subsidized programs but still struggle to afford market rent.

Supporters of the bill have offered their own definitions.

"Workforce housing is housing for the growing number of people that are coming into South Dakota or currently working in South Dakota," Chase said.

"This is not aimed at affordable housing. This is aimed at infrastructure," testified Rep. Chris Johnson, R-Rapid City.

Travis Dovre with the GOED testified that workforce housing is anything between subsidized and luxury housing.

But critics say there's nothing in the bill that guarantees the funding would go toward more affordable housing.

"It says a workforce housing project is any project not subsidized already at the federal or state level for affordable housing. There's no limits other than that?" asked Taffy Howard, R-Rapid City.

Howard also questioned whether the bill would do anything to keep costs down.

"Developers have not been losing money, the market is so hot right now. They're all doing really well," she said. "Because of the holes in this bill, why wouldn't they just take advantage of the tax dollars and continue to build whatever the market can bear? How do we believe this is going to turn out good for the average taxpayer?"

Rep. Steve Haugaard, R-Sioux Falls, also criticized the legislation. He's challenging Gov. Noem in the June primary election.

"I don't believe that this bill is going to limit the amount of rent that somebody's going to have to pay," Haugaard said. "These are developer bills."

Tony Jockheck, executive vice president of the South Dakota Home Builders Association, said the organization expects and is encouraging developers to pass their cost savings on to homeowners and renters.

"It's not going to be luxury homes or luxury apartments," he said. "It's going to help spur development, keep the cost low so that people that are moving here for your mid- to lower-end wages have a nice quality home to live in."

Sen. Diedrich said he's already hearing from local governments who say they're interested in pitching projects for low- and middle-income residents.

He hopes to see projects for mixed-income residents. Diedrich is also interested in projects that blend housing with retail and other amenities as a way to boost quality of life.

Other approaches

Even though the House passed a bill linked to the Senate bill authorizing $200 million in government funding, it also passed a resolution saying that it's best for the government to stay out of housing.

The resolution summarizes findings from the summer study and says "the free market system, in conjunction with an active reduction in governmental burden" is the best way to achieve affordable and sustainable workforce housing.

Some Republican lawmakers who voted in favor of the legislation said they're usually wary of approving so much government funding, but said the housing issue is a crisis and the state should take advantage of the influx of federal funding.

Engmann, with Habitat for Humanity, said the legislation relies too much on the idea that more housing supply equals lower prices.

"Essentially the Noem government is pedaling a trickle-down economics theory and we have a housing crisis on our hands today," he said. "So we can't afford to wait five, six, seven, ten years for a trickle-down effect with a bigger inventory of housing. We need affordable housing now. We need it like yesterday."

Some workforce housing programs provide aid only if developers promise to build affordable homes for sale or keep rent affordable for a certain period of time.

Examples include a private-public development in Spearfish and the Rapid City Strategic Housing Trust Fund.

Chase said he doesn't think this would work on a statewide level, but applicants for the state funding could have such an arrangement between the municipality and developer.

Reactions, other needs

Engmann and some other affordable housing advocates are happy the legislation allows nonprofits to participate.

"When nonprofits are doing it, typically they're looking at providing a house or homes that are a little lower in in price," said Brent Tucker, the housing development director at Affordable Housing Solutions in Sioux Falls.

Lori Moen, chief operating officer of GROW South Dakota in Sisseton, said she's glad the legislation is open to rural and tribal areas since the housing shortage is not just an urban issue.

The grant portion of the legislation says the funding must be evenly split between larger and more rural areas through 2024. After that, it can go to any location.

Noem said it's important to include grants in the program since smaller communities might not be able to pay back loans.

Moen and Engmann want more funding for the Housing Opportunity Fund, a flexible program that helps fund new housing, down payment assistance, homeless prevention, repairs to old homes and other projects.

Engmann said the Legislature gives the Housing Opportunity Fund about $5 million a year, which only allows the program to fund about half the applications it receives.

The program's funds — except housing infrastructure funding — mostly go to less populated areas and are reserved for housing under certain prices or rents.

Chase said the Legislature is considering adding more money to the Housing Opportunity Fund.

Arielle Zionts, rural health care correspondent, is based in South Dakota. She primarily covers South Dakota and its neighboring states and tribal nations. Arielle previously worked at South Dakota Public Broadcasting, where she reported on business and economic development.