Memo- Housing Discussion at Council Work SessionPurpose of discussion
Overview
CITY OF HOPKINS
MEMORANDUM
DATE: July 9, 1998
TO: Honorable Mayor and City Council
FROM: Kersten Elverum
SUBJECT: Housing Discussion at Council Work Session
The purpose of the discussion on housing at the Council work session is as follows:
• Provide Council with an update on current housing programs /issues
• Obtain feedback regarding future efforts and projects
Periodically, staff feels it is important to review the status of the City's housing programs
in order to confirm the Council's goals and provide an opportunity to discuss concerns.
A portion of the Council work session will be dedicated to a discussion on housing
including the following issues:
• In the area of subsidized housing, staff has concentrated on continuing to maintain
and upgrade the 86 units of public housing owned by the Hopkins BRA and working
in preparation for the addition of approximately 150 new Section 8 contracts resulting
from the conversion of the Village Apartments from a subsidized building to market
rate. Staff will be providing an update on these important issues.
The City is in the process of updating the City's Comprehensive Plan. The housing
portion of the plan will become the planning document in regards to housing and take
the place of the Livable Communities Action Plan adopted in 1996. Any
recommendations for new housing initiatives should be discussed for possible
inclusion in the Plan.
This fall, it is anticipated that two Westbrooke associations will petition the City to
create a Housing Improvement Area (HIA) to finance major improvements. We will
review the results and status of the existing HIA' s.
The rental housing market is experiencing record low vacancy rates. The tightening
rental market is allowing owners to raise rents and make improvements to the
properties. It does, however, mean affordability is a growing problem. We will
discuss the market trends and what they may mean for Hopkins.
The Hopkins Apartment Managers Association (HAMA) has been an active
organization with tremendous potential under the leadership of Doug Strandness.
Doug will be at the work session, as well as other representatives of rental housing, to
discuss HAMA's goals and our mutual concerns.
Conclusion
The City's housing stock is an extremely important element in the overall health and
livability of the City. The discussion will focus on the major housing issues facing the
City of Hopkins.
While the agenda covers a wide range of housing issues, there will be time to discuss any
questions or concerns you may have regarding the City's housing stock.
Attachments
The following documents are attached for your review:
• Agenda
• Griffen Companies 1998 Apartment Market Report Executive Summary
• Summary of HAMA meeting topics
HOPKINS CITY COUNCIL WORKSESSION
AGENDA FOR HOUSING DISCUSSION
July 14, 1998
I. Subsidized and affordable housing
Section 8 overview
Public Housing
• Village Apartments update
• Status of 4d tax classification program
II. Other Housing Programs
• Review of Homeowner Assistance Programs
Housing Improvement Areas (Meadow Creek, Westbrooke
Patio Homes Phase I & II, and Valley Park Condominiums)
III. Rental Housing/Hopkins Apartment Managers Assoc.
• Current Market Conditions
• Small Rental Property Owner Initiatives
• HAMA's Goals & Summary of Past Activities
IV. Questions
The Twin Cities Metropolitan Area (TCMA) rental market is the .
strongest in ten years. A healthy economy with excellent job oppor-
tunities is fueling household growth. Vacancies are low, prospect
traffic is strong and rents are increasing, albeit slowly. Sale prices are
moving up and capitalization rates are decreasing. The market is
attractive to buyers, developers and lenders looking for solid values
and long -term income potential.
While the Minnesota Legislature provided some relief during
the last session, the property tax climate in the state continues to
be onerous for owners of rental properties, constituting a major
impediment to development.
The Metropolitan Council, the region's state - governed planning
agency, favors higher metropolitan area housing densities and has
drawn ultimate urban utility boundaries to curb urban "sprawl.
The Council's recent Livable Communities Act is designed both
to promote the development of higher- density and multifamily
housing and to enhance development that will meet the needs of a
variety of household types.
Although apartment vacancies have been decreasing steadily
since 1990, rents have not shown a corresponding rise. Landlords
have been conservative in raising rents. Rents have increased, on
average, between two and three percent per year. Continued low
vacancies and spotty development offer an upside potential for
rents.
Construction of market rate general occupancy apartments has
been very modest, while senior housing continues to be a vibrant
element of the market. Demand for senior housing continues to
outstrip supply in most product categories. Indeed, senior housing
is the fastest growing segment of the multifamily Twin Cities
housing market; given demographic projections, it will dominate
development into the 21st Century.
•
Many investors consider the region to be a good long -term
investment. Today, especially, sales of existing buildings reflect
strongly rising prices. Class `B" rather than Class "A" properties have
proven to be the most popular over the past year. Capitalization
rates are averaging about 8.5 percent on newer buildings and have
been declining due to lower mortgage interest rates and increasing
competition for product. The greatest limitation to attracting
significant national investor capital to this market is the limited
number of large (200+ units) rental properties.
The regional rental market is ripe for development of market rate
general occupancy apartments. Nonetheless, rent levels in many
markets have not yet risen sufficiently to justify other than "luxury"
product, and in most submarkets, rent levels and renter demo-
graphics cannot support high -end apartment development. Senior
housing has been an attractive alternative, because this type of
housing attracts a rent premium.
High property taxes, minimal new development, modest rent
increases and a growing household base characterize this strong
apartment market. Nonetheless, several of these factors, as well as
financing restrictions, government regulations and limited land
availability combine to complicate the situation for developers and
investors. According to local and national economists, capital is
abundant and is expected to remain so for the short-term. However,
inflationary pressures may cause a hike in short -term interest rates
by the Federal Reserve sometime in 1998 and thus, generally higher
interest rates overall.
Taxes on investments in general and real estate in particular
were addressed at both the state and federal levels this year. While
both areas took steps to reduce the tax impact, collectively little was
done to benefit and stimulate real estate investment. The good
news is that the wait is over and investors and others can make
decisions knowing the tax issues to be faced.
The economic health of a region is determined by a variety
of demographic, economic and market factors. Taken together,
these forces have combined to create the region's current robust
market situation.
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