CEDAR RAPIDS — Iowa is allocating $100 million of its federal coronavirus relief funding to address a housing shortage in the state, Gov. Kim Reynolds announced Wednesday.
The American Rescue Plan Act funding, plus $230 million the Iowa Legislature has allocated over five years to Iowa’s tax credit programs, will make it possible for developers to build 36,450 new housing units, Reynolds said.
“Today’s announcement represents far and away the most consequential housing policy Iowa has ever implemented,” she said as she unveiled the plan at the Iowa Finance Authority’s annual housing conference in Cedar Rapids.
The $100 million in new, federal money will be split among several existing programs, plus a new pilot program to improve housing access for minority groups. Planned expenditures are:
- $65 million to bolster existing housing tax credit programs to fund more projects and help cover increasing costs of housing materials.
- $20 million for downtown housing in towns under 30,000 people.
- $10 million for the Homes for Iowa program, a nonprofit organization that employs inmates at the Newton Correctional Facility to build affordable housing.
- $5 million for pilot programs to promote home repair across Iowa as well as homeownership among minority groups.
Iowa received $1.48 billion in funding from the American Rescue Plan Act, signed by President Joe Biden in March. A portion of the funds can go toward a variety of uses that don’t necessarily have to be related to COVID-19 recovery.
“Today the state of Iowa is in a strong economic position. Since absorbing the shock of 2020, we have actually experienced a level of growth and vibrancy that most states can only envy. Business is booming and Iowa offers countless opportunities for employment,” Reynolds said. “But if we want to turn this encouraging short-term trajectory into long-term, broad-based prosperity, Iowans need access to more high-quality, attainable housing.”
Developers have been advocating for the use of the funding to build housing in Iowa, which is seeing a shortage for people across a range of incomes. The issue is acute in rural areas, where housing shortages are exacerbated by lower wages, making it less attractive for builders to focus attention there.
“We have a huge opportunity. It’s a chance for us to really do something long term, and I’ll argue generational,” Kris Saddoris, vice president of multifamily development at Hubbell Realty Co., said last month at a forum on affordable housing . “We all can do something that will outlive us.”
Need for affordable homes growing
A recent Iowa Finance Authority study found the state needs 47,000 new homes in the next decade to accommodate population growth. Nearly 40% of those units need to have rents or mortgages that are affordable to Iowans earning 80% or less of the area median income, which in Iowa is a maximum of $47,964 a year.
Thousands of Iowans already are struggling to afford housing. The finance authority’s study found 39% of renters and 16% of homeowners are “cost burdened,” meaning they spend more than 30% of their income on housing expenses, including utilities.
Housing long has been a priority of the Republican governor. Reynolds created an initiative to address the shortage of rural housing and also included housing needs as part of the mission of her COVID-19 economic recovery advisory board. She spoke of the need for new housing proposals during her annual Condition of the State address earlier this year.
She also proposed what some housing advocates called a robust tax credit package in this year’s legislative session, a portion of which won approval by lawmakers for the extra $230 million over five years in tax credits. The credits lower the cost of financing construction and keep rents and mortgages lower than typical market rates.
From the new proposal, $45 million will go toward Iowa’s federal low-income housing tax credit program. The Iowa Finance Authority, which administers the program, will prioritize developers denied funding in the 2020 and 2021 tax credit rounds, said Dave Vaske, the agency’s low-income housing tax credit manager. He called the additional funding a “grand slam.”
“We feel (it) could be enough to do 12 to 15 projects, depending on the financial needs,” he said. “We’re very excited about that — it’s like having another round of tax credits for us.”
Another $20 million will go to projects already approved to receive workforce housing tax credits. The goal is to address rising costs of building materials, such as lumber, for which there have been steep increases during the COVID-19 pandemic, said Brian Sullivan, chief programs officer with the finance authority.
“We want to be sure you have the money to complete” the projects, he told developers at Wednesday’s housing conference.
For small communities, $20 million will go to renovating upper-story housing units on Main Streets or converting into housing large, vacant buildings near their central business districts. Grant awards would range from $100,000 to $600,000, depending on the project.
Mike Norris, president of the Homes for Iowa board of directors, which oversees Homes for Iowa, a program that employs state prison inmates to build two-bedroom, two-bathroom ranch-style homes, said the infusion of $10 million “will really help us accelerate our growth.”
“It will put some adrenaline in the program,” he said.
Homes for Iowa employs 70 inmates at the Newton Correctional Facility who serve apprenticeships, learning plumbing, electrical, carpentry and general labor skills. The U.S. Department of Labor certifies the programs, meaning any inmate who doesn’t complete requirements before release can finish with an employer or a union outside prison.
The inmates build the homes, which go for $190,000, on the prison grounds. The homes are then moved to their permanent locations.
Homes for Iowa had a slow start in 2019 but by the end of 2021 will have sent 28 homes to 20 counties.
With the new state funding, it can meet a goal by 2023 of placing 45 released inmates in skilled trades jobs, building five homes a month, adding a second home-moving unit and purchasing three years’ worth of building materials, Norris said.
“We will be able to reach all parts of the state,” he said.
Funds for renovating aging homes
Reynolds has allocated $4 million to a home-repair block grant pilot program that gives financial assistance to Iowans who want to preserve their homes. The median age of homes statewide is 50 years.
Another $1 million will go toward a minority homebuyer down payment assistance pilot program, which will give $5,000 to 200 minority households for down payments and closing costs.
Both pilot programs, if successful, “can be rapidly expanded,” Reynolds said.
“We’ve seen a growing mismatch between where the job opportunities are thriving and where people can find affordable places to live,” she said. “This issue requires us to think big and act boldly. It’s too important to really do anything else.”