How would you like it if the government said you are required to sell 10 percent of your product at below-market rates?
My guess is you wouldn’t like that at all. How do you make up for that lost revenue? Depending on your profit margin, such a requirement could imperil your business.
Your company might choose to avoid doing business in a jurisdiction with that requirement.
A proposal crafted by Alderman Robert Bauman would require developers that build apartment buildings downtown to lease at least 10 percent of the units at below-market “affordable rates” for residents whose income is 60 percent or less of the area’s median income.
Developers could opt out by paying $125,000 per required affordable unit.
The goal of providing affordable housing downtown is noble and ties in to addressing the area’s segregation problem. But this idea is wrongheaded and would do far more harm than good. Turns out, it’s also illegal.
After many years of stagnation, development in downtown Milwaukee has finally taken off. There have been several apartment developments downtown, which is vital to creating economic vitality there.
An affordable housing requirement would take the wind out of those sails. Mandated below-market rents would reduce revenue for buildings and could hurt the viability of projects.
How would apartment developers respond to this ordinance? A few might actually comply. Others would decide to build elsewhere, perhaps in communities like Wauwatosa or West Allis. Still others would try to build downtown, but would insist they need subsidies to do so because of the affordable housing requirements.
This would be a bad law for downtown Milwaukee. Fortunately, the city attorney’s office issued an opinion and said it would be illegal to require that every apartment development include affordable housing.
However, the city attorney’s office says the city could require affordable housing for projects that are receiving city subsidy. Under the proposal from Bauman, developers seeking a city subsidy for an apartment development would have to lease 20 percent of the units at below-market rates.
Subsidizing affordable housing is a better approach than mandating it in every new building.
“If they say, ‘You are going to do affordable housing without any funding attached to it,’ I don’t know if that is even possible,” a developer said.
Most apartment developments downtown in recent years have been built without subsidies. City officials have been reluctant to provide them because that market has been so strong they haven’t been necessary. It’s clearly better for the city if development occurs without subsides. It’s critical those projects can still move forward. More residents makes a more vibrant and prosperous downtown.
Use city subsidies as a tool to achieve affordable housing goals.
