With costs rising for everything from insurance to elevator repair, Catholic Charities informed residents of St. Christopher Place last year that they’d have to pack up and leave. The last tenant in the 71-unit rooming house moved out at the end of January, ending an era for the dorm-like structure at 268 Marshall Ave. in St. Paul, which the nonprofit has owned and operated as single-room occupancy housing for the impoverished since the mid-1990s. The four-story building, constructed in 1965, remains on the market.
Prior to closure, Catholic Charities subsidized the affordable housing program at St. Christopher Place by about $500,000 annually, a cost the nonprofit found unsustainable.
“As buildings age, it becomes harder to maintain them,” said Elizabeth Lyden, vice president of engagement with Catholic Charities, which maintains more than 900 units across the Twin Cities, most of them targeted to especially vulnerable populations like the recently homeless. She called financial challenges widespread across the affordable housing industry. “The math doesn’t math anymore.”
St. Christopher Place isn’t the only affordable rental housing likely to be sold off to new owners who may have less interest in providing homes for the poor. A new report commissioned by a coalition of 36 housing providers finds that since 2020, rising inflationary costs, skyrocketing insurance, staff shortages and the demands of housing a community hard hit by the fentanyl crisis, among other post-pandemic challenges, have left housing for very low-income residents in tough fiscal and maintenance shape.
That raises the likelihood that more of it will be sold at a time when affordable housing is in growing demand. The challenges of maintaining affordable units in the regulated, charitable market are especially prevalent for older buildings, which tend to need more tender loving care, putting them at particular risk of shuttering.
The 42-page “Distressed Property Data Project,” authored by O’Neil Consulting, studied the financial records behind more than 26,000 housing units situated in more than 450 housing developments across the state, with data culled from 2018 to 2023. The authors noted that while the study focused mostly on residential units run by nonprofits, many for-profit housing providers that serve low- to moderate-income residents are feeling the same stresses. The report included data from at least 88 regulated properties owned by for-profit entities, spanning more than 4,100 units.
Cash flow falls below break-even point
Among 11,400 housing units that provided data, the average cash flow fell to $1,226 per unit below a break-even point in 2023. At properties where all units were eligible for permanent supportive services like counseling, cash flow fell to $1,600 below a break-even point.
“That’s happening to small providers and large ones,” said Kizzy Downie, chief executive officer of Model Cities of St. Paul, which maintains about 75 units of affordable housing in and around the Summit-University and Frogtown neighborhoods. “The story is across the board. We’re all seeing the impacts of what’s happening across the industry.”
The report — which urges financial action by the state Legislature — was commissioned by the Family Housing Fund and the Greater Minnesota Housing Fund. Consultants analyzed various types of affordable housing by category.
All property types showed operating and maintenance cost increases that far surpassed the rate of inflation between 2018 and 2023. The increases by property types ranged from $1,100 to $1,760 per unit, numbers that would have only grown by $500 to $680 per unit had they kept pace with inflation alone. In other words, rising operating costs grew far faster than inflation even at a time of rapid inflation.
For low-income housing tax credit properties that did not offer counseling and other permanent supportive housing services, the report found that annual expenses grew by more than $2,000 per unit, or 33%, during the five-year study period.
“This is clear evidence of substantial operating cost distress, and consistent with interview comments about rapid wage increases for staff of all types, costlier insurance, and higher costs for all types of supplies and services,” reads the report.
Insurance was a major driver of expenses. Across the portfolio of Catholic Charities properties alone, property insurance premiums increased by 30% from 2023 to 2024. And multiple Catholic Charities properties saw water damage deductibles alone climb to $100,000 or even $250,000, meaning flooding from a damaged sprinkler or broken water pipe would likely force the nonprofit to pay cash for repairs, according to a spokesperson for the nonprofit.
Vacancies grow even as cost of housing climbs
At the same time as expenses have climbed, vacancies have grown.
Across the spectrum of affordable housing, all types of properties suffered rent loss beginning in 2021 due to growing vacancies caused when a federal eviction moratorium ran out, staffing shortages and insufficient operating funds made it harder to get units ready for occupancy, and coordinated entry lists maintained by county social service departments suffered delays in placing tenants.
Properties offering permanent supportive housing services have been hit the hardest by vacancy trends, especially in the Twin Cities metro. They tended to experience the highest losses in rent collection as vacancy tripled from 2018 to 2023, equating to about a 15% loss in total project revenue.
As a national labor shortage bites into staffing, “it slows down, in some cases, the process of even getting people moved in,” Downie said. “If there’s a unit that’s vacant, and the costs to get someone to fix that unit up is higher because it’s more expensive to hire somebody, that’s a unit that isn’t being filled as quickly.”
While housing providers in the Twin Cities have been hit hardest by vacancies from a revenue standpoint, the highest number of vacancies in 2023 landed in rural areas in Greater Minnesota. Rural development projects also showed the most distress in terms of bad debt, a problem felt statewide.
The study also looked at the sharp rise in security costs, which began in 2021, a year earlier than many of the other factors cited, and likely related to the pandemic and unrest following the murder of George Floyd in Minneapolis. Utility costs have, in general, risen more moderately than other factors, according to the report, and vary depending upon the property type.
Rising interest rates after 2021 also put pressure on properties needing loans, such as Federal Housing Administration affordable housing mortgages.
Even nonprofit providers like Catholic Charities, which have opened newer housing developments in recent years like the Dorothy Day Residences in downtown St. Paul, “it’s a lot cheaper to preserve units than to bring new units online,” said Keith Kozerski, chief program officer for the nonprofit. “This isn’t a Minneapolis problem or a St. Paul problem. This is a statewide problem that is impacting people all over.”
Housing has been a priority recently at the Legislature.
In 2023, lawmakers and Gov. Tim Walz approved more than $1 billion in funding for a wide array of housing initiatives, on top of a new metro-wide sales tax that goes into effect on Oct. 1. The housing omnibus bill represented the largest single spending on housing in state history. It came in addition to housing efforts backed by the state infrastructure, bonding and tax bills.
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