News & INSIGHTS

Perhaps the most consequential battle in Ann Arbor is taking place not on the gridiron or the hardwood, but at the city council dais.

That’s where members of the progressive city’s 11-member governing body have been sparring over how to address a looming crisis: the need to create about 2,800 units of new, permanent affordable housing by 2035, or else risk economic stratification that one report warns could be irreversible.

There isn’t much disagreement that the city needs more affordable housing. But meeting a goal of 140 new units per year seems far from grasp. The majority and minority factions on council can barely agree on the root cause of the shortage, never mind approve new housing.

Over the course of two months, a pair of proposals that would have provided at least 81 affordable apartments for senior citizens were narrowly rejected: the Lockwood of Ann Arbor project at 3365 Jackson Road east of Wagner Road and the Brightdawn Village project at 2805 Burton Road north of Packard Street.

Lockwood was shot down in May, while Brightdawn was scuttled earlier this month. Zoning matters were at the forefront of concern for both projects.

“This is a subject of community conversation,” said Mayor Christopher Taylor, who supported both projects. “There have been shifts on council that led us to where we are today. If these projects had come up a year ago, I believe they both would have passed. We had an election in 2018. Some people won, some people lost.”

In the August primary election, Taylor allies Chuck Warpehoski, Kirk Westphal and Graydon Krapohl fell to challengers Ali Ramlawi, Kathy Griswold and Elizabeth Nelson, respectively, setting the stage for a series of battles that has the incumbent mayor in the minority on issues pertaining to affordable housing and growth. Three months later, a key ballot initiative was defeated that would have pumped $5 million into affordable housing.

Ramlawi, who opposed the rezoning for the Lockwood project that is in his council ward, said he knows more affordable housing is needed but also views the problem as one created by income inequality, an issue difficult for the city alone to tackle.

“We have a council now that is made up of a lot of independent thinkers who represent their wards and constituents,” said Ramlawi, owner of the popular Jerusalem Garden restaurant downtown. “It becomes complicated quickly and controversial even faster when these zoning requests come up for a vote because now developers are using the affordable housing tool or label on these type of developments, developments that in many instances degrade the quality of life for the members of the community that live nearby. The infrastructure a lot of times cannot handle these new developments, the sewer, the water, the roads simply cannot handle them.”

But if the council can’t reach a consensus, and if private developers don’t come to the table with projects that can garner the six votes necessary, the city faces an even greater problem in the years to come.

“The reality is too mind-blowing,” Jennifer Hall, the Ann Arbor Housing Commission executive director, said of the city’s affordable housing crisis, which was detailed in a Washtenaw County Office of Community and Economic Development-commissioned 2015 report by Alexandria, Va.-based community planning company CZB LLC.

Indeed, the report says that the number of people in Ann Arbor and Ypsilanti paying more than half of their income for housing more than doubled from 2,200 to 4,404 between 2000 and 2012, and it increased 74 percent for those paying more than 30 percent of their income, from 7,288 to 12,646. Experts generally say people should spend no more than 30 percent of their income on housing costs.

Hall doesn’t sugar coat the challenge ahead.

“We probably need 20,000 units for low and moderate income households. The demand is so high and it feels so out of reach,” she said, noting that the area median income in Ann Arbor is $102,000.

The coming crisis

At least as of now, that sentiment is not unfounded.

The CZB report recommends 140 new affordable units every year until 2035. At most, about 50 units have been developed in the four years since the report was released.

It says Ann Arbor’s housing market is currently fundamentally strong but threatens to become “considerably out of balance.” In addition, neighboring Ypsilanti, home of Eastern Michigan University, has a housing market that is “fundamentally weak and in some respects in abject distress.”

The result is very much a tale of two cities, the report says.

“Ann Arbor and those with Ann Arbor addresses are at one end of the spectrum where property values are increasing and that appears likely to continue, while Ypsilanti (city and township) is at the other and in real trouble,” the report says. “At this unblended scale, these are two markets going in opposite directions with three very probable outcomes, barring a significant change in policy at the local jurisdictional or countywide level.”

The scenario is unsettling: An Ann Arbor that is increasingly unaffordable for non-student renters and eventually prospective buyers and Ypsilanti becoming “more distressed and thus more affordable, especially to at-risk households.”

Families working in Ann Arbor will continue to be priced out of the city, prompting them to move to Ypsilanti and other areas that are more affordable, the report says.

“The result will be a county decreasingly affordable and out of balance and, eventually, unsustainable, as some parts of the county possibly degrade beyond a point of no return, and others grow in value beyond a point that’s ever again affordable,” the report reads.

The Ann Arbor Board of Realtors says that the average single-family home listing price shot up 7.4 percent to $350,178 in May from $326,126 in May 2018, while the average sale price climbed 6.9 percent from $325,151 to $347,547 in that time period. Condo list prices have surged 15.9 percent from $234,480 to $271,762 from May 2018 to last month, while the sale prices rose 14 percent from $235,548 to $268,542.

Since the CZB report‘s release four years ago, city leaders have been scrambling to find solutions, resulting in a hodgepodge of ideas, but not a lot of results.

A $1 billion problem

That’s not surprising to Albert Berriz, the CEO of the Ann Arbor-based real estate investment giant McKinley Inc., which develops and owns affordable workforce housing for those generally making between 50 and 80 percent of the area median income.

There are a host of reasons for that — in fact, there are close to a billion of them, said Berriz, whose company is one of the largest owners/operators of such housing in the country, and has 60 percent of Washtenaw’s stock.

Berriz estimates that it costs about $325,000 to build an affordable unit. At that rate, building 2,800 units is about $910 million.

“You are trying to put $1 billion in capital through a straw because the nonprofits and the city have to stand in line in Lansing to get capital,” in the form of low-income housing tax credits and other financing, he said. “Even if Ann Arbor got all the allocation, it wouldn’t be enough.”

He said the idea that the city and nonprofits like Avalon Housing and a handful of others could build the needed affordable housing supply by 2035 is “a fantasy.”

It comes down to local politics, which are dysfunctional, Berriz said.

“The mayor and all the people involved are married to the community nonprofits. The real solution to this problem is being done by public-private partnerships … You can’t expect the mayor and these community nonprofits to raise the capital and have the expertise to execute at that level. They can’t. I run a $4 billion business. It’s not chopped liver to raise $1 billion. It’s a big deal.”

UM’s role

The city lives and dies with the University of Michigan, by far its top employer with nearly 31,000 employees between UM itself and its health system. That’s more than four times as many as the next-highest employer, Trinity Health, with about 7,200 employees.

The city says UM’s annual enrollment has increased by about 7,100 since 1990, a jump of 17.88 percent from 39,631 to 46,716. However, the university has not developed new housing to accommodate its increasing student body, instead deferring to the private sector to produce more off-campus housing.

“Their expectation is that the private market will provide housing, which is fine, and they see it as a positive thing that they are not providing tax-exempt real estate,” Hall said. “The issue is, if they keep adding students over the years, they have to live somewhere, and we haven’t built any type of housing to absorb all those students.”

Kim Broekhuizen, associate director of public affairs for the university, said in a statement that the university has added 1,080 student beds in recent years between the North Quad complex and the Munger Residence.

“We value our partnership with the city of Ann Arbor on many initiatives that help to support the quality of life for residents,” she said in a statement emailed to Crain’s.

“Students will try to live as close to campus as possible, so they are going to be living in the city,” Hall said. “That has always impacted the market. Recently there has been a lot of development in and around campus of high-end, taller, denser buildings which are absolutely needed to meet the demands of the market. But it has really pissed off some people who live in Ann Arbor. They blame the city for ‘allowing’ these high-end, high-cost student developments in town, but they don’t understand that’s what the market demands and needs.”

Taylor said he hopes UM becomes more active in the affordable housing space.

“They have land and resources,” Taylor said. “The quality of life in Ann Arbor is of critical importance to the university, and this is a substantial threat to the quality of life in Ann Arbor: the lack of affordability, what it means for economic stratification, what it means for racial segregation and separation, other forms of demographic separation, what it means for increased transit into the community, the quality of life for people who are just trying to get around to their jobs.”

In an interview in his downtown Ann Arbor law office, he paused.

“It’s a big deal, and they are a player that hasn’t played.”

Rejected plans

The city has made a few efforts to get more affordable housing in Ann Arbor, where those at the council table have a difficult time even coming to a consensus about what’s driving the shortage: supply and demand, or income inequality, or still other reasons.

One plan was to funnel revenue from a 2017 countywide public safety and mental health millage to an affordable housing trust fund to the tune of about $880,000, which would be used to leverage additional public and private financing for projects. The council agreed to put this money into the fund, but it’s not guaranteed that this will happen every year.

Another idea was selling off city-owned land such as the so-called library lot, Taylor said. That idea has been politically contentious.

In addition to overhauling City Council in 2018, voters approved Proposal A, which prevents the city from selling the lot to Chicago-based Core Spaces for $10 million, with half of that money going toward affordable housing. The developer wanted to build a 17-story project that would have had among its uses 360 apartments and 131 hotel rooms, according to MLive.com. Proposal A keeps the 0.8-acre property in the city’s hands and mandates it become a public park downtown.

The city is also considering using other public property for affordable housing, although that has been a slow slog. Berriz said that’s not surprising.

“Ann Arbor kills deals,” he said. “There is no question about that. We all know that … Take those (city-owned) parcels and plan those with one or many developers. You are probably going to have to get into the neighborhoods. If you are ever going to get past the NIMBY (Not in My Backyard) thing in Ann Arbor, you have to go where people don’t live.”

Ideological differences

Ramlawi rejects the assertion that the new council majority is stonewalling projects to keep them out of their respective neighborhoods.

“Proponents of affordable housing often criticize council for not approving developments because their argument is that adding supply will lower the cost of housing,” Ramlawi said. “That’s been Ann Arbor’s approach up until this council. Prior council focused solely on adding more supply at all expense. Now we are taking a new look at that. By simply adding more market-rate housing supply, it isn’t going to bring down the cost of housing for folks.”

(He also characterized some affordable housing proponents as “zealots.”)

Hall, the housing commission director, said there has not been an existing affordable housing measure before council that hasn’t had unanimous support. But when it comes to new affordable housing, that’s a different story.

“It’s easy to support something that was already there,” she said. “To the neighbors, we were already there. To them, it’s not bringing in new different and low-income people. Until you actually have a project that is in the council member’s ward, building something that was never there before, we don’t know how they feel about affordable housing.”

More voucher requests

As this goes on, the crisis is crystallized in recent numbers.

Hall said the first time the Ann Arbor Housing Commission started accepting applications for housing vouchers online in 2012, there were 15,000.

Last year, there were 4,200 applications for affordable housing vouchers — and that’s with only accepting them for people who are disabled, homeless and/or living and working in Washtenaw County.

“Our occupancy is always 100 percent,” Hall said.