By Robert Williams
The Vergas Economic Development Authority/Housing and Redevelopment Authority (EDA/HRA) continued discussions on the future of the tax forfeited lots of the Sunny Oaks development located off West Hill Street on Dianne Avenue during the monthly meeting Tuesday, June 6.
Otter Tail County currently owns the 11 lots after receiving them from the state. The EDA/HRA discussed acquiring the lots from the county for $1 and would like the county to build senior housing on two of the lots.
The county HRA helped create the city of Dalton redevelopment plan to create senior housing there. The one-level houses share a wall, townhome style, with garage entry and a small porch.
The county is looking to create more housing of this type in other communities.
According to Vergas Secretary-Treasurer Julie Lammers, Otter Tail County would rent and manage the homes.
Lammers spoke with county officials in negotiation to give those two lots to the county and the city will keep the other nine for the nominal fee of $1. The latter would require county board approval.
The county had applied for money from the recently passed state bonding bill. The allocation of that money is particular to creating a future timeline on the project. According to Lammers, it is estimated for 2024 or 2025. Compounding the timeline issue is the availability of construction companies. Lammers noted in her search for potential builders she has run into the fall of 2024 as the earliest companies can begin any work.
Future construction of homes in the development will be restricted to a specific affordable housing income base, but would not be considered low income housing.
Otter Tail County requested two lots on the north side of Eva Street and after examining the options, the EDA/HRA agreed with that placement.
EDA/HRA board member Joy Summers brought up the fact that many customers are seeking shop/home combinations (shouses) and the committee discussed if those would be allowed with the restrictions and whether or not owners of the shouses would have to live there to qualify.
Tax Abatement, Gap Financing
The EDA/HRA discussed the pros and cons of home building options for individuals and developers as it relates to existing and future developments in town.
As part of The Big Build, Otter Tail County has approved a program to encourage new investment and construction of single and two-family homes. The goal is to open up lower value, existing home stock to new home buyers, increase the tax base through a rebate of property taxes on newly constructed homes, and inspire people to replace dilapidated housing structures within the county.
The program allows for a refund of the county’s portion of the property tax, along with the city’s portion in participating cities (currently Battle Lake, Fergus Falls, Henning, New York Mills, Ottertail, Parkers Prairie, Pelican Rapids, Perham, and Vergas), based on the increase to real estate taxes as a result of building a new home.
It provides up to $15,000 refunded over five years ($10,000 throughout the county plus $5,000 if residence being built is located within a participating city for primary residences only (no seasonal owners).
The rebate would be paid to the property owner of record in December and transfers with the sale of the property.
Applicants can be either the future homeowner or the builder/developer.
The program is running at least until the end of 2024. There has been no official word on an extension.
Summers had a unique take on the Vergas market given her experience as a realtor and builder on creating policy for developers in the village.
“I like offering an incentive,” she said. “It would be in the city’s best interest to sell it as a lot, however, we’re in a very interesting place in the real estate market right now that we weren’t in two years ago. We’re slowing down, but we’re still in a good market. Things are not selling hand-over-fist and so, if there is a house on a property it is more likely to sell than if it’s just a vacant lot. If we have a developer that is willing to put the house on, that’s obviously in our best interest.”
Another option for developers is gap financing agreements that must include some form of repayment, either in whole or in part depending on the unit affordability and financing structure of the proposed development.
The development must serve households whose annual gross income does not exceed 80 percent of the Area Median Income (AMI) as established by Housing and Urban Development (HUD) on an annual basis.
A greater allocation will be considered for developments that serve households at or below 60 percent AMI for the duration of the loan. Annual documentation is required.
Properties must be located within Otter Tail County, the building must be insured at time construction begins and development of a seasonal property is not permitted.
The Big Build included a 2019 goal to build, preserve or rehabilitate 5,000 units of housing in the county and there were 500 homes built or rehabbed last year.
Altona Square in Vergas was highlighted as one of these projects by www.finance-commerce.com (finance-commerce.com/2023/02/how-an-emphasis-on-housing-outreach-is-helping-otter-tail-county/).
According to the story, rental vacancy in the county is at 1.7 percent for market-rate projects, showing the growing need for more housing options.
Compounding the lack of available housing is that building costs are virtually the same here as the metro area while developers cannot command the same rents as in the Twin Cities. Otter Tail County is trying to help fill that gap with the redevelopment grants, tax abatement or supporting applications to Minnesota Housing.
The EDA/HRA will be presenting recommendations and monetary specifics for all developments in the city regarding gap financing and tax abatement at the next council meeting.
The July meeting of the EDA/HRA is currently canceled as it falls on the Fourth of July. The meeting may be rescheduled if warranted.