To solve Janesville’s housing shortage, two real estate developers encouraged the city to consider using tax increment financing to spark new residential activity.
That suggestion was one of the biggest takeaways from Wednesday’s community housing and development forum. The city and Forward Janesville co-sponsored the event at the Pontiac Convention Center.
The forum, which drew about 75 people, explored the city’s need for multiple types of housing. It included a small-group brainstorming session, but when the event ran long, organizers decided to table the groups’ sharing of ideas for another date.
During an opening panel, Hovde Properties President Mike Slavish said developers are disinclined to build here because rents are so low. In downtown Madison, where Hovde is based, rents run between $2 and $2.50 per square foot.
In Janesville, that number is about 87 cents. But construction costs are generally the same between the cities, so it’s tough for developers to see a return on their investment—unless they’re receiving some sort of public incentive, he said.
Slavish proposed a pay-as-you-go TIF deal. The landowner would pay taxes, and the municipality would return a percentage of that payment, he said.
In Waunakee, Hovde negotiated a deal in which the city returned 85 percent of the project’s tax payment in the first decade after construction, and then 65 percent in years 11 through 20, Slavish said.
“The great thing about that is the municipality spends none of their own money. The developer pays them, and then they kick back a portion of that,” he said. “It’s really a pretty simple structure. It’s utilized by a lot of communities throughout the state of Wisconsin.”
In a particularly strong statement, Brent Dahlstrom of the Iowa-based Echo Development Group said his company likely wouldn’t consider building in a market if that municipality wasn’t willing to provide a financial break.
Echo does a lot of projects in Waterloo, Iowa, a city with similar population to Janesville.
But tax increment financing for residential projects isn’t common here. Economic Development Director Gale Price said the city hasn’t done such a deal since 1999 for the Marshall Apartments on South Main Street.
Price emphasized he could speak only for himself when it comes to TIF packages and said the council and city manager would have to lead that discussion.
Any consideration of a TIF deal would need to follow guidelines for the city’s past commercial and industrial TIF deals, he said.
But his comments after the forum indicated a philosophical change could be on the horizon.
“That’s the beauty of the housing discussion is that it has an ancillary effect. It’s not just about that value in the ground. It’s about retaining the talent,” Price said.
“How do we fix that? How do we fill that gap? Can we do it with TIF? Can we do it with changing some of our regulations, thinking more creatively about housing?”
The closing of the General Motors plant is part of the reason Janesville lacks apartments. Developers expected the city’s population to decline, so they didn’t bother to build new rental units, Price said.
But while the city lost a major employer, it still gained residents after GM’s shutdown.
Slavish said tax increment financing helps projects come to fruition that otherwise would not have the incentive.
Hovde bought the Woodsview Apartments in Janesville after the property fell into foreclosure. To develop additional projects here, the company needs to get more assistance from the city, Slavish said.
“I think the city council staff really needs to wrestle with a potential change in their policy. If you keep doing what you’re doing, you’re going to keep getting what you’re getting,” he said. “Developers don’t have an unlimited source of cash. They have to pick and choose where they think they can get their best investments. TIF is a game-changer.”
It’s clear Janesville has a need for more housing stock, especially rentals. Last year, The Gazette reported the local rental vacancy rate was hovering at about 2 percent.
Though the city faces a short-term housing challenge, it has a healthy long-term outlook, Price said. The city has multiple options to stimulate residential development and maintain its gradual post-recession recovery.
“I think we’re going to continue that momentum,” he said. “Janesville is a desirable place to live. It’s got opportunities in and of itself and opportunities in Madison or Rockford. It makes it a good starting point to go either way.”