March 2018
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F.Y.I. is an electronic publication of The Northspan Group, Inc.

Separating Myth from Reality: Northspan Studies Duluth Workforce Housing Construction Costs

Karl Schuettler - (218) 529-7564   
Just how much does it cost to build a new home in Duluth? Over the past year, Northspan has worked in conjunction with the Lake Superior Area Realtors and the Arrowhead Builders Association to assess the city's single-family home construction market, with an emphasis on workforce housing. Past studies have indicated an unmet need for new housing construction in Duluth, and while anecdotes have long run rampant over the high cost of home construction in the area, to date there had been no systematic study. This new report therefore aims to explore if these costs really do exist, what drives them, and what can be done to alleviate them.

T he data suggest that new homes are indeed usually more expensive in Duluth than in a number of peer cities in the Upper Midwest. (See the table below for the average sale price of a random sample of new, standard design entry level homes in comparison cities since 2009.) A large part of this imbalance stems from a lack of demand for construction at a large scale, which allows for considerable cost savings. Even custom-built homes, however, trend high in Duluth due to a series of factors. The largest is the cost of building on slopes and bedrock that is common on many Duluth lots, though permitting fees and labor costs in certain trades also trended higher in Duluth. The report ultimately revealed a complex picture of building costs, showing how many factors feed in to raise costs with no single, obvious culprit.

Average Sale Price
St. Cloud
Eau Claire

Some of those factors, such as topography and trends in the national housing market, are largely beyond the control of local stakeholders. The report, however, did lay out numerous recommendations that begin to address Duluth's high costs. Potential policy tools at the city's disposal include an affordable housing trust fund, incentives for infill, a smoother permitting process, and greater regional cooperation to meet housing needs. Renovation of existing housing stock to remain affordable and in good condition is also a potential option in Duluth, and other cities have launched successful programs that incentive renovation and serve as examples.

In the coming weeks and months, Northspan will look to encourage conversation around the report's findings so that it can lead to concrete steps to solve some of the issues it identifies. For more information on the report or to receive a copy, reach out to Karl Schuettler at 218-529-7564 or Northspan also remains available for a variety of community and economic development research projects on behalf of its clients. Contact Karl to learn more about our capabilities.
Seizing the Opportunity

Karl Schuettler - (218) 529-7564   
The federal tax reform bill that passed last fall included a provision that laid the groundwork for Opportunity Zones, which are a potential tool for new investment in many of country's most distressed areas. This new initiative, which had bipartisan support, allows governors of states to designate up to one quarter of their eligible census tracts as Opportunity Zones. These zones are eligible for an injection of capital through deferred or forgiven taxes on capital gains. Sellers of stock or property who realize capital gains, instead of being immediately taxed, can funnel these gains into investment vehicles known as Opportunity Funds, which will in turn invest in development projects in designated Opportunity Zones.

In Minnesota, the state solicited input from counties, tribal governments, and cities of the first class on which of their tracts should be designated. Northspan assisted several entities in northeast Minnesota as they prepared their applications to the state, and staff has stayed on top of new developments related to this still-evolving tool. We also provided letters of support to all eligible applicants who requested one, including nearly every county in northeast and east central Minnesota, and did our best to guide regional stakeholders through the nomination process, which operated on a very tight timeline.

We await final word from Minnesota on designated tracts, but plans to take advantage of the new program are already under way. Northspan has participated in several conversations about the creation and administration of Opportunity Funds, and will work with partners to drive their creation in the areas it serves. Northspan is particularly hopeful that the high concentration of eligible tracts in our traditional service areas will lead to a significant number of eligible tracts, and that further guidance from state and federal agencies will help create a simple, straightforward investment opportunity. We'll continue to monitor the potential that Opportunity Zones hold for our region, and will be ready to act once certain tracts are designated.

Janelle Greschner Joins Northspan Board of Directors
Janelle Greschner, IRRR

Northspa n is ple ased to announce that Janelle Greschner, the Director of Business Recruitment at the Department of Iron Range Resources and Rehabilitation, has joined its Board of Directors. Northspan already collaborates with Janelle on a range of initiatives, including business recruitment, site preparation and shovel readiness, business development, workforce development, and IRRR's research needs, and her added insights will help to maintain a longstanding partnership.

Janelle brings over fourteen years of professional experience encompassing the private, corporate, and public sectors. In her current role at IRRR, she is responsible for managing new large business expansion opportunities with a focus on the full northeastern Minnesota value proposition from project infancy to full commitment. She previously worked as a Budget Analyst at Minnesota Power specializing in multi-million dollar capital tracking. Prior to working in the corporate sector, Janelle managed all national and international sale accounts for the private manufacturing company Premier Plastics. She earned her undergraduate degree in Business Administration from the University of Wisconsin - Eau Claire and her Master's in Business Administration from the Minnesota School of Business.

Janelle replaces IRRR Business Development Director Matt Sjoberg, who served on the Northspan board for seven years, including a term as Chair. Northspan extends its heartfelt thanks to Matt for his service, and looks forward to continuing its partnership with IRRR's efforts to strengthen the Iron Range area economy.

Jeff Borling of Great River Energy returns for a second year as chair of the Northspan board. Other officers include Vice-Chair Mike Larson of Cascade Vacation Rentals, Treasurer Jennifer Pontinen of American Bank of the North, and Secretary Bill Maki of the Northeast Higher Education District. Additional board members include Carlton County Commissioner Dick Brenner, Steve Burggraf of Burggraf's Ace Hardware and Paint in the Grand Rapids region and Duluth, Arik Forsman of Minnesota Power, St. Louis County Commissioner Frank Jewell, Koochiching County Commissioner Wade Pavleck, Northland Foundation President Tony Sertich, and Visit Duluth President and CEO Anna Tanski. Andy Hubley, the director of the Arrowhead Regional Development Commission, also serves as an ex officio member.