HomeMy WebLinkAbout05(G) - Approve Contribution of $225,000 in Local Affordable Housing Aid to Twin Cities Habitat for Humanity Report
ITEM: 5G
CITY COUNCIL AGENDA REPORT
MEETING DATE: January 13, 2026
PREPARED BY: Jason Wedel, City Manager
PRESENTED BY: Jason Wedel
AGENDA ITEM: Approve Contribution of $225,000 in Local Affordable Housing Aid
to Twin Cities Habitat for Humanity
RECOMMENDED ACTION:
Approve the contribution of $225,000 in Local Affordable Housing Aid funds to Twin Cities Habitat
for Humanity.
BACKGROUND:
In 2023, the Minnesota Legislature approved new state funding for housing, including a first-ever
tax dedicated to affordable housing. The new 0.25% Metro Area Sales and Use Tax for Housing
provides a separate funding source called Local Affordable Housing Aid (LAHA) to cities located
within the seven-county metropolitan area with a population over 10,000. The City received two
payments in 2024 totaling $109,824.66 and two payments in 2025 totaling $266,897.98. These
funds can only be used to support affordable housing.
Twin Cities Habitat for Humanity is currently in the process of completing the construction three
4-unit townhome buildings near Ponds Park on 170th Street SE. The first building was completed
in 2024 and the City contributed $30,280 in LAHA funds. The second building was completed in
2025 and received $31,190 in LAHA funds from the City. The third building was under construction
in 2025 and received $32,125 in LAHA funds from the City. The increase in LAHA funds the City
has contributed per building was increased by 3% per year to cover inflationary increases.
To date, all of the units in the first and second building have been sold. The completion of the
third and final building is anticipated in 2026 and the four units in that building will become
available for sale at that time.
The Habitat for Humanity townhomes are sold to residents making 80% of the Area Median
Income (AMI) or less. The underlying land beneath the townhomes will be owned by the Scott
County CDA land trust. As such, the use of LAHA funds to support this project would be consistent
with the state requirements to use these funds for affordable housing projects.
As the completion of this project nears, Twin Cities Habitat for Humanity has identified additional
funding gaps. The first gap is with the construction and development costs. They have struggled
finding volunteers to come and work on the project so they have had to hire more contractors to
complete the homes. This was an unanticipated cost. The current construction gap is $1,000,873.
The second gap is related to affordability. They had anticipated the buyers purchasing these
homes to have a slightly higher average income than what they are experiencing. In addition, the
monthly HOA fees are $100 per month higher than originally calculated due to the increasing cost
of insurance. The current HOA fees are $400 per month. This has left an affordability gap of
City of Prior Lake | 4646 Dakota Street SE | Prior Lake MN 55372
Item 5G
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$164,000. To help cover both the construction and affordability gaps, Twin Cities Habitat for
Humanity is requesting an additional $225,000 in LAHA funds.
FINANCIAL IMPACT:
The City currently has a balance of $233,127.65. If this request is approved the remaining balance
would be $8,127.65.
The City will receive additional LAHA funds in 2026 from the State and it is anticipated the
combined payments will equal approximately $250,000.
ALTERNATIVES:
1. Motion and second as part of the consent agenda to approve the contribution of
$225,000 in LAHA funds to Twin Cities Habitat for Humanity as outlined in their request
dated December 10, 2025.
2. Motion and second to remove this item for the consent agenda for further discussion.
ATTACHMENTS:
1. Letter from Twin Cities Habitat for Humanity
5 December 2025
Mr. Jason Wedel
City Manager
City of Prior Lake
4646 Dakota Street SE
Prior Lake, MN 55372
RE: Request for Local Affordable Housing Aid
Dear Mr. Wedel:
Twin Cities Habitat is very grateful for the $93,595 in financial support from the City of Prior Lake for
Towering Woods, our three-building new construction development of 12 for-sale townhomes located at
4661 170th Street SE in Prior Lake. Two of the three buildings are now complete, with all seven units sold
and closing scheduled for the eighth. We are moving forward with construction of the final building now.
As noted in previous requests, we have a financing gap for Towering Woods due to increased construction
costs over the course of the development, as well as higher subsidy needs by homebuyers primarily due to
higher than projected Homeowner Association dues due to significant increases in insurance. While we’ve
pursued additional fundraising efforts with some success to close the gap, a gap still remains. We are hoping
the City of Prior Lake will consider an additional LAHA funding award to assist. To aid in your decision, the
following is additional context related to our request.
Construction/Development Costs
As I believe I’ve mentioned, it’s been a bit challenging to recruit our volunteer corps to Prior Lake. As we
moved from phase one to phase two of the development, we looked to expedite the schedule and keep
progress on track despite low volunteer numbers. Contracting out more of the work did just that but also
added costs. As we approached phase three, we pivoted again to cut those additional costs and complete
more of the work with Habitat staff and the volunteers we could secure. As a result, we’ve reduced the
development gap to $1,000,873. The Shakopee Mdewakanton Sioux Community recently stepped up again
for us and contributed another $200,00. I don’t have a current update on the amount of LAHA funds you
have available, but if available, we’re requesting $150,000 in additional LAHA funds for this development
gap.
Affordability Gap
As you know, each townhome has and will be sold to income eligible homebuyers earning 80% of area
median income or below and will become part of the Scott County Community Land Trust administered by
the Scott County Community Development Agency. Based on our experience, our pool of buyers, and cost
estimates at the start of this project in 2021, we assumed an average buyer would need approximately
$162,000 in subsidy to afford the units (which are sold at fair market value estimated at ~$330,000). The
range of subsidy needed by buyers thus far has been $135,000 to $220,000, with an average of $177,000.
This increase can be traced to two key issues: buyer incomes and HOA Dues.
Buyer Incomes: We assumed buyers’ annual incomes would average ~ $75,000. Despite our efforts
to recruit higher income buyers, buyers’ incomes on the first eight units have been lower, ranging
from $51,000 to $72,000 and averaging $62,000. As a result, the amount of down payment
assistance needed by nearly all buyers is more than anticipated.
HOA Dues: Our projections in 2021 assumed monthly HOA dues of $300/month. The exploding
cost of homeowner’s insurance, particularly for Homeowner Associations over the past two+ years
has pushed HOA dues to $400/month. As a result, buyers need additional subsidy over and above
what the additional subsidy needed due to lower incomes described above. This amounts to an
increased gap of $216,000 for all twelve units.
Habitat, together with our partner, Scott County Community Land Trust, have been successful in
securing some funding to fill this affordability gap, reducing it to $164,000. Again, without knowing
how much LAHA remains available, we are requesting $75,000 to help fill this affordability gap.
In summary, we are requesting a total of $225,000 in additional support for Towering Woods from the City
of Prior Lake: $150,000 for development gap and $75,000 in affordability gap.
Please let me know if you need additional information. Again, we’ve greatly appreciated the City’s support
thus far and appreciate your willingness to consider additional support of this affordable homeownership
opportunity within the City of Prior Lake.
Vey best regards,
Cecile Bedor
Chief Real Estate Officer