Professional Documents
Culture Documents
4-28-06 Prof Paper
4-28-06 Prof Paper
Rebecca Cohen
May 11, 2006
The author of this paper hereby grants permission for its contents to be shared with other students in the
‘Community Economic Development’ course at the Humphrey Institute, and other interested parties.
1
2
Overview
Despite record-setting home sales and homeownership rates in recent years, growing
shares of low- and moderate-income workers in urban and rural areas across the country are
having difficulty finding affordable housing (Joint Center for Housing Studies 2005). Evidence
suggests that housing options are increasingly scarce for workers in a range of occupations
whose earnings exceed the upper income limits of federal housing subsidy programs but fall
short of the level needed to pay for market rate housing near job centers.1 The lack of workforce
housing adversely impacts both the welfare of those households shut out of the local housing
market, and the productivity and economic development potential of impacted areas.
Responses to this problem tend to fall into two categories. Some advocates call for the
introduction of supply-side policies that promote development of affordable housing and relax or
eliminate ordinances that stand in its way. Others suggest that employers must play a stronger
role in addressing housing demand, through direct wage increases and homeowner assistance
programs. While the feasibility of, and preferences for different strategies will vary, the need for
prompt action to address workforce housing shortages can be found in communities across the
country, as indicated in this paper by a study of Itasca County, Minnesota. This rural area stands
to face a major housing affordability crisis in the next five years, as Minnesota Steel and
Excelsior Energy each prepare to open an industrial facility in the region. While the companies
resolve permitting and financing issues, all affected parties must consider how they will address
the heightened pressure for workforce housing expected to result from the operation of these two
facilities.
1
See the Center for Housing Policy’s Paycheck to Paycheck 2005 findings database for comparisons of median
housing costs and annual income for a range of occupations in 181 metropolitan areas. Accessible at: www.nhc.org/
chp/p2p. For further discussion, see Haughey, R. (2001) “Challenges to Developing Workforce Housing” ULI Land
Use Policy Forum Report, Los Angeles: ULI; US Conference of Mayors (2002) “National Housing Agenda”
Washington, DC: Mayors National Housing Forum.
3
This report focuses predominantly on the housing needs of workers filling the auxiliary
positions generated by the Minnesota Steel and Excelsior Energy projects. After a brief
description of existing conditions in and around Itasca County, the following sections assess the
expected housing demands of temporary construction workers and permanent plant employees
relocating to the area. An exploration of trends in the construction industry and the local real
estate market suggests that neither of these groups should experience difficulty finding suitable
housing close to the workplace. Those filling job openings indirectly associated with operation of
the plants, however, will face greater obstacles in securing affordable housing. This paper will
demonstrate that a mismatch exists between what these workers can afford to pay and the cost of
available units in Itasca County. The remainder of the paper presents strategies for creating
workforce housing and assesses the viability of each, concluding with recommendations for
further research.
Existing conditions
Geography
Itasca County is located in north central Minnesota, roughly eighty miles northwest of
Duluth and 200 miles north of the Twin Cities. As US Route 169 crosses the southeast corner of
the county, the highway passes through a succession of small cities and towns settled by logging
and mining interests in the late 19th century. Excelsior Energy and Minnesota Steel have chosen
two of these towns, Taconite and Nashwauk, for the sites of their proposed projects: a coal
gasification plant and steel slab production facility. Both communities lie less than 25 miles from
the city of Grand Rapids, the Itasca county seat and most populous municipality, home to nearly
4
Figure 1: Area map
Redevelopment Authority estimate a generous labor shed for the proposed plants, extending
approximately forty miles north and south from Nashwauk, west to the village of Cohasset near
the border of Itasca and Cass Counties, and east to Gilbert, MN, in St. Louis County (McDermott
2005; Edington 2005).2 Data from the 2000 US Census confirm local willingness to endure long
commute times, indicating that over twenty percent of workers living in Itasca County travel
more than thirty minutes to work (see Appendix 1). The labor shed covers most of Itasca County,
and encompasses the southwestern-most portion of adjacent St. Louis County, including the city
of Hibbing and small towns of Chisholm, Virginia, and Gilbert. This portion represents only a
small fraction of this vast county, which is the largest county east of the Mississippi River,
Although the labor shed spans a sizeable area, much of the land included remains
uninhabited, covered by acres of County-, State-, National- and privately-owned forests and
boasting over 1,000 lakes. When the 2000 US Census was taken, the population of the identified
geographic area totaled 89,314, capturing the majority (88 percent) of those residing in Itasca
2
Census tracts encompassed by this area include tracts 113, 121, 122, 123, 124, 125, 126, 127, 128, 130, 131, 132,
133, 134, 135, and 151 in St. Louis County, and tracts 9803, 9804, 9805, 9806, 9807, 9808, 9809, and 9810 in Itasca
County.
5
County but only one-quarter of St. Louis County residents (US Census: Summary File (SF) 3
2000). These people lived in 37,954 households, yielding an average of 2.4 individuals in each
household (ibid).
The Minnesota homeownership rate of 74.5 percent is one of the highest in the country,
second only to the state of West Virginia (Knowledgeplex 2005). The area of analysis has an
even higher homeownership rate—according to the 2000 US Census, owners occupy 78.6
percent of all non-vacant housing units in the identified census tracts (US Census: SF3 2000). In
both Itasca and St. Louis Counties, single-family detached homes comprise over 70 percent of all
residential structures, a phenomenon partially explained by the limited development and capacity
Because of the region’s natural beauty and recreational opportunities, many local and
non-local people also maintain summer or weekend homes in north central Minnesota. When
reporting occupancy status, the US Census designates those units used for seasonal or
recreational purposes as vacant residences; consequently, without adjustment, the vacancy rate of
Table 1: Adjusted vacancy rates in Census tracts with the highest proportions of seasonal units
6
Accounting for these special uses in all Census tracts brings the overall labor shed vacancy rate
down from 16.8 percent to 5.1 percent (2,338 units), a figure only slightly higher than the
statewide vacancy rate of 3.0 percent. Roughly half of these 2,338 vacant units were available for
sale or rent at the time of the 2000 US Census. The vast majority of available rental units could
be found in and around the larger cities and towns, such as Grand Rapids, Hibbing, and Virginia,
while for-sale homes were distributed fairly evenly throughout the area (US Census: SF3 2000).
Projected conditions
Households
Projections indicate that both St. Louis and Itasca counties will experience household
growth in the next few decades, albeit at a more modest rate than most metropolitan areas and
the state of Minnesota overall. Absent the influence of new production facilities, projections
indicate that the number of households in St. Louis County will grow by 11.9 percent from 2000
to 2015, while the number of households in Itasca County is projected to grow by 18.1 percent
during the same period (Minnesota State Demographic Center (MNSDC) 2003). Itasca County’s
explosive growth in households composed of seniors living alone and other nonfamily
households explains most of the difference in 2000-2015 household growth rates between
counties.3 During this time period, these household types are projected to grow at rates that more
The identified labor shed encompasses portions of both counties, however household
projections are not available at disaggregations below the county level. An approximate
projection of household growth can be derived by applying household trends within the labor
shed between 1990 and 2000 to the subsequent decade. For example, between 1990 and 2000
3
Nonfamily households may include unmarried people living with their adult children or grandchildren, or people
living with brothers, sisters and other relatives (MN State Demographic Center 2003).
7
modest household growth in the St. Louis County portion of the labor shed failed to keep pace
with growth in the rest of the county. As a result, the labor shed’s share of all county households
Conversely, between 1990 and 2000, the number of households in the Itasca County portion of
the labor shed grew by over 20 percent, increasing the labor shed’s share of county households.
Assuming these trends continue into the next decade, the total number of households within the
labor shed in 2010 will reach 41,696—an increase of nearly 10 percent, or 3,742 households.
In the absence of projections at the census tract level, similar methods can be used to
8
A projected population of 92,172 yields an average of 2.2 people per household—a decline of 0.2
from 2000. Not surprisingly, in both Itasca and St. Louis Counties projections show households
composed of individuals living alone growing faster than any other household type (MNSDC
2003).
The proposed Minnesota Steel and Excelsior Energy projects will have an important
impact on labor shed population and household growth patterns. The projected job creation
directly and indirectly stimulated by operation of these facilities will induce migration into the
labor shed, as temporary and permanent workers from around the region take advantage of new
The next section addresses the housing impact brought about by construction of these facilities.
While currently engaged in the environmental scoping and review process, officials from
both Minnesota Steel and Excelsior Energy expect construction to begin in 2007, assuming
permitting and financing procedures progress as scheduled (Minnesota Steel 2005; Micheletti
2005). Minnesota Steel’s shorter construction timeline indicates that production will begin two
years later, while Excelsior Energy’s Mesaba One plant will be fully operational in 2011 (ibid).
During these four years, the combined 3,000 member construction workforce will be drawn from
both local and non-local firms. Non-local workers will likely move on following completion of
9
their assignments, but temporary accommodations must be provided during the construction
period. At present, neither Minnesota Steel nor Excelsior Energy has identified a general
contractor, making it difficult to predict the geographic areas from which employees will be
drawn. Although representatives from both companies express the desire to hire locally, a sizable
share of workers will likely come from Duluth, the Twin Cities, and other areas beyond the labor
The following section draws from interviews with Twin Cities contractors who often
work on large industrial projects and presents typical strategies for meeting the housing needs of
non-local workers.4 The robust tourism industry and lack of rental units in the study area present
obstacles to some standard approaches to this problem, but other viable alternatives indicate that
construction workers will have suitable housing. An exploration of conditions in the city of
temporary workforce. Although more populous than Grand Rapids, Gillette faces similar housing
pressures and some of the same constraints. City officials have offered some creative responses
worthy of consideration.
Housing strategies
As identified by the staff of construction firms in Minneapolis and St. Paul, potential
• Secure all available hotel rooms in the area for employee use;
• Purchase apartment buildings, or rent local apartments for construction workers; or
• Construct an inexpensive compound with minimal infrastructure for temporary use
during construction.
All three options were identified by all interviewees as fairly standard choices that have worked
4
Phone interviews were conducted with staff at Ryan construction, Adolfson and Peterson Construction, and Kraus
Anderson Companies in Minneapolis, as well as Hunt Electric Corporation in St. Paul.
10
in other communities. The unique characteristics of the Grand Rapids area, however, require
The first option, reserving hotel rooms within the commuter shed for an extended period
of time, would likely meet with opposition from local proprietors, as Itasca and St. Louis
Counties are both year-round tourist destinations. An estimated 1,500 hotel rooms can be found
within the study area, although demand for these rooms persists in all seasons as visitors take
advantage of the recreational opportunities the area has to offer (Visit Grand Rapids 2005).
Skiers, snowmobilers and other devotees of winter sports come for the Olympic-caliber Ole
Mangseth Memorial Ski Jump in Coleraine and more than 1,000 miles of snowmobile trails in
Itasca County. In warmer months, the lakes and natural beauty bring in visitors from all over the
region, while hunters are drawn to the area throughout the year. Setting aside a large proportion
of hotel rooms over a four-year period in order to accommodate a share of the 3,000 construction
workers could seriously damage the local recreation and tourism industry, causing visitors to
Representatives from the construction industry also suggest apartment rental as a means
to provide temporary housing to employees. As of the 2000 Census, 718 units were available for
rent within the identified labor shed (US Census: SF3 2000). More recent analyses of housing in
Itasca County, however, indicate that the local rental market may have tightened. A 2003 study of
Grand Rapids found a vacancy rate of only 1.0 percent for market rate general occupancy units
(Bujold and Sjogren 2003). As a result, the viability of accommodating construction workers in
existing rental housing units may also prove difficult. Accordingly, a temporary housing
compound, sometimes referred to as a base camp, may present the best option for temporary
worker housing.
11
Gillette, Wyoming
similar temporary housing pressures, may prove instructive. Gillette, a town of approximately
19,000 in northeast Wyoming’s Campbell County, lies between the Black Hills of South Dakota
and the Big Horn Mountains. Known for its easily accessible reserves of coal and natural gas,
boomtowns in Campbell County have grown and dwindled as the nation’s energy needs have
evolved. At present, approximately thirty percent of all US coal comes from Campbell County,
and opportunities in the mining and utilities industries continue to grow (Schroeder 2006). With
minimal rental units and hotel vacancy rates of approximately one percent, the city faces
challenges similar to Grand Rapids, with three new power plants set to come on line in and
At present, the Wygen II power plant is garnering the most attention from the press and
local officials. At its peak, plant construction will require a workforce of 400, most of whom are
expected to come from out of the area (Concerns raised 2005). The director of the Gillette
community development authority (CDA) has raised concerns about the existing housing
market’s ability to accommodate this influx of people (Power plant 2005). With limited hotel
rooms and rental options, local authorities have identified some creative solutions for addressing
At present, the CDA is revising an ordinance that would increase the land available to
temporary residents by allowing construction housing in areas zoned exclusively for industrial
and commercial uses. The pending ordinance permits up to ten recreational vehicles (RVs) in
each industrial or commercial district, all of which must be connected to the city water system
12
(Mcrae 2006). According to the ordinance, the RVs may only be occupied by workers linked to
ongoing construction, with project developers liable for financing and infrastructure costs.
Another strategy being pursued in Gillette involves working in cooperation with a local
community college to develop temporary housing options (Schroder 2006). In partnership with
the college, developers would finance the construction and operation of a new dormitory
reserved for temporary workers during plant construction. At project completion, the community
college would assume control of, and financial responsibility for the dorm, which would then be
opened up to students. While neither of these approaches has been implemented yet, they present
new ways of thinking about increasing housing options for construction workers.
The state of Wyoming has also convened an industrial siting council, responsible for
impact review and permit issuance for new industrial developments costing more than $155
million. This bi-partisan council is similar to Minnesota’s Environmental Quality Board (EQB),
although whereas the EQB focuses primarily on environmental impacts, the industrial siting
council prioritizes socio-economic outcomes such as the drain on public services, schools, and
housing caused by new facilities and their employees (Industrial Siting 2005). Developers must
address all undesirable impacts, or identify strategies for doing so, before building permits will
be issued. The council came into existence in 1975 as a result of concerns about adequate
housing supply at a time when many temporary workers stayed in their cars or set up camp sites
establish base camps for their workers or pay for hotel rooms when available (ibid).
While implementing any of these strategies in Grand Rapids would require adjustment to
suit local conditions, experiences in Gillette suggest that the community would be wise to
consider ways of expanding its temporary housing capacity. According to Tom Schroeder,
13
principal of the Industrial Siting Council, economic development in Gillette has suffered as a
result of inadequate housing opportunities. Schroeder suggests that companies seeking to locate
in the resource-rich area have run into problems finding both temporary and permanent workers
due to the scarcity of local housing options, a sentiment echoed by staff at the CDA.
Permanent housing will also need to be supplied for those workers who relocate to the
Grand Rapids area as the Minnesota Steel and Excelsior Energy plants become fully operational.
Representatives from Minnesota Steel estimate an average annual salary of $70,000, including
benefits, for all workers at the plant—roughly $52,500 in annual cash salary (Elmore 2005). In
the absence of specific information from Excelsior Energy representatives, similar average salary
estimates are applied to the Mesaba One facility, which will require a skilled workforce for
nearly all positions. Analysis of the housing demand directly generated by these facilities and
current activity in real estate and homebuilding suggests that new permanent employees will not
When running at peak capacity, the facilities will require a combined total of
approximately 850 full-time employees. These employees will be drawn from both local and
non-local skilled labor pools. Assuming prospective employees who currently reside within the
labor shed are adequately housed, the proportion of workers expected to relocate from out of the
area will indicate the number of housing units needed to meet the anticipated demand. An
assessment of the local workforce capacity provides greater insight into the share of new
positions that can reasonably be filled by individuals currently living in the labor shed.
14
The 2000 US Census indicates that the overall study area had a weighted unemployment
rate of 6.1 percent in that year (US Census: SF 3 2000). Itasca County unemployment peaked at
8.0 percent in 2003, coinciding with lay-offs at the Blandin Paper mill, although the area has
since experienced a recovery. The average unemployment rate in Itasca County reached 5.8
percent in 2005, the lowest annual average in over 15 years, with the exception of 2000. St.
Louis County maintained a fairly steady average unemployment rate of 4.7 percent (Minnesota
Department of Employment and Economic Development (MN DEED) 2005). These trends
coincide with modest population growth in both counties (see Table 5).
Unemployment figures for Itasca and St. Louis counties are higher than the state average,
although by a smaller degree than in previous years. Local figures are also slightly higher than
The relatively low unemployment rates in the labor shed area should not be taken as an
indication that local competition for new positions at Minnesota Steel and Excelsior Energy will
“local people want to stay in the area” (McDermott 2005). When opportunities requiring skilled
labor and paying higher wages become scarce, a sizable proportion of the workforce may accept
jobs for which they are over-qualified, taking advantage of limited employment opportunities in
15
order to remain in the Grand Rapids region. While unemployment statistics would not capture
these individuals, they will most likely be inclined to fill the more desirable positions that
Local residents also suggest that members of the workforce have extended the distance
they will commute in order to secure gainful employment, with some residents traveling as far as
eighty miles east to Duluth on a daily basis (Christianson 2005). In 2000, nearly ten percent of
all workers over 16 living in the labor shed faced an average travel time to work of more than
forty minutes (US Census: SF 3 2000). In rural areas, this long commute time probably indicates
distance traveled, rather than time spent in traffic congestion. Where skill levels match, these
employees would likely try to secure work at one of the nearby industrial facilities, rather than
At present, McDermott suggests that skill levels in the community would allow local
residents to fill approximately 25 percent of new jobs created by these projects. Neither plant,
however, is expected to begin operating until 2009. This gap during construction presents the
opportunity for at least three years of workforce development and training. Efforts are already
underway to inform high school and college students about potential job opportunities and the
skills needed to qualify for these positions; Vermillion Community College in Ely has been
developing “programs to help train people to take advantage of these upcoming jobs” (Strauss
2005). The Minnesota Workforce Center in Grand Rapids and other regional community colleges
McDermott to estimate that by the time company executives begin hiring, members of the local
workforce will be qualified to fill between fifty and 75 percent of the permanent positions
(McDermott 2005).
16
Homeownership opportunities
With a conservative approximation that the local workforce will qualify for half of the
new positions, 425 jobs will need to be filled by individuals relocating to the labor shed area.
Roughly twenty percent of current labor shed residents rent, rather than own their homes;
however, this study assumes all new employees will be seeking homeownership opportunities. A
housing impact analysis conducted for the Grand Rapids area indicates that rental units tend to
relatively high earnings (Bujold and Sjogren 2003). Moreover, local residents report that a
stigma may be associated with renting in northern Minnesota, where homeownership is much
more common (Nelson 2005). As such, this analysis continues under the assumption that all 425
At present, the Range Association and Itasca County Boards of Realtors list nearly 1,000
single-family and manufactured homes for sale in the labor shed, the vast majority of which are
located in Itasca County (Scherf 2006; National Association of Realtors 2006).5 The price of
single-family detached homes in the city of Grand Rapids averages around $150,000, with prices
closer to $120,000 for Itasca County homes on lots smaller than three acres outside the city.
Outlying homes on lots larger than three acres cost an average of $185,500, with prices doubling
on the lakeshore (Scherf 2005). Prices in St. Louis County are similar, with most homes listed
between $75,000 and $200,000. Typically, homes remain on the market for 90 days, and the
number of listings has increased by nearly 20 percent over the past four months (Scherf 2006).6
5
The Range Association of Realtors covers a geographic range that extends well beyond the labor shed, so
individual listings were aggregated for the following areas: Buhl, Chisholm, Eveleth, Gilbert, Hibbing, Keewatin,
Mountain Iron, Nashwauk, Parkville, Pengilly, Side Lake and Virginia.
6
Caution must be taken in interpreting these listings, as homes for sale by owner or through other means are not
accounted for in Realtors figures.
17
The Minnesota Builders Association is also active in the region, with over 700 members
in Northern Minnesota—300 of which are based in Itasca and St. Louis counties (Christianson
2005). Megan Christianson, executive officer of the Northern Minnesota Builders Association
(NMBA), reports that more and more, new construction in the area tends to be customized to the
end user’s preferences, with development generally costing at least $200,000 (ibid). Christianson
notes that as overall labor and material costs have continued to rise, homebuyers have become
increasingly dissatisfied with spec houses built before a commission has been issued. Buyers will
pay a premium price for a structure that meets their specific needs, rather than living in a “cookie
As suggested by the custom-built nature of most new homes, members of the NMBA
typically build only one or two new single-family homes each year, focusing primarily on
remodeling and light commercial work. Multiple sources suggest these builders would be
unwilling and unable to develop a large-scale project, at least in the short-range timeframe before
the factories open (Edington 2005; McDermott 2005; Christianson 2005). With a maximum of
425 new homebuyers from out of the area, however, the combined capacity of the real estate
market and local builders should be able to reasonably accommodate this demand.
more than 2.5 to 3 times its annual income on the purchase (Bujold and Sjogren 2003). With an
annual cash salary of $52,500, a new factory employee would be able to afford a house costing
between $131,250 and $157,500. Although construction of a detached custom-built home would
be less feasible for a single wage earner family, if home prices remain stable new employee
households should be able to find affordable housing in the labor shed without difficulty.
18
In nearly half of the married-couple families within the labor shed, however, both spouses
When considering only those families in which the husband is in the labor force, the share of
dual wage earners rises to over three-quarters of all families. Even if a new employee’s spouse
earned minimum wage, the amount the family would be able to spend on a new house would
increase accordingly. For example, with a second income of $20,000, a family could afford to
spend up to $217,500 on a new home. Given the level of vacancies and relative affordability of
the local real estate market, and the preference for custom-built homes and capacity of the
NMBA, development of new homes for permanent employees of Minnesota Steel and Excelsior
The expansion of the regional economic base will inevitably create a multiplier effect,
stimulating demand for additional goods and services to support the new households and
enterprises and generating jobs to meet this demand. Many of the local workers offered
employment in the new facilities will leave behind lower-wage positions for which they had been
over-qualified; these openings will need to be filled as well. Under the assumption that industry
growth will reflect the present structure of the local economy, the following section explores the
19
local employment composition to determine the industries in which job growth will be greatest.
Subsequently, an assessment of the local housing market’s ability to absorb these workers will
reveal a shortage of affordable options for those relocating to the area to fill positions in
supporting industries.
framework with which to explore the projected industrial distribution of new auxiliary jobs and
their associated wage rates. Although employment and wage details are not available at
disaggregations below the county level, Itasca County figures serve as a proxy for the entire
Table 7: Itasca County 2004 employment structure and average weekly wage
7
St. Louis County covers a massive area and includes the metropolitan area of Duluth. Conditions in the St. Louis
County portion of the study area are likely to be more similar to Itasca County than to St. Louis County as a whole.
20
At present wage levels, forty percent of Itasca County employees earn less than $500 a week if
working full-time, or under $25,000 annually. An additional thirty percent of employees earn
below $30,000 each year. Conditions in the county are similar to the region as a whole; roughly
forty percent of jobs in the Arrowhead pay less than $10 an hour (Strauss 2005)8.
Economics used IMPLAN software to evaluate the economic impact of Excelsior Energy’s coal
gasification plant. Their study estimated that 290 full- and part-time auxiliary positions will be
Although offering no evidence to support their figures, representatives of Minnesota Steel cite a
larger multiplier for new jobs spurred by the steel slab manufacturing facility; promotional
materials project 2,100 newly created jobs in other industries. In addition, currently
underemployed local residents can be expected to leave their positions to pursue better-paying
opportunities when the new facilities begin hiring. McDermott estimated that the local workforce
will be able to fill between 50 and 75 percent of the 850 new positions. If 425 workers vacate
their current jobs, a combined total of 2,815 new openings will be available in the region.9
8
The Arrowhead region, in northeast Minnesota, encompasses Aitkin, Carlton, Cook, Itasca, Koochiching, Lake and
St. Louis counties.
9
This analysis intentionally uses the low end of McDermott’s estimate of permanent employees coming from the
study area to avoid artificially inflating the number of newly created positions by including high-school and full-
time college students in estimates of local employees leaving their current positions to work at the new plants.
21
Housing market affordability—auxiliary employees
members of the auxiliary workforce earning wages too low to afford the average home sales
price. Analysis of questionnaires completed by local employers for a 2003 study of housing
needs in Grand Rapids and greater Itasca County indicated that “housing concerns are
prevalent…many employers perceive that housing prices in Grand Rapids are high and that
moderate-income employees cannot afford existing housing” (Bujold and Sjogren 2003, p. 21).
The same report found a very limited number of general occupancy apartments, and noted a
vacancy rate of only 1.0 percent for market-rate units (ibid, p. 35).10 A desirable vacancy rate
falls closer to five percent, allowing renters sufficient choice and discouraging rent inflation.
Finding available subsidized and affordable units presents a greater challenge, with “no
vacancies reported by building managers, and long waiting lists” at most subsidized projects in
The creation of an estimated 2,815 new positions, combined with a projected ten percent
growth in households over the next ten years, will undoubtedly exacerbate the already tight
affordable housing market. As noted, lending conventions suggest that homebuyers can afford to
spend between 2.5 and 3 times their annual income on the purchase of a house (ibid). The
Department of Housing and Urban Development (HUD) has set rental affordability standards at
thirty percent of household income. According to these criteria, a household with an annual
income of $25,000 can afford to spend $7,500 each year ($625 per month) on rental housing, or
10
The geographic area covered by the Maxfield Research study differs somewhat from the area in the labor shed.
For the purposes of this study, however, general trends in the rental market as identified by the Maxfield study are
assumed to apply to the larger labor shed area.
22
When compared with the expected income of single-wage earner households employed in
many of the new ancillary positions, application of these standards indicates cause for concern.
At projected wage rates, 45 percent (1,273) of employees without another wage-earner in their
household will not be able to afford monthly rent payments of more than $700 (see Table 8).
Moreover, nearly three-quarters of these employees will be unable to afford a $100,000 house.
Even in a dual wage earner household, those employed in the Leisure & Hospitality sector would
not be able to afford average area home prices. Employees in this industry fill ten percent of total
When compared with monthly rent averages in Itasca County, wages in all ancillary
positions are more appropriately scaled to the cost of rental housing in the area. Based on
prevailing rental rates, most dual-earner households could easily afford monthly payments at
apartments of all sizes; small single-earner households could be accommodated as well (see
Table 9).
23
Table 9: Monthly rent averages, Itasca County*
*Due to data limitations, it was not possible to calculate rent averages for the entire study area.
Source: Bujold and Sjogren 2003; author's calculations
It is essential to recognize, however, that mounting pressure on the leasing market can cause rent
levels to escalate. More importantly, there are virtually no vacancies in the local rental housing
Without any increase in the rental and starter-home housing stock, families relocating to
the study area will be vulnerable to the deleterious side effects of an extremely tight housing
market. As households scramble to find housing near their place of employment, some will
purchase lower-cost houses, which tend to be older and may be in disrepair. High demand is
likely to drive up the cost of even substandard units, further worsening the shortage of options
available to low- and moderate-income earners. As in Gillette, the inadequacy of the housing
stock could also seriously undermine the growth potential of the study region and constrain
economic development.
Given the recognized demand for rental units and lower-cost homes in the study area, it
may appear surprising that few developers have moved in to take advantage of this market. At
issue is the fact that development and construction of units within the means of a low- and
moderate-income workforce simply does not yield the revenue developers need to make a profit.
Without subsidies or other cost-saving incentives of any sort, total costs of production exceed the
24
value of the house or income received from apartment rental (Nelson 2005). As indicated by
local building trends, housing development is typically most feasible on the upper and lower
margins, where the market, or government subsidy, can support construction costs. For those
families who earn too much to qualify for housing assistance, but do not make enough to buy
This problem is not unique to the Grand Rapids area, nor is it new. Nationally, rental
housing opportunities for very low and high-income households increased from 1985 to 1999, at
the same time that the number of rental units affordable to low and moderate-income households
declined (Haughey 2002, p.3). Housing advocates have increasingly recognized shortages of
workforce housing, defined by the Urban Land Institute as affordable to those earning between
60 and 120 percent of area median income (AMI) (ibid, p.4). At these levels, households do not
qualify for most federal housing subsidies, but are typically unable to afford market rate housing.
The 2005 AMIs for Itasca and St. Louis counties were $51,450 and $54,850 respectively, placing
most of the auxiliary workers towards the low end of this range (National Low Income Housing
Coalition 2005). If local home sale prices continue to outpace income levels, this shortage will
Table 10: Itasca County income and home sale price increases, 2001-2005
25
Strategies for workforce housing development
innovative strategies to address this problem have been developed. The following section
presents some of these approaches, first concentrating on supply side strategies, or those that
contribute to an increased supply of workforce housing. Subsequently, those tactics that address
Supply-side strategies
Proponents of supply-side strategies suggest that measures must be taken to increase the
may include the establishment of tax-increment financing districts that induce developers to
build on a particular site, or direct government involvement in housing construction. This section
affordable housing options are expanded through developer fees and non-monetary incentives.
prospective employees. These one-time fees, also known as housing impact fees, are typically
assessed on the basis of square-footage and only levied on developers of projects that surpass a
pre-determined size threshold, to avoid penalizing small businesses with limited earnings
(Hendrickson 2005). Fees may vary depending on the nature of the structure (ie whether it is a
warehouse, hotel, or office) but generally do not exceed $1 per square foot (ibid).
26
Proceeds are deposited into a fund to be used for affordable housing initiatives.
Communities have considerable flexibility in setting requirements for award eligibility; qualified
uses may include the creation, preservation or maintenance of workforce housing in close
revenue from commercial linkage fees may be modest in small towns, proceeds can be used to
lower housing construction costs and accordingly the price of new residential units. The fees
present a means of developing affordable housing or improving housing stock without raising
As businesses in the service and retail industries relocate to the Grand Rapids area in
response to increased economic activity, the revenue received would grow, helping to ensure that
lower-wage employees have housing options. An argument could be made that imposing a fee on
new commercial construction could deter businesses from coming to the area, or cause them to
locate just outside of fee boundaries; regional cooperation would be needed to mitigate these
potential negative effects. As demonstrated in Gillette, WY, economic development suffers when
the workforce cannot live in close proximity to employers. Commercial linkage fees help to
Inclusionary zoning
Participants are rewarded with an array of incentives such as density bonuses, expedited
permitting and reduced parking requirements, all of which help reduce development costs
(Hendrickson 2005). In order to qualify for these incentives, a specified share of all project units
11
In some municipalities, developers may donate land or make a cash payment in lieu of development.
27
must remain affordable to households at or below a certain income level for a specified period of
time. For example, in Montgomery County, Maryland, 15 percent of all units in any multi-family
development with more than 35 units must be set aside for households earning at or below 65
percent of area median income for a period of twenty years (Brown 2001). Specific eligibility
and time standards, however, are at the municipality’s discretion. To address workforce housing
shortages, priority for affordable units may be given to people employed in the city or county.
While this policy can apply to rental or homeowner development, the relative
affordability of rental units in the study area may undermine its initial impact in the Grand
Rapids area. Moreover, inclusionary zoning typically only applies to projects where the number
of new units exceeds a certain size threshold. While zoning administrators may set this threshold
at whatever level they wish, the minimal level of subdivision development in the Grand Rapids
area could mean that inclusionary zoning standards will be applicable in a very limited number
of projects. Nevertheless, projected regional growth could change this dynamic. In 2002, the city
of Grand Rapids began implementation of an eight year scheme for the orderly annexation of
adjacent unincorporated land. Christianson estimates that 300 homes could fit amply on recently
annexed land, indicating that the potential for larger-scale residential development exists.
Additionally, as housing pressure mounts, the cost of rental units could rise as well. Inclusionary
zoning would ensure that a portion of units remain affordable, even in the face of rising rents.
does not require any monetary contribution from local jurisdictions. Likewise, payment received
from the market-rate units subsidizes the reduced rent or purchase price of the affordable units,
which may also be smaller or include fewer amenities thereby further lowering development
costs. Should subdivision or multi-family development in the Grand Rapids area increase,
28
inclusionary zoning would insure a portion of new units would be affordable to low- and middle-
income households. In addition, as the senior population continues to age, supportive housing
representing ten percent of all US single-family housing starts in 2004 (Manufactured Housing
Institute (MHI) 2006). The 2003 average sales price was $54,900, or $59,290 in 2006 dollars, a
cost savings of approximately half the average home sales price in the study area (ibid). A recent
study conducted for HUD by researchers at Abt Associates found that when combined with land
(Boehm & Schlottman 2004). Moreover, owners of manufactured homes report higher average
neighborhood and housing quality satisfaction than residents of rental units (ibid). Additionally,
these homes can be built and installed relatively quickly and at reduced construction financing
costs, facilitating prompt expansion of housing options for low- and moderate-income
Formerly referred to as mobile homes, today a majority of manufactured homes are never
moved once they are installed (MHI 2006). In fact, double-section homes may be virtually
complicate the siting of these units. As of 2000, mobile homes composed only 3.7 percent of the
housing stock in Grand Rapids, as compared with the national average of eight percent
29
(Knowledgeplex 2000; MHI 2006). Re-evaluating zoning ordinances to ease accommodation of
manufactured homes could quickly ease pressure on the local affordable housing market.
Demand-side strategies
affordability. The Housing Choice Voucher program, one of the largest federal housing programs,
follows this rationale by subsidizing a portion of the rent payments of poor tenants. This section
presents two strategies, both of which hold area employers responsible for closing the housing
affordability gap.
The most direct way to address workforce housing affordability would be to introduce a
local living wage ordinance, requiring all employers to offer competitive wages and benefits.
This rate can be set using a variety of benchmarks, including poverty line figures, food stamp
eligibility standards, and family self-sufficiency studies (ACORN 2003). The Universal Living
Wage Campaign (ULW) uses HUD’s thirty percent affordability standard for rental units to
determine adequate wages, although this formula could certainly be adapted to areas where
homeownership is more prevalent, as is the case in the study area (ULW 2001). Additions to the
ordinance may include requirements for first-source hiring, or for initial advertisement of new
feasibility of wage reform in the Grand Rapids area, at least for now. Low workforce skill levels,
exacerbated by educated young adults’ escalating emigration to the Twin Cities and other areas
30
outside the region, have allowed employers to keep wages low, particularly in those positions
that do not require skilled labor. Additionally, the area’s history of high unemployment rates has
allowed employers to pay the minimum wage, as a willing workforce takes available positions.
Moreover, the cost of doing business in rural Minnesota is relatively high, with costs for heat,
shipping, sewer and water and technical support higher than in other areas (McDermott 2006).
With the confluence of these factors, McDermott suggests that until changes in the
economic environment are made, introducing a higher minimum wage would only cause the
community to lose much-needed jobs. At present, local companies in the paper milling, mining
and utilities industries do pay living wages because they must retain their skilled laborers and are
sufficiently large to pay more for this workforce. Small start-up companies, however, would be
unable to afford the cost of business in the region and would likely relocate to other areas. Those
companies that could afford to stay, even with the increased cost of labor, would be unwilling to
These constraining factors should not be taken as indication that higher wages are not
needed, nor that a living wage initiative could never succeed in the study area. According to a
report issued by the Itasca Economic Development Council (IEDC), the Itasca County average
annual wage paid per job, while once equal to the statewide average, had sunk to two-thirds the
state level in 2003 (IEDC 2005). As home prices continue to escalate, the need for higher
compensation will only grow. At present, the Itasca Development Corporation is engaged in
workforce training programs, in order to improve the skill levels of current residents. Moreover,
increased economic activity ought to further reduce local unemployment rates. With improved
31
economic conditions, the community will be in a better position to require higher wages from
employers.
Employer-assisted housing
Employer-assisted housing has its origins in the “company town,” which was common in
the US and the Iron Range in the 1900s, as mining interests moved across the area. Today,
company towns “are being revived under the rubric of employer-assisted housing,” although
contemporary advocates recognize drawbacks of the earlier system and limit the company’s role
to the realm of home financing (Sullivan 2004). Many practitioners now encourage the
affordable housing.
employers provide direct assistance with the purchase of a home, generally through closing cost
or down payment loans and grants, group mortgage origination plans or mortgage buydown
programs (Bell 2002). These loans may be forgiven incrementally, as the employee remains with
the company, or offered at below-market interest rates. Through this assistance, minimum-wage
earners can more easily cover the gap between their earnings and the cost of buying a house.
The company also benefits from working with and assisting its employees. These
programs can help guarantee the presence of an available labor pool and generate “better
relationships with the community, government, organized labor, and most importantly the
employer-assisted housing is easiest to provide in small towns such as Grand Rapids, where the
relationships between a company, its employees, and the local government are clearer, and
32
housing options are scarcer as there are not inexpensive suburbs or central city areas in the
immediate area, where workers can relocate to cut down on housing costs (Sullivan 2004).
As local stakeholders begin to think about the best ways to ensure that an adequate
supply of workforce housing exists in the study area, some additional situations and scenarios
should be taken into consideration. Completion of additional studies would also refine current
assumptions and resolve persistent questions, allowing for a more accurate base scenario from
As the permitting process progresses and companies get closer to hiring contractors to
work on their projects, local officials will be able to consult with those firms to determine where
their workforce and subcontractors are drawn from. By that time, however, it may be too late to
ensure that suitable accommodations are provided for non-local temporary workers. To arrive at
regarding the proportion of construction workers needed in various trades, which can be applied
to the projected number of total workers at each project. Local union representatives can then be
asked to estimate the number of their members who will be available to work on these projects;
As previously mentioned, the Grand Rapids area benefits from the tourist trade year-
round. In this analysis, it is assumed that housing temporary construction workers in area hotel
12
This method was suggested by Itasca Development Corporation/Jobs 2020 president Peter McDermott, and was
attempted for this analysis. Unfortunately, the unresponsiveness of company officials prevented its application.
33
rooms during the construction period is not a feasible option. However, it is possible that some
proprietors would be willing to reserve a block of rooms for workers, particularly during times
when tourism slows. A survey of area owners is recommended to assess the possibility of
This analysis has drawn heavily from a housing market analysis completed by Maxfield
Research Inc. in 2003 for the Housing and Redevelopment Authority of Grand Rapids, City of
Grand Rapids, and Independent School District #318. It is recommended that a similarly
comprehensive study be conducted for the labor shed area, accounting for both growth projected
by the State Demographer and growth stemming from the operation of the Minnesota Steel and
Excelsior Energy facilities, in order to create an updated snapshot of housing conditions and
anticipated housing needs. This analysis should include an inventory of unoccupied housing that
is not for sale as well. Approximately half of the 2,338 vacant non-seasonal units identified by
the 2000 US Census were not for sale or rent; these structures could present opportunities for
rehabilitation—a means of creating affordable housing that is considerably less costly than
The Blandin paper mill is the second-largest employer in Grand Rapids, with roughly 500
employees (Northland Connection 2005). Currently, a project to replace an old paper machine
with a new, more efficient one is under consideration. While the net employment impact of this
project would be negligible, approximately 1,000 additional temporary workers would be needed
during the construction period (Chandler 2005). If this project goes forward, temporary housing
34
needs would skyrocket—a scenario that local officials ought to take under consideration. Should
the project fail to go through, an estimated 250 local jobs would be lost, according to the
2006). The local impact of this job loss would be dramatic and far-reaching, and would likely
affect the number of local employees filling new permanent and auxiliary positions.
35
Works Cited
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Manufactured Housing. Housing Policy Debate 12 (2). [Online]. Available:
<http://staging.fanniemaefoundation.org/programs/hpd/pdf/hpd_1202_beamish.pdf>.
Bell, C. (2002) Workforce Housing: The New Economic Imperative? Housing Facts and
Findings 4 (2). [Online]. Available: <http://www.fanniemaefoundation.org/programs/
hff/v4i2-workforce.shtml>.
Boehm T. and A. Schlottman (2004) Is Manufactured Housing a Good Alternative for Low-
Income Families? Evidence from the American Housing Survey. Washington, DC: HUD
Office of Policy Development & Research.
Brissett, J. (2006, February 25) Blandin considers Duluth Warehouse. Duluth News Tribune.
[Online]. Available: <http://www.duluthsuperior.com/mld/duluthsuperior/business/
13960065.htm>.
Brown, K. (2001) Expanding Affordable Housing Through Inclusionary Zoning: Lessons from
the Washington Metropolitan Area. Washington, DC: The Brookings Institution Center on
Urban and Metropolitan Policy.
Bujold, M. and Sjogren, M. (2003) Housing Market Analysis and Demand Estimates for Grand
Rapids, Minnesota. Minneapolis: Maxfield Research Inc.
Concerns raised about Gillette housing market. (2005, June 7) Billings Gazette. [Online].
Available: <http://www.billingsgazette.com>.
Haughey, R. (2002, June 25-26). Workforce Housing: Barriers, Solutions, and Model Programs.
ULI Land Use Policy Forum Report. [Online]. Available: <http://www.uli.org/AM/
Template.cfm?Section=Home&CONTENTID=11041&TEMPLATE=/CM/Content
Display.cfm>.
36
Hendrickson, C. (2005) A Community Guide to Creating Affordable Housing. Business and
Professional People for the Public Interest. [Online]. Available: <http://www.bpichicago.
org/rah/pubs/BPICommunityGuide.pdf>.
Joint Center for Housing Studies (2005) The State of the Nation’s Housing 2005. Cambridge,
MA: Harvard University.
MN Pro (2005) Community Profile for Grand Rapids Minnesota MNPro. [Online]. Available:
<http://www.mnpro.com> (12 October 2005).
Minnesota State Demographic Center (2000) Historic Minnesota Population and Household
Estimates. [Online] Available: <http://www.lmic.state.mn.us/datanetweb/pop.html>.
37
Minnesota Steel (2005) Project Description [Online]. Available: <http://www.minnesotasteel.
Com/ProjectDescription1.asp> (29 October 2005).
National Association of Realtors (2006) Northern Minnesota Real Estate [Online]. Available:
<http://www.realtor.com/northernminnesota/nbregion.asp?st=mn&poe=realtor>.
National Low Income Housing Coalition (2005) Out of Reach. [Online]. Available:
<http://www.nlihc.org/oor2005>.
Power plant will need 400 workers (2005, May 30) Casper Star-Tribune [Online]. Available:
<http://www.casperstartribune.net/articles>.
Scherf, P. (2006) Personal communication. Itasca County Board of Realtors. 27 February 2006.
Sullivan, T. (2004, November) Putting the Force in Workforce Housing. Planning. [Online].
Available: <http://www.planning.org/affordablereader/planning/workforce1104.htm>.
38
Visit Grand Rapids (2005) Grand Rapids Minnesota Conferencing Lodging [Online].
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October 2005).
39
Appendix 1: Labor Shed
40
Appendix 2: Household Projections, 2000-2015
Amount Percent
Change, Change,
2000 2015 2000-2015 2000-2015
Itasca County
Total Households 17789 21010 3221 18.1
Married Couples 10370 11600 1230 11.9
Other Family 2015 2360 345 17.1
Nonfamily, Living Alone 4634 5990 1356 29.3
Living Alone, 65+ 2178 2710 532 24.4
Other Nonfamily 770 1050 280 36.4
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Appendix 3: Number of Households and Percent of all County Households in 1990 and 2000
Itasca County
9803 1,246 8.08 1,656 9.29
9804 747 4.84 1,443 8.10
9805 1,128 7.31 1,171 6.57
9806 926 6.00 1,129 6.34
9807 1,393 9.03 1,875 10.52
9808 3,051 19.78 3,414 19.16
9809 2,379 15.42 2,642 14.83
9810 2,230 14.46 2,471 13.87
Total 13,100 84.92 15,801 88.68
* Tract 121 was referred to as Tract 121.98 in the 1990 Census, but the geographic area covered
remained the same from 1990 to 2000.
Source: 1990 US Census SF 3; 2000 US Census SF 3
42