Ann Arbor is in the middle of a housing crisis. According to the National Low Income Housing Coalition, a person would have to earn $19.71/hr to comfortably afford a two-bedroom apartment in Ann Arbor, and Ann Arbor is the most expensive area in Michigan. This is out of reach for many of the people who work here, who then must commute from further away. Ann Arbor is the eighth-most economically-segregated metropolitan area in the United States.
The rent, to borrow a phrase, is “too damn high”.
I believe that, if we are going to solve the housing crisis we shouldn’t limit ourselves to answers that cause developers to make money. However, the laws of the State of Michigan limit our options. For example, we cannot implement rent control.
Instead, I propose that we create a city income tax of 1% on residents and corporations, and 0.5% on nonresidents who work in Ann Arbor. This is something that is within our power as a city. According to my calculations, this would allow us to build a mixed-use development on land that the city already owns, and have it bought and paid for in five years. I propose that the city operate the building as the landlord, rather than work with a developer who will expect to make a profit.
If the city maintains ownership of the building, we can set rents. We can make sure that the commercial part contains local businesses.
People will be able to affordably live, work, and shop downtown without having to commute or own cars. We must make Ann Arbor an affordable place to live!
These are some very rough estimates that I made, to see if my idea was feasible.
There are two questions to answer:
- How much money could we get from a city income tax?
- What does it cost to build a mixed-use building downtown?
How much money could we get from a city income tax?
The equation I want to solve is:
Median income per household in Ann Arbor × (Population of Ann Arbor ÷ Number of persons per household) × Tax Rate = City Income Tax Revenue
The median income in Ann Arbor was $57,697 in 2012, with 23.4% below the poverty line.
The population of Ann Arbor was 113,934 in 2010.
The average number of persons per household in was 2.09 in 2016. That is, 35.9% 1-person households, 35.3% 2-person, 12.2% 3-person, 16.1% 4-or-more persons. 1×0.359 + 2×0.353 + 3×0.127 + 4×0.161 = 2.09.
What should the tax rate be? State law allows for a tax of up to 1% on residents and corporations, 0.5% on nonresidents who work in the city. The law also allows for us to make a lower tax rate. State law forbids a graduated income tax, but we can create exemptions. People making below a certain amount of money per year should pay no city income tax. People making above that certain amount should pay the full 0.5% - 1%.
57,697 dollars per household × (113,934 persons ÷ 2.09 persons per household) × 1% = $31,452,870
However, since I proposed exempting people making below a certain amount, we should expect a number somewhat lower than this. How much lower depends on the decisions we make.
Reality check: Is that a believable number? I talked to Mark Gifford, city manager of Big Rapids, Michigan with a population of 10,601. They have an income tax of 1% on residents and corporations, 0.5% on nonresidents, just like I propose. He said that they bring in between $2.04 million and $2.28 million annually.
Ann Arbor’s population is a little more than ten times that of Big Rapids, so it would not be out of the question to expect between $20.4 million and $22.8 million in annual tax revenue.
What does it cost to build a mixed-use building downtown?
Apartments can be built for around $75,000 per unit. To build a 200-unit building would cost $15,000,000. The city recently voted to re-purchase the Y lot for around $4,200,000. However, if we use land the city already owns, this is a cost we will not have to pay. For a $20m loan over 5 years at 5% interest, the city’s mortgage payments would be $386,041.34.
It is completely realistic for the city to build affordable housing there, using the revenue from a city income tax. We should think big! What if the city bought all the property downtown? We could quickly pay off the loans. With no mortgage, and nobody who needs to make a profit, we would need only to pay for the maintenance of the buildings. Rents could be extremely cheap – just enough to pay for maintenance and to make up for the property tax we would not be getting on that building. People could afford to live downtown, and walk places, and not own a car. We could require that the businesses in the mixed-use developments be local businesses, thereby ensuring economic opportunities for Ann Arbor residents.
In fact, we would have enough money left over to make the buses free for everybody!
According to AAATA’s budget, they expect to bring in $6,848,660 in fares in 2018. I think we can find room for that somewhere in our $20-30 million dollar tax revenue.
We could do any of a number of amazing things to improve the quality of life here, and to make sure that we are improving the quality of life for everybody.