The city of Muskegon says a multi-year effort to build starter homes on city-owned lots using brownfield tax increment financing is bringing properties back onto the tax rolls and providing homeownership opportunities that wouldn’t exist otherwise.
Driven by stagnant housing starts and a plethora of blighted and vacant properties, the city of Muskegon in April 2019 enacted a 30-year Brownfield Plan Amendment that allows it to redevelop city-owned lots into housing. It can then sell the homes for less than the cost to build by using brownfield tax captures to recoup expenses.
Through the Infill Housing Project, the city has either contracted with private homebuilders to construct below market-rate housing on city-owned parcels or sold the land to private developers to build market-rate homes on the lots.
Jake Eckholm, Muskegon’s director of development services who is leading the project, said the idea came about in response to “a real lack of production” of starter homes in every community following the Great Recession, including in Muskegon.
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He cited a 2016 Harvard study that found more than half of U.S. single-family homebuilders went out of business between 2007 and 2012. With that statistic in mind, the city felt it could become part of the solution by developing its own land.
“As a country, we don’t have a capacity to build our way out of the unit shortage, because there’s a lack of builders relative to the historical number of people in that industry,” Eckholm said. “The city has taken a very direct approach to infill housing utilizing local brownfield TIF capture.”
When it was formed in 2019, the Brownfield Plan Amendment included an initial 107 properties with an expected total capital investment of $49.5 million. But a subsequent series of amendments to the plan between 2019 and 2022 brought the total number of eligible properties up to 495 parcels with an estimated total capital investment of $107.2 million. Because some of those parcels have since been split, the Brownfield Plan Amendment currently has about 519 eligible lots, Eckholm said.
While some of the lots are unsuitable for building, the city since 2019 has completed or started construction on 143 units through the program, contracted with builders to construct another 61 units, plus sold an additional 20 or so lots to private builders.
“I don’t know of a municipality that has actually contracted more housing units than we have,” he said. “I think we’re pretty innovative in that way.”
Using research his department compiled in partnership with the Muskegon Planning Commission, the city’s infill program has accounted for 60% of the new housing starts within the city limits between 2018 and 2023, according to Eckholm. While most of the private developers that have built new housing during that time are concentrating on affluent neighborhoods or building closer to water, the infill program is targeting core neighborhoods like Nelson, Jackson Hill, McLaughlin, Angell and Marsh Field that have experienced years of disinvestment, he said.
“If we weren’t creating this housing market, there really wouldn’t be a housing market in the city limits for this type of product, for just everyday homes that working families would want to attain,” Eckholm said. “It’s showing us that the program is working, because … you can see fewer and fewer vacant city lots in these core neighborhoods and more and more attainable housing units that are owner-occupied being infilled. It’s gratifying to see.”
Currently, the city has about 178 buildable city-owned lots left in the Brownfield Plan Amendment. Eckholm said the city expects to put together a proposal by this fall for a fifth amendment to the brownfield plan that would add even more city-owned lots to the program.
He said the city also is working on a broader multi-year Strategic Housing Implementation Plan that will have a couple dozen action item recommendations, one of which focuses on additional rounds of direct investment into infill housing.
How the program works
Under the state’s Brownfield Redevelopment Financing Act of 1996, local brownfield authorities can create brownfield plans to redevelop blighted properties using tax increment financing for certain eligible activities.
Eligible expenses include development planning, legal fees, acquisition and demolition of properties, abatement costs, infrastructure and site preparation costs, and real estate fees, including losses against construction and closing and title costs.
Because there’s a provision for local government units to act as developers, the city of Muskegon is able to improve the properties and get them back on the tax rolls. The city is reimbursed for eligible expenses and then uses the increased tax payments stemming from the higher property values after houses are built to reimburse itself for any losses incurred during development.
The same applies to other developers who are improving properties designated as part of the brownfield plan, Eckholm said.
He added that the brownfield plan allows the city to temporarily capture existing taxes from an array of city millages until the losses are recouped. This does not represent an increase in taxes, but rather a temporary redistribution of dollars from sources including the city operating millage, city sanitation millage, library operating, county operating, county special millages and the community college operating millage.
“We then take all that extra revenue and eventually break even on a house, which then allows the tax capture to return to everybody receiving their normal millage,” he said. “It’s a win-win for everyone, because these were formerly publicly-owned (tax-exempt) vacant lots, and then they end up having a new home on the tax rolls once we’re all said and done.”
Eckholm said new construction homes currently cost about $220 to $250 per square foot to build, which would put a 1,000-square-foot home at $220,000 to $250,000 for building costs alone.
Because of the brownfield TIF program, the city is able to sell smaller starter homes to people making 80% to 120% of area median income at prices ranging from $135,000 to $200,000.
Hiring private builders
The city of Muskegon has worked with a variety of private contractors to build the infill homes.
Walker-based West Urban Properties LLC tackled 36 of the 42 single-family homes in the most recent round.
Dave Dusendang, president and owner of West Urban, said all but six of the houses are completed and sold. He said they’ve been selling within a week or so, priced from about $178,000 to $199,000.
“The program works,” he said. “I think it’s a great thing for that family that needed the assistance to get into a new home. … It’s money in the city’s pocket that they haven’t had for all these years — 50 years some of these lots have sat there. It’s a great thing for the city, it’s a great thing for the customer, and it’s a great thing for the neighbors not having vacant land that people just throw their stuff on.”
In addition to hiring builders that have large-scale capacity, the city also prioritized equity in the Infill Housing Project by partnering with smaller-scale developers that historically lacked the connections or resources to compete against larger construction firms, Eckholm said.
Rudy Briggs, owner of LRS Enterprises, is one such developer. He signed on for a test run that included two homes on Leonard Street in Muskegon’s Jackson Hill neighborhood, and it went so well that he was asked to build six more on the same stretch.
Briggs, who lives in Jackson Hill, had previously built about seven or eight homes before this.
“It is a beautiful location, a beautiful development, and (it was) the first time that I’ve ever done a development project,” Briggs said of the stretch of eight homes. “Before, I would always look at Jackson Hill and wonder, ‘When are we going to start developing Jackson Hill?’”
Since completing the homes, Briggs has purchased six scattered-site brownfield lots from the city and plans to develop and build 12 market-rate homes on his own. He said the city has served as an ally in helping him overcome issues like labor challenges.
“I complied with what they asked for, they complied with what I asked for, and it’s just a great relationship,” he said. “I love it.”
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