top of page

What does it cost to build a unit of affordable housing in Ann Arbor?

TL;DR

  • “Affordable housing” means homes reserved for people making roughly 30–60% of Area Median Income (AMI). (Some projects include a few homes up to 80% AMI while keeping the overall average at or below 60%.)
     

  • Most of the money (about 70%) comes from federal Low-Income Housing Tax Credits (LIHTC).
     

  • The remaining ~30% is filled with state tools (like brownfield), grants, loans, philanthropy, bank financing, and local dollars, including Ann Arbor’s Affordable Housing Millage and the Affordable Housing Fund (trust fund).
     

  • We stretch local dollars by using them to pay debt on bonds rather than writing one big check—so we can build more homes, faster.

Grove.jpg

The Grove at Veridian. Photo: Steve Jensen

First, what does “affordable” actually mean?
 

Ann Arbor uses AMI (Area Median Income) to set rents.

​

  • 30% AMI: Lowest incomes (e.g., many fixed-income seniors, people exiting homelessness).
     

  • 60% AMI: Working households who still can’t afford market rents.
     

  • Income averaging: Projects can include some units up to 80% AMI if the average rented unit stays ≤60% AMI. This helps mixed-income buildings pencil out while keeping overall affordability.

 

Why this matters: When residents say, “That building doesn’t look affordable,” they’re reacting to the appearance. Affordability is about who can live there and what they pay, not whether the building has brick or balconies. New buildings also have to meet modern safety, accessibility, and energy codes, which influence how they look.

Where does the money come from? (The “capital stack”)

​​

Think of the financing as a layered bar—each color is one source. Together, they must add up to 100% of the cost.​

Typical affordable housing stack

​

  • ~70% LIHTC (Federal program)
     

    • 9 percent credits: Competitive (two statewide rounds a year).
       

    • 4 percent credits: Non-competitive, available year-round, usually paired with tax-exempt bonds.
       

    • Developers sell these credits to investors to raise cash (equity) for construction.
       

  • ~30% Other sources
     

    • State and local tools: Brownfield/TIF, MEDC programs, HOME, etc.
       

    • Grants and philanthropy: Energy efficiency (e.g., geothermal), accessibility, green building.
       

    • Loans: Banks and mission-driven lenders.
       

    • Developer contributions: Sometimes developers reinvest part of their fee to close the gap.
       

    • Local funds: Ann Arbor’s Affordable Housing Millage and Affordable Housing Fund

Capital Stack.png

Ann Arbor’s two local pots (they’re different!)

​​

  • Affordable Housing Millage (voter-approved, through 2041): Generates about $7.5M/year (2025 rate). By rule, millage dollars support units affordable to ≤60% AMI.
     

  • Affordable Housing Fund (often called the “trust fund”): Holds developer contributions (e.g., from PUDs) and other transfers; can support a range of projects.
     

Why we don’t just write one big local check:

​

If we paid with 100% local funds, we’d build very few homes. By using local dollars mainly to leverage other funding (and to pay bond debt service), we multiply impact—often turning $1 local into $4–$5 total.

Millage Flow.png
A concrete example: 350 S. Fifth (the former Y-Lot)
 

  • 100% affordable, next to the Blake Transit Center.
     

  • ~330 homes, total development cost roughly $220M (rule-of-thumb per-home cost shows $575k–$667k depending on accounting items like reinvested fees and contributed land).
     

  • How it pencils out:
     

    • Debt + LIHTC equity covers about ~75%.
       

    • State tools (e.g., transformational brownfield) and energy tax credits contribute additional millions.
       

    • The remaining gap (tens of millions) is covered by bonds that the millage repays over time—typically ~$2–$3M per year from a millage that brings in ~$7.5M per year.
       

    • Local share over life of the millage: on the order of $33–$35M, spread across years, instead of up-front, so other projects can proceed in parallel.
       

Bottom line: Local taxpayers are not paying $600k per home. Directly, we (taxpayers) are paying ~$7,575/unit per year. Local dollars unlock much larger federal and state funding to build the homes we need.

350 S Fifth Project Funding.png
350 S Fifth Ave Rendering.png
Why do new affordable buildings look “nice”?

​

  • Code compliance: Modern safety, accessibility, and energy codes apply to every new building.
     

  • Durability: Publicly funded housing is built to last; cheap finishes drive up long-term maintenance.
     

  • Operating costs: Features like geothermal reduce monthly utility bills, protecting both residents and the project’s finances.

What about taxes on these buildings?
​

Many affordable projects use a state-authorized tool called a PILOT (Payment In Lieu Of Taxes). Instead of regular property taxes, the owner pays a predictable, reduced payment tied to affordability. This is standard for LIHTC housing and helps keep rents low. Other taxes (like state income/sales tax activity during construction) can be recaptured through programs like transformational brownfield to help finance the project.

How many homes are we talking about?
 

Right now, Ann Arbor has over 1,200 affordable homes built or in the pipeline with millage support. The millage’s strength is its predictable annual revenue, which lets the City/AAHC bond against future millage and run multiple projects at once.

Common questions & quick answers
​

“Why not make developers pay for all of it?”

​

We already require contributions (that’s what the Affordable Housing Fund collects), and we partner with developers. But affordable housing for 30–60% AMI requires subsidy—rents won’t cover full construction and operating costs without it.

 

“Can’t we just convert old buildings more cheaply?”

 

We do seize opportunities when they pencil out. But large, code-compliant, accessible buildings in central locations are scarce, and many conversions still need substantial upgrades.

 

“Why allow any units up to 80% AMI?”

 

Because income averaging keeps the overall average at or below 60% AMI while allowing a mix that improves financial feasibility and project stability—without losing affordability goals.

 

“If it costs $600k a home, how is that ‘affordable’?”

 

That figure is the total development cost, most of which is covered by federal/state equity and loans. Local dollars are the smallest slice and are used to leverage the bigger slices.

Closing thoughts
​

Building affordable housing is complex, but the approach is straightforward: use small, well-targeted local dollars to unlock much larger state and federal resources. That’s how Ann Arbor turns $7.5M/year into hundreds of homes for neighbors who need them most.​

Glossary (plain language)​
​

  • AMI (Area Median Income): A yardstick for local incomes. Affordability levels (30%, 60%, 80%) are set off this number.
     

  • LIHTC: The federal Low-Income Housing Tax Credit program. Investors buy tax credits, giving projects cash up front to build affordable housing.
     

  • PILOT: Payment in Lieu of Taxes—keeps operating costs predictable for affordable housing.
     

  • Brownfield/Transformational Brownfield: A state tool that uses future tax activity to help pay today’s costs.
     

  • Affordable Housing Millage: The voter-approved local property tax (through 2041) that funds affordable housing and helps repay bonds.

​

  • Affordable Housing Fund (Trust Fund): The City’s bucket for developer contributions and similar funds.

bottom of page