The tight rental market is driving nonprofits and government agencies to create pools of money as insurance for landlords willing to rent to people with evictions, poor credit or a criminal record.
A new grant from the Minnesota Housing Finance Agency (MHFA), a small Dakota County pilot program and a successful effort in the Fargo-Moorhead area are among a handful of such initiatives nationwide that are setting up funds to offset risks for landlords. The city of Minneapolis is devising a similar plan to entice landlords to rent to people receiving Section 8 housing assistance.
The funds work like this: If a landlord agrees to take on an eligible tenant, they have access to money as reimbursement if that tenant damages their unit, for instance, or skips out before the lease is up. Usually, a social service agency provides mediation services to work things out in such cases.
"Nationally, you see it mentioned more often as a strategy," said Diane Elias, program manager for MHFA. She said a growing body of research indicates that it can be effective.
Desperation is another reason groups are trying novel approaches. Vacancy rates in the metro area have hovered between 2 and 3 percent for several years, making it difficult for even qualified renters to find an apartment. And in many parts of the metro — especially Hennepin County — affordable housing is plummeting.
"Right now there's a major shortage of housing," said Jen Romero, housing coordinator for Carver County. "When there is an open rental unit," Romero said, "people who have a supportive housing program or voucher of some sort to pay for housing generally don't get selected."
Simply being low income or having no prior rental history can make it difficult to find housing in this market, said Rebecca Bowers, housing resource developer for Dakota County.
This is the first time MHFA has offered a grant — $350,000 — to help create such programs, Elias said. The state agency works with lenders to provide affordable home loans.
A goal of Heading Home Minnesota, a statewide initiative to end homelessness, is to create 5,000 new housing units for those in need. Elias said a variety of strategies are required to meet that goal.
"Building them alone isn't going to be the answer," she said.
The agency's grant money will be split between three to five entities, with applicants getting the money from Sept. 1 through Aug. 31, 2020.
The Suburban Metro Area Continuum of Care, made up of Anoka, Carver, Dakota, Scott and Washington counties, has applied for $150,000 in grants. The Salvation Army has applied for $150,000 on behalf of St. Louis County. Other organizations have offered funds and staff time whether St. Louis County gets the grant or not.
There were a few comments that the program was enabling people to remain dependent on assistance or would result in dangerous felons moving next door to unsuspecting tenants. But the program will be completely voluntary, said Kristy Eckart, director of residential services for the Greater Duluth Area Salvation Army. She said landlords can still screen tenants as they normally would.
Similar programs have shown promising results, including those in Portland, Ore., and Orlando, Fla.
Though vacancy rates outstate are slightly higher than in the metro area, a pilot in the Fargo-Moorhead area has also become a model. Started in 2014, it provides up to $3,000 if a tenant causes damage or there are other issues, said Cody Schuler, executive director of the Fargo-Moorhead Coalition for Homeless Persons. Schuler said various organizations have called to ask for a primer on the program.
Through March 2017, there were four reimbursement claims made by landlords out of 32 households participating. The program is fundraising so it can become permanent, said Laurie Baker, the coalition's former executive director.
"We consider those claims part of the program's success, because it did what it was supposed to do," Baker said.
In addition to providing landlord benefits, the programs offer tenants a chance to develop credit and a rental history so that they can rent elsewhere, Schuler said.
To apply for the Fargo-Moorhead program, tenants must have a case manager who can help solve any issues the tenant has with the landlord.
"It's been really wonderful to talk to landlords and find out how it changes their minds," Schuler said.
Dakota County created its own landlord risk mitigation fund pilot program in 2016. The program had a budget of $6,000 provided by churches, and 12 families as tenants. No claims have been filed, Bowers said.
Along with Guild Inc., a nonprofit that works with those who have mental illness, Dakota County sponsored a 2015 study asking smaller landlords about the most effective strategy in getting them to rent to higher-risk tenants. A risk mitigation fund was the No. 1 response, Bowers said.
The hardest part is getting the landlords on board initially, Bowers said.
"Part of it is that if there's issues, that they have somebody to call," Bowers said. She noted that most tenants in the Dakota County program get social services from the state so they have case managers.
Daniel Gumnit, executive director of People Serving People, which runs the region's largest shelter for homeless children and families, said landlord risk mitigation funds are less expensive and more effective than many other approaches to tackling homelessness.
"My case managers tell me that without these kinds of programs, they're not going to get families housed," Gumnit said. "I really think they're a cheap investment."
Erin Adler • 612-673-1781
