Harry's Gang: Thinking outside the box with housing

There’s a real need for housing in Cloquet. It seems to me, slowly but surely, the central part of the city is deteriorating as more and more people move out to the larger lots available on the city’s edges. For example, some lots in the Sunnyside neighborhood are about one-third acre, while many lots in the older parts of Cloquet are much, much smaller.

So when those older houses get too worn out to repair, they become vacant, taking up space that can’t readily be sold, because the lots are too small to rebuild. Can you see the problem? Eventually, the interior neighborhoods in our city may become unlivable. That’s not good.

For years, I’ve advocated for a government program that would help people buy two or three older homes, and demolish them to build a bigger home on a larger lot. Like the typical liberal that I am, I hardly consider the huge expense such a program would be to the taxpayers, but I rationalize the idea by suggesting that it becomes cost-effective when we slow the expense of building city infrastructure farther and farther out from the city core. Things like roads, utilities, and city services (think police and fire protection) are more expensive the more a city is spread out. By keeping the residential core intact, we win in the long run.

I’m the first to admit my idea has many kinks to work out before it becomes plausible.

Fortunately, there are people smarter than I working on solutions, too. Recently, a small house at 217 Third Street in Cloquet went tax-forfeit, and Carlton County officials reached out to city officials to see if it would accept the house for rehabilitation, rather than have the county demolish it. The city said yes.

I talked with Holly Hansen, community development director, who told me that Cloquet has very specific ideas about what to do with such a property.

“We prefer to get these houses into the hands of contractors, who will redevelop the properties, rather than investors, who may just rent them out as is,” she told me. “We want professionals to do it right. That’s better than having the county spend the money to demolish it.”

Holly’s office reached out to One Roof Community Housing, but they turned down the project because the lot is small and the house is in bad shape. Then, a Duluth-based contractor, Lagom Modular, learned about the house and made a pitch to the Cloquet Economic Development Authority (EDA), a volunteer board that works on economic development issues with the city, hoping to get support to buy and redevelop the parcel. “City support” usually means money, but it also means help in getting the property transferred from the county to the city to the contractor.

“The EDA has been directly involved with past private contractor tax-forfeit transfers to facilitate rehabilitation or redevelopment of property in the city of Cloquet as private-public partnerships,” Hansen said in her most official tone. “This case is a continuation of that work.” There’s also a fund to help the contractor with low-interest loans, a real boon with the high interest rates we’ve been seeing from the banks lately. The developer is looking to borrow about $52,000 from the fund, and told the EDA that they expect the whole project to cost about $104,000.

The EDA funds are called “gap financing,” because developers often need more money than a traditional bank or other traditional financing will lend them.

Critics complain that if a developer isn’t willing to risk their own money for a project, why should the government? Well, that argument, which I have heard for years, is flawed, because the developer is also risking their time, skill, and knowledge in a project. Sure, they hope to make a profit. So what? The default rate on EDA loans is very low, due to the diligence of Holly’s office and the scrutiny of borrowers by the EDA, which makes this a good use of public money.

This kind of development is exactly the type of inner city development I like to see. In today’s housing market, the house will be worth significantly more than the estimated cost, which means everyone wins: the city gets rid of a dilapidated property; the contractor makes a decent profit for its risk, and the public gets new housing. It’s the first step toward implementing my dream program.

Pete Radosevich is the publisher of the Pine Knot News and an attorney in Esko. His opinions are his own. He is willing to speak at your meeting or event; contact him at [email protected].