WORTHINGTON — Progress is continuing on Worthington’s Hotel Thompson, a project that will ultimately add 49 market-rate rental housing units to the community.

A recent housing study commissioned by the city, however, reveals a significant remaining gap. Even with the 49 apartments at the Thompson coming online, the study shows the city is short 156 market-rate rental units.

That deficit will be extremely difficult to make up without some changes at the legislative level, Worthington City Administrator Steve Robinson explained this week.

“The cost to build in Worthington is the same, if not higher, than anywhere else in the state, even in the urban area,” Robinson said. “But the median household income in Worthington is 30% below the state average. The developers know they can’t charge the rents they need to charge, so they shy away from even looking at Worthington as an attractive place to build.”

Recently, Robinson reviewed proposed legislation shared with him by District 22 Sen. Bill Weber (R-Luverne) that was intended to stimulate housing development. Weber hadn’t written the bill, Robinson said, but wanted to gauge if it was worth supporting.

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“The bill was going to … affect income-based rental properties, but we’re not focused on that as a need,” Robinson said. “Our focus is on market-rate rental housing and single-family homes.”

The focus is not exactly new.

Four years ago, Robinson said, the city was the recipient of a state workforce housing grant that totaled about $868,000. The grant required a 2-to-1 match, which meant the city had to commit a little more than $430,000.

“Add this up and it was about $1.3 million that was going to a developer,” Robinson said. “The original developer with which we applied for the grant was unable to come up with their own financing, so for the next two to three years we searched for and recruited other housing developers that could take advantage of this grant opportunity. We were unable to secure anyone that was either interested or had the financial means to do this.”

While the grant clearly intended to stimulate housing development, Robinson stated, its terms made this difficult.

“The problem … is this particular grant could cover up to 25% of the construction costs,” he said. “The conditions associated with the grant eat up much of that 25%, so the grants really provide minimal benefit. You have prevailing wages and all these administrative costs, so what we found was the two or three developers that were truly interested in this didn’t have the financial means to actually follow through. The developers that did have the financial means, they had no interest because they were already in thriving markets and could already achieve their desired return on investment without having to venture away from their home.”

Robinson said prevailing wages used for Nobles County are based on metro statistics, despite numerous years of requests to the state for an adjustment. One alternative solution would be allowing grants such as the one Worthington received to cover a higher amount for construction costs than 25%; another is eliminating some of the existing restrictions.

“The state programs aren’t benefiting places like Worthington that have severe need for additional housing,” Robinson said. “It’s a problem throughout much of outstate Minnesota.”

Reducing the costs of administering the grant would likely make the involved projects more attractive to local developers, Robinson theorized. That’s important on at least a couple of levels.

“We have a greater comfort level because we know them and have experience with them,” he said. “It also benefits us having a local contractor working on a city project because they have local residents that work with them who are earning wages and spending those wages locally.”

While there is housing in various stages of development and construction around Worthington, it isn’t of the market-rate variety.

Robinson is hopeful that Weber and other legislators can work to address the problems related to market-rate housing development. The gap “still exists for those who are in that $600 to $800 per month affordability,” he said.

Closing that gap, Robinson believes, is important to keeping Worthington thriving on an economic front.

“We need this housing to attract workers so that our employers can fulfill their workforce needs,” he said. “I think all we can do is continue to raise this issue with different agencies and departments that promote housing and convince them to change their approach.