Members of the Missoula City Council on Wednesday gave preliminary approval to vacate a sliver of road in the Midtown district to accommodate a residential and commercial project planned by an affordable housing developer.

The $30 million development, proposed by Casa Loma LLC, will include 132 units of housing at the corner of South and Stephens avenues. Given the city's vacation of public right-of-way, 20% of the rental units within the project must be reserved as affordable housing for a period of 35 years.

“We didn't want to restrict the entire project, even though our intent is to make this affordable and attainable," said developer Nate Richmond. "We have to maintain some flexibility for the fluctuating construction market out there right now, materials and labor being the big unknown.”

The project will also include a handful of for-sale units and 18,000 square feet of commercial space. The Missoula Redevelopment Agency is contributing to the project, which also includes a roundabout, a cycle track and new public infrastructure.

Under the parameters arranged by the city, the 22 affordable units will be dedicated to households earning at or below an annual income of $52,250 a year. If one unit turns over every three years as anticipated, the city believes that as many as 242 households could benefit over the 35-year term of the 22 affordable units.

The developer is sacrificing $7 million over that time frame to keep those units income restricted.

“In addition to the tangible public benefits of the 22 set-aside units for 35 years, the project supports other meaningful impacts toward our housing goals,” said Emily Harris-Shears, the city's housing policy specialist. “This project helps us contribute to the pipeline of having lots of different types of housing in our portfolio.”

Sussex Avenue dissects the property from corner to corner, making the two triangular lots difficult to develop. Without its vacation, the project would accommodate just a fraction of the units that are planned.

Scaling down the number of units would also increase their price, Richmond said.

“That economy of scale translates to more affordability in the development,” he said. “If we're doing just 24 units on those two parcels, they'll likely be a higher price tag than if we did 132.”

While the number of units weren't an issue, Ward 3 council member Daniel Carlino sought to require the developer to subsidize the project's 22 affordable units for a period of 70 years, not the 35 years requested by the city.

However, his proposed amendment failed on a 9-1 vote and received scrutiny from some peers. Fellow Ward 3 council member Gwen Jones said the city would be setting bad precedent if Carlino's 11th hour amendment were to pass, potentially scuttling the entire project by altering its delicate financial model.

“It's bad practice to try to steer a ship of this size in a completely new direction after so much work has gone into it - work that's all based on solid policy that council has created over the years,” Jones said. “Frankly (Carlino's amendment) is not based on any type of financial analysis related to the reality of this project. I'm concerned this sends an incredibly bad message to the development community that changes of this magnitude can be made at the last minute.”

Carlino said his amendment wasn't based on financial reasoning but rather on the practice employed by several Missoula nonprofits, including Habitat for Humanity and the North Missoula Community Development Corp.

He said such organizations, which often rely on community land trusts to lower the cost of housing, have pushed the city to provide affordable housing in perpetuity.

“I wasn't trying to compare this to a community land trust but rather, I was saying those nonprofits also advocate for affordability in perpetuity, not just for land trusts,” he said. “I'd at least like to get the conversation going as a council about when and how we're going to get any (housing) in perpetuity.”

Carlino's request prompted a lengthy debate, both on best practice within the housing industry and what's fair to demand of a private developer that has willingly partnered with the city to build some portion of affordable housing.

Harris-Shears said it's not rational to compare Casa Loma's project and business model to a nonprofit. She added that the city has based its 35-year period of affordability on best practices, public comment and industry standards.

“It's a best practice and an industry-endorsed period of affordability, as well as understood policy in our community,” she said. “At this point, the developer has provided us with insight on where the project still pencils. There's concern that when we try to mix up these variables at this stage, that the project may not be feasible and we may not see a project at all.”

Richmond said the industry standard of 35 years is generally tied to the amortization period of conventional financing. At that point time, a property of this size generally needs to be financially restructured to complete significant rehabilitation that generally includes new roofing and a new physical plant.

“In the affordable housing industry, that's typically when you go back in and re-up the affordability period as well,” said Richmond.

Given the city's housing needs, council member Mike Nugent said Missoula can't rely on nonprofits alone to provide affordable housing. Private developers will be key if such housing is produced.

Tampering with the formula used by private developers to provide a portion of affordable housing could jeopardize a number of projects, or increase the cost of other units, he added.

“We need private investment and private development to help solve our housing issues. When we're asking private developers to come in and solve a problem and they're willing to do that, we can't make it so tight that it doesn't pencil, or make sense for them to do it. It's important for us to remember that we need to develop affordable housing wherever can get it, and a big part of that is having private parties be willing to be those developers as well.”