The debate is over what kind and how to provide it
Some think that the deregulation of housing through measures such as the elimination of single-family zoning and encouraging the building of multi-unit apartment buildings, townhouses, or condominiums is the solution both to increasing the housing stock and lowering prices. Alternatively, some contend that rent control is a solution to addressing costs, at least for the renter. Yet the most recent 2024 Annual Housing Market Report by the Minneapolis and Saint Paul realtors’ associations paints a picture that continues to suggest that what many people still want is single family housing, and that the current City policies are not addressing the needs or providing the appropriate solutions.
Housing is a complex and diverse market and there is no one size that fits all. Years ago, I consulted with a suburban community that realized it had a housing problem—they were only able to serve one market. Nearly all their housing stock consisted of single-family three-bedroom ramblers. The problem was that this housing served one need or demand. They realized that their housing did not serve the needs or people across their various stages of life. At different times people may want apartments, starter homes, family homes, places for empty nesters, and then assisted living. By providing only one type of housing they were losing residents for many periods of their life, if not permanently. The lesson was how to serve a diversity of needs and demands.
The mixture of housing required also includes middle income housing. The story of the 1950s and 1960s white flight from the cities to the suburbs was primarily about race and the resulting segregation it produced. But it is also a story of the middle-class leaving cities for more affordable single-family housing. The loss of this demographic has had a lasting impact on cities in terms of tax bases and education.
The 2024 Annual Housing Market Report for Minneapolis (and St. Paul) points to one important fact—residents of all incomes and races still want single family housing. Condo and townhome sales in the Twin Cities were down, but demand for single family houses increased. This was true also across the state despite rising mortgage interest rates. People still want houses, but many factors complicate this preference.
The median sale price for a house in the Twin Cities was $380,000, up from $345,000 the year before. While compared to the national average housing in the Twin Cities is affordable, the shortage of single-family units is making it difficult for the middle class to buy. Many of the buyers are already owners, swapping up or down to suit their needs. Moreover, housing construction costs are complicating affordability, but simply put there is still a demand for single-family homes and the market supply, including in the Twin Cities, is not providing enough at the right price. For anyone who has a basic knowledge of supply and demand, this should come as no surprise.
Studies by the Federal Reserve in Minneapolis and other entities point to short supplies of both single family and rental units as driving up general housing costs in the Twin Cities. There is no question that there is a need to fill the rental market. But providing more apartments, as well as townhouses and condos, will not satisfy the demand for single family housing. As the Relators’ annual report demonstrates, these are all separate markets and not interchangeable. There is little evidence that building one type of unit impacts or addresses the price or costs of another.
Elimination of single-family zoning will not encourage the building of more affordable housing, at least among the types of units that are in demand and needed. There is little to no evidence that this change in zoning has encouraged more affordable housing. In fact, there is evidence that it has encouraged speculation and the gobbling up of undervalued property only to be replaced by more costly units. Similarly, rent control alone cannot lower rents; it needs to be coupled with the increased supply of affordable units to work.
The lesson here is that a comprehensive and effective Minneapolis housing policy cannot ignore the need to accommodate single-family housing within its plan. There is still a demand for it as the Realtors’ report indicates, and such a type of housing is necessary for Minneapolis to serve the various needs of a diversity of residents.
Sadly, affordable housing as a term that is now an oxymoron. It is simply not viable to achieve, at least without intervention. Land, Labor, and Lumber have all dramatically increased in cost since 2012, the year the market was at its lowest in minneapolis coming out of the financial crisis of 2008. Rent control is not the answer. It doesn’t generally work because it is a disincentive for developers. So – defining what affordable housing looks like is an important step in solving for this problem. Generally speaking, housing expense should not exceed 25-30% of one’s gross monthly household income. You can get an FHA that allows a borrower to go all the way to 50% DTI (debt to income ratio) but that does not mean it is a good financial decision to do so. According to MNCompass.org – 35% of households in Minneapolis are cost-burdened, meaning that over 50% of gross monthly household income is spent on housing. There are so many factors that contribute to housing affordability. If you simply want to bring costs and prices down – then your answer is simple, increase supply so that it outpaces demand and prices will drop. But that is not going to happen. At least, not without a government subsidy. And, as the author of this article points out, the housing needs by population demographics vary greatly. So, then what kind of housing does one build? Again – there are numerous factors at play here. One thing the government can do is create thoughtful and meaningful incentives that bring developers into the city to start building again. We need it. Also – reduce the permitting cost, streamline the process, and develop a comprehensive plan. Create financing programs through city issued bonds to provide low interest rate loans to first time buyers and first generation buyers. Partner with your local community banks on deploying those loan programs. There are a lot of things that our city officials can do. They just need to look through the right lens and come to an agreement as to how to fund these initiatives.