The Minneapolis 2040 Plan promised that by upzoning the City, we would produce substantially more housing. Through simple supply and demand, housing prices would fall, and housing would become “cheap and abundant.” Based on this plan, the City changed the zoning code to allow much higher levels of density throughout the City and allow replacing any single family home with a triplex.
Did these changes reduce housing costs?
J. Tice reported on a study by Helena Gu and David Munro from Middlebury College called, Zoning Reforms and Housing Affordability: Evidence from the Minneapolis 2040 Plan” that attempts to answer whether these changes actually affected housing costs. Unfortunately, the study is deeply flawed and doesn’t answer this critical question.
How did the authors attempt to answer this question? They created a hypothetical model where they made assumptions about how rent and housing prices would have changed from 2020 to 2024 if there had been no zoning changes. This exercise found that rent increased 1.8% in the real Minneapolis and 5.6% in the hypothetical (synthetic) Minneapolis. They also claim that if the zoning code had not been changed to allow more density, home prices would have increased by 47% in the five-year study period, whereas the actual increase was 15%! (Source: Page 19 of their report.) This is a rather unbelievable claim and casts doubts on the credibility of their entire report.
This study is deeply flawed.
First, the study created a hypothetical Minneapolis based on what was happening in other cities. Then they compared this hypothetical Minneapolis to the real Minneapolis so show what rent and housing prices would have been without the 2020 changes. The model depended on the cities that were chosen and the variables that went selected. This was a useless exercise. Which cities were appropriate? What variables were included in the model? Which cities and which variables is very subjective, to the point where you can come up with almost any answer depending on the inputs you select.
They could have done this exercise much more easily. They could have simply showed a graph of rents and sale prices of Minneapolis and other cities from 2000 to 2024. It would have achieved the same result.
Second, the short five-year period from 2020 to 2024 was dominated by the Covid outbreak and George Floyd aftermath. It was not a “normal” period in which had a study could be done with reliable results. Trying to interpret any trend data during this time is impossible. And the Floyd murder makes Minneapolis even less likely to follow the trends of other cities. Gu and Munro acknowledge that when they say, “While the results thus far suggest that the Minneapolis 2040 Plan has triggered a significant decrease in home and rental prices, the underlying mechanisms driving these effects remain unclear.”
Three, that statement by Gu and Munro also contains the statistician’s cardinal sin – the oversimplification fallacy. They say, “the Minneapolis 2040 Plan has triggered a significant decrease in home and rental prices.” The authors are stating that prices are a result of the zoning changes when there could be many other reasons, most notable being that demand declined. Minneapolis may just be a less desirable place to be, especially when compared to other cities. The Floyd murder and the resulting riots may have dampened demand for city living. Add to that increasing crime, declining number of jobs, declining property values, a transportation system increasingly hostile to cars, declining schools, homeless encampments, open air drug dealing and a host of other issues reducing demand for city life. There is no proof that the plan triggered anything. And it is impossible to tease out exactly which of these things affected home values and by how much. All one can conclude is that after the plan was adopted, there were new units built, home values increased or decreased, and rents went up. You can’t attribute correlation to any factor.
What we do know is that there has been no major increase in housing construction since the upzoning changes in Minneapolis in 2020. In 2019, there were about 4,800 housing units permitted and in 2024, there about 400. Housing production has declined and Minneapolis ranks dead last in housing starts per capita in the Midwest. If this plan was supposed to produce more housing, it didn’t.
And it is not clear why it was necessary to take away zoning protections from single family homes. Zoning changes now allow a triplex on any parcel with a single family home on it now. In 2024, there were only 36 units built in 2 to 4-unit buildings. Given the City has over 200,000 housing units, this is an insignificant number of housing units build where single family homes were. So, my question is why does the city of Minneapolis have to threaten single-family homeowners with the possibility that their neighbors could convert their homes to more units? Why not instead keep zoning that protects single family homes and restrict new housing to existing walkable environments and transit nodes? That would be much more environmentally friendly.
Maybe another, less complicated, study in 2030 will reveal if Minneapolis’ upzoning changes have made much difference in affordability. The Gu and Munro study has not answered that question.
