Minneapolis 2040 plan will moderate home prices and rents

With the passage of the Minneapolis 2040 plan (the plan), the city has been nationally recognized as taking a major step towards becoming a city that provides more housing to all. This recognition is rooted in the well-researched fact that single-family zoning makes large areas of cities across the U.S. affordable to few and has created economic and racial segregation[1]. The goals that the city has set and the ways the city intends to meet them are well thought-out. I agree with the city’s plan that increased density, proportional to the existing built form of those neighborhoods, will moderate housing prices and provide more options to renters and homebuyers of all incomes. However, moderating prices for market-rate homes and rentals alone will not close the gap needed to address the affordable housing crisis. To close this gap, the increase in allowable density in the city will increase development of new housing, a portion of which will be affordable to low and very-low income households through vouchers offered by the Minneapolis Public Housing Authority (MPHA) and new homebuyer assistance through the city’s Community Planning & Economic Development (CPED) programs. Providing affordable housing for Minneapolis residents with increased density and an increased tolerance for such development will begin to work against the entrenched status quo interests who have benefitted from racially motivated housing discrimination. Finally, as the city continues to attract new residents the increased density will allow the city to be more resilient to future change by remaining more affordable than if the plan had not up zoned the city.

A major critique of this plan is that it emphasizes the interests of developers and lacks specific on how many new affordable units will be created. Regarding specific numbers of new affordable units that would be created by the plan, Planning Commissioner Sam Rockwell (2018) explained, this critique is seeking information that is typically not contained in a comprehensive plan of this nature[2]. Additionally, this critique focuses narrowly on how many new units will be constructed directly as a result of the plan and improperly expects the government alone to be the primary constructer of new affordable units. The policy outlined within the plan outlines two concepts; “Affordable Housing is rental housing with rent and income restrictions… In comparison to Housing Affordability, which is access to homeownership or rental options based on price relative to household income.”[3] Outlining these two concepts here helps us understand that affordability applies to all income levels – expanding both Affordable Housing and Housing Affordability for all is a major goal of the 2040 plan.

It’s imperative to stress that increasing access to affordable housing depends on moderating prices for the entire housing market and the simple mechanism of increasing the diversity of housing supply is the only pathway to moderating prices. Given more options, many homebuyers may prefer to seek out a condominium in a multifamily building rather than seek out a single-family home. Currently, supply for condominiums in Minneapolis are found only in historically more dense areas so given more condominium options in historically lower dense areas the idea of a “starter-home” may end up being a unit in a multifamily building. A simple economic principle of supply and demand can apply here; the more supply we can reasonably provide “even in constrained markets… prices should generally fall in response”[4]. Given this assumption, the increase in housing supply, and housing options within that supply, will result in moderation of housing prices over time.

Research into the ability of renters and homebuyers to relocate performed by Been, Ellen, and O’Regan’s has shown that homes vacated by previous owners causes a ‘tenure conversion’ where that home can be available to a household in a relatively lower income. An impediment to tenure conversion is limited supply in more desirable neighborhoods where those homeowners may be interested in relocating. If there are no homes for households looking to graduate to a better home, they may opt to improve or completely rebuild their existing home (referred to as a ‘tear-down’) which increases prices for neighboring homes. Increasing housing supply in all areas causes a downward filtering effect to allow more homes to move from a higher-income market to a relatively lower income homebuyer or renter. The concept of tenure conversion explains how increasing overall housing supply results in more housing availability to the lower income submarket[5]. In order to maintain the current level or increase the level of ‘tenure conversion’, housing diversity and overall housing supply must be increased consistently over time.   

While the Minneapolis 2040 plan lacks specific details on additional affordable housing for those below the area median income, the specifics for moderating prices for those who cannot afford market rate homes and rentals are contained within current MPHA and CPED policy. For those 80% or below the AMI[6], the Minneapolis Public Housing Authority (MPHA) and Community Planning & Economic Development (CPED) is already positioned and empowered to play the primary role in expanding affordable housing. Current city policies provide incentives for developers of new properties and owners of existing properties to offer affordable units. One example of an incentive is a current CPED policy that provide tax break incentives for participants to agree to keep 20% of their units low-income affordable for at least 10 years[7]. Additionally, CPED program incentives already exist for developers to create and retain existing naturally occurring affordable housing (NOAH) in the city by providing property tax breaks and grants for those who make various improvements and provide affordable rents[8]. Additionally, a separate CPED program that provides grants and no interest down payment lows increases access to the homebuying market for those below the AMI. In no small part, these programs depend on new development to increase the number of low-income qualified units. Encouraging denser development will result in more affordable units and will moderate prices for those above 80% AMI looking for an affordable starter home or condominium.

Historically, areas that could provide more housing for renters and buyers have long resisted changes to their neighborhoods. For 40 years starting in the 1910s, restrictive covenants denied people of color the ability to purchase or rent a home in large areas of the city. In all, there were over 22,000 racial restrictive covenants applied to housing titles in the Minneapolis area[9]. Shortly after racial covenants we ruled unconstitutional, Homeowners Loan Corporation maps redlined communities of color as ‘undesirable’, and this made it difficult or impossible to attain mortgages for homes within these redlined districts. A study performed by Sood, Speagle, and Solberg found that homes that had been covenanted are 15% more expensive today than non-covenanted homes. Further punctuating the lasting effect of racially segregated housing, the same study found that for every 1% increase of racial covenants in an area is associated with a 19% decrease in Black residency today. The neighborhoods that enjoy the benefit of increased home values and the designation as a “nice” area continue to resist change to protect their status quo interests. Increasing housing density and housing options in all areas will begin to work against the persistent legacy of racially discriminatory housing policy.

Considering that many new government policies are experiments, let us now consider a control; consider if the Minneapolis 2040 plan had not enacted a policy to increase housing density in all neighborhoods. In this scenario, the City has maintained current zoning policy and decided to approach the housing affordability crisis with a different method. One method could be a free-market approach by allowing developers to continue constructing market rate buildings in areas that allow higher density and some of those units may be affordable housing for those under 80% AMI. Allowing developers to continue to develop large scale apartment buildings will not increase housing diversity. This will result in rapid price increases within neighborhoods comprised largely of single-family as vacancy rates reach near zero in lower density neighborhoods and there is no new housing supply. Many neighborhoods would experience an increased rate of ‘tear-downs’, where a single-family house once stood is torn down to build a larger single-family home, increasing prices for nearby single-family homes[10]. Ultimately, it results in a continuation of the existing housing affordability crisis and push many existing residents out.  

As pointed out in the plan, Minneapolis will see population growth over the next 20 years. This will be the result of people moving here for traditional reasons but also people relocating due to climate change. The near-term effects of climate change may not directly threaten our city’s viability (we are less likely be under ocean water or choked by wildfires), but the effect of climate change on other cities will force those residents to look to cities like Minneapolis for refuge. Increasing housing density and housing options prepares Minneapolis for the inevitable event that residents of cities like Miami, New York, New Orleans, and others become climate refugees[11]. With the influx of new residents, we will be prepared to offer them housing and services, because we have planned for the city’s population to grow in a manageable and sustainable way.

Prior to the 2040 plan, the available buildable areas were typically zoned for a higher density and now after the 2040 plan all areas of the city can begin to see new development to increase options for households of all incomes and set off a chain of positive effects. New options for residents looking to relocate within the city will increase tenure conversions of older homes that will be affordable to renters and those looking to buy with assistance of new homebuyer programs. New development with a portion dedicated to Section 8 units will result in new affordable rentals giving the MPHA the ability to offer a larger and more diverse portfolio of affordable units. The position the city has taken in adopting the Minneapolis 2040 plan is the correct one; increased density, proportional to the existing built form of those neighborhoods, will moderate housing prices and provide more options to renters and homebuyers of all incomes.

[1] Manville, Monkkenon & Lens, 107

[2] Based on comments made by Planning Commissioner Sam Rockwell, October 29th, 2018, City Planning Commission meeting

[3] 3. Affordable and accessible housing: In 2040, all Minneapolis residents will be able to afford and access quality housing throughout the city. (n.d.). Retrieved November 30, 2020, from https://minneapolis2040.com/goals/affordable-and-accessible-housing/

[4] Been, et al. 3

[5] Been, et al., 4

[6] The Metropolitan Council establishes the area median income (AMI) of the Minneapolis-Saint Paul-Bloomington metropolitan area as $103,400  and uses a percentage of AMI to identify households as low-income (80% of AMI), very-low income (50% AMI), and extremely-low income (below 30% AMI).

[7] City of Minneapolis 4d Affordable Housing Incentive Program

[8] City of Minneapolis 4d Affordable Housing Incentive Program

[9] Mapping Prejudice, 2020

[10] Kaul “Why it's so expensive to build a house in Minnesota right now”

[11] Lustgarten “The Great Climate Migration Has Begun”

References

2020 Affordability Limits for Ownership and Rental Housing. (2019). Retrieved November 30, 2020, from https://metrocouncil.org/Communities/Services/Livable-Communities-Grants/Ownership-and-Rent-Affordability-Limits.aspx

3. Affordable and accessible housing: In 2040, all Minneapolis residents will be able to afford and access quality housing throughout the city. (n.d.). Retrieved November 30, 2020, from https://minneapolis2040.com/goals/affordable-and-accessible-housing/

Been, V., Ellen, I. G., & O’Regan, K. (2018). Supply Skepticism: Housing Supply and Affordability. Housing Policy Debate, 29(1), 25-40. doi:10.1080/10511482.2018.1476899

City of Minneapolis 4d Affordable Housing Incentive Program. (n.d.). Retrieved December 13, 2020, from http://www2.minneapolismn.gov/cped/housing/WCMSP-214366

Kaul, G., Writer, M., Greta Kaul, J., Reporter, & Orenstein, W. (2019, May 03). Why it's so expensive to build a house in Minnesota right now. Retrieved December 15, 2020, from https://www.minnpost.com/economy/2019/05/why-its-so-expensive-to-build-a-house-in-minnesota-right-now/

Lustgarten, A. (2020, July 23). The Great Climate Migration Has Begun. Retrieved December 15, 2020, from https://www.nytimes.com/interactive/2020/07/23/magazine/climate-migration.html

Michael Manville, Paavo Monkkonen & Michael Lens (2020) It’s Time to End Single-Family Zoning, Journal of the American Planning Association, 86:1, 106-112, DOI: 10.1080/01944363.2019.1651216

Mapping Prejudice. (n.d.). Retrieved December 12, 2020, from https://mappingprejudice.umn.edu/

Sood, A., Speagle, W., & Ehrman-Solberg, K. (2019). Long Shadow of Racial Discrimination: Evidence from Housing Covenants of Minneapolis. SSRN Electronic Journal. doi:10.2139/ssrn.3468520

Wedge Live. (2018, October 30). Minneapolis 2040 at the Planning Commission. Retrieved December 12, 2020, from https://youtu.be/0rJ8DQbhRd8