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Minneapolis looks to build out of its housing crisis

September 1, 2018

This Aug. 22, 2018, photo provided by MinnPost shows the 333 Hennepin apartment tower under construction in northeast Minneapolis. New construction is pushing the city skyward, inexorably changing neighborhoods that, just a few years ago, were smaller, quieter and roomier. The building boom is needed to accommodate steady growth in population in the area. (Greta Kaul/MinnPost via AP)

MINNEAPOLIS (AP) — Almost anywhere you look in Minneapolis these days, new construction is pushing the city skyward, inexorably changing neighborhoods that, just a few years ago, were smaller, quieter and roomier. Uptown. Northeast. Dinkytown. All are building up.

The building boom is needed to accommodate steady growth in population in the area: The Twin Cities metro area has added more than 83,000 households since 2010, while building less than 64,000 new homes to accommodate those newcomers, according to the Metropolitan Council. As a result, it’s not just new luxury apartments towering over Twin Cities residents, but rents, too, which continue to rise despite all the construction.

It’s an issue across the state, but it’s being especially felt in Minneapolis. During his recent budget address, Mayor Jacob Frey called the shortage of affordable housing in Minneapolis a crisis unlike the city has ever seen.

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The nonprofit news outlet MinnPost provided this article to The Associated Press through a collaboration with Institute for Nonprofit News.

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Frey is not alone in decrying the city’s housing crunch. City planners, housing experts and other elected officials — including Gov. Mark Dayton — are all scrambling to find ways to alleviate the problem. But while they all agree on the solution — that we need to build, build, build to give people enough affordable places to live — what’s less clear is how, and if, Minneapolis will be able to do that once theory meets practice; once political ideals meet political reality.

Nowhere is there a better example of what a full-blown affordable housing crisis looks like than in San Francisco. A booming tech economy has helped expand the Bay Area’s population by more than 9 percent since 2010. Meanwhile, its housing supply has grown by less than 4 percent.

And perhaps nowhere in the Bay Area is the human cost of this housing shortage more evident than in San Francisco’s Mission District. There, families from Latin America settled into old Victorians and created a thriving neighborhood, full of taquerias, panaderias and mercados. But in recent years, many of those longtime residents and businesses have been displaced by young people drawn by high-paying jobs at tech companies. Along with them came boutiques, juice bars and brunch.

In theory, the law of supply and demand would dictate that the market would respond by building enough new housing to meet the needs of residents old and new, rich and poor. That’s the Econ 101 version of the world, anyway. In real life, though, there are neighbors and zoning laws — and geography — that make it difficult to build enough homes in a city to accommodate the people who want to live there.

In San Francisco, for example, the city has almost nowhere to grow but up. Located on a 47-square mile peninsula and locked in by the San Francisco Bay and the Pacific Ocean, the city is much bigger in imagination than in fact. As demand for the limited number of housing units in the city increases, rents have become the priciest in the country, averaging $3,664 a month for a two-bedroom apartment, according to a 2018 report from Deutsche Bank. Not even San Francisco’s relatively well-paid teachers can afford to live there anymore.

And while the cost of living in coastal markets like San Francisco is partly the result of their desirability — the fact that so many people want to live there — that doesn’t entirely explain why housing costs are so much higher than in other places, said Brian Uhler, of California’s Legislative Analyst’s Office.

“When there is a lack of supply when there is limited construction, you see a faster appreciation of prices and rents,” he said.

One way the city could deal with this type of influx, writes Bloomberg columnist Noah Smith, is to build a lot of high-end housing close to the areas where high-income residents want to work. If there’s enough space for the rich newbies in these sleek, upscale “yuppie fish tanks,” he argues, they’re less likely to disturb longtime residents in established neighborhoods.

But constructing new homes — yuppie fish tanks or otherwise — is a contentious thing. A new apartment building can change the character of a neighborhood: adding people, removing parking spots, changing the way a place looks and feels. As a result, plans to build more housing often run aground at the city level, when neighbors oppose plans or fight over the specifics: Who is going to live there? How tall should a new building be?

In addition, elected officials can be reluctant to lose constituent support by approving new projects or changing zoning laws to build more or promote density.

That’s what’s happened in San Francisco and several other coastal cities, where community opposition — along with high building costs, strict zoning and environmental concerns — has meant that construction of housing hasn’t happened at a scale large enough to put a big dent in the problem, according to a California Legislative Analyst report.

Instead, what’s going on is what Dan Bertolet, of Seattle’s Sightline Institute, calls a “cruel game of musical chairs.” In cities with a growing population of high-wage workers, the newcomers often outbid current residents, who then resort to cheaper housing and take up space formerly for people of lower incomes.

“When you have a housing shortage, and you have people with money moving to a city, basically, the people at the bottom lose,” he said.

To remedy this loss of affordable housing, experts and policymakers often recommend expanding subsidized housing, which can include federal subsidies for landlords who rent to low-income tenants and tax breaks for developers who build affordable units.

These types of projects often come with their own roadblocks, of course: neighbors concerned about their property values, even if there’s not a lot of evidence that building subsidized apartment buildings has a negative effect on the value of nearby homes, said Corianne Scally, a researcher at the Urban Institute.

Even when cities can overcome such obstacles, however, experts say cities can’t just subsidize their way out of an affordable housing problem. Berkeley’s Karen Chapple, a professor of city and regional planning, put numbers behind the theory, and found that in order to keep the same number of people housed in the San Francisco region, developers need to produce two or more market-rate units for every one subsidized unit.

“You can’t go wrong with subsidized housing, but market rate won’t hurt either,” she said.

Up the coast from San Francisco, Seattle is attempting to deal with its own yuppie influx, as tech giants such as Amazon transform the “Rainy City’s” housing market — and fast. Once a desolate industrial area, the city’s South Lake Union neighborhood, for example, is now a global tech center where about 40,000 Amazon workers have found work in recent years. The rapid hiring has put the city among the fastest growing in the country. Its median rent price has reached $2,700.

To help low- to middle-wage workers and the unemployed left behind in the skyrocketing economy, Seattle officials are working on a bundle of policies to make housing more accessible. It includes linking mandatory requirements for developers to build more affordable homes or pay for them elsewhere, as well as a proposal to expand the neighborhoods where developers can build higher, bigger buildings. That change would only apply to 6 percent of the city’s neighborhoods that are now designated solely for single-family homes, a process of code modification known as “upzoning.”

But community organizations have filed a legal appeal against an environmental review of the proposed changes. That appeal is blocking the entire process from moving forward.

“Any kind of tampering with single-family zoning is always politically charged,” Bertolet said of the opposition. “The rezone was intended to fix zoning done in the past that wasn’t” made for the city’s current size and demographics.

Complicating work — and arguments — from pro-density activists everywhere is a lack of concrete data to make housing forecasts. It takes years, if not decades, to measure how zoning changes and different types of construction shape an area’s housing supply. And few cities, if any, have a database of zoning changes, Chapple said.

“We’re left with kind of making guesses,” she said.

Not every U.S. city is seeing housing affordability problems to the degree they’re happening in San Francisco, Seattle and even Minneapolis. There are places where supply does keep up better with demand, like Phoenix, Atlanta and Houston, said Issi Romem, the chief economist at BuildZoom, which connects homeowners and companies with contractors.

“When these cities hit boom times, what they do is have a lot of new construction . this demand, instead of being channeled into rising housing prices, is channeled into population growth and housing growth,” Romem said.

Romem has categorized cities into three types: legacy cities, like Detroit, where demand for housing has collapsed compared to the past; expensive cities, like San Francisco and Seattle, which are in demand and not building a lot of housing and have thus become more expensive; and expansive cities, like Phoenix and Atlanta, which can build out and tend to meet demand with supply.

Minneapolis is a mixture of expensive and expansive. It has a solid economy, solid housing demand and some room to grow, but the housing stock is not growing fast enough to keep up with current demand, especially as the pool of high-income renters expands, which puts pressure on rents.

The urgency to address Minneapolis’ housing shortage took front and center recently when Mayor Jacob Frey made his first budget presentation. He said he wants to commit a record-high of $21 million toward what’s called the “Affordable Housing Trust Fund Program,” which is a pool of federal and city money set aside to help large-scale developers who want to maintain or build more affordable rental units.

City Council President Lisa Bender wants to develop a policy — similar to the one in Seattle — that would require developers of large-scale, multifamily housing to include a certain number of affordable units in otherwise market-rate projects, though the city is still doing an analysis to determine the idea’s specifics.

Officials’ ideas for the immediate future fit within the city’s long-term plan for development, Minneapolis 2040. Though currently still in draft form, the plan proposes changing zoning in all neighborhoods — even those now currently reserved exclusively for single-family homes — so they can have multifamily housing of up to four units, aka fourplexes. That idea has stirred controversy among some residents who are leery of the changes — for many of the same reasons such proposals have run into opposition in other cities: concerns over people and parking and changing the character of a neighborhood.

Complicating matters in Minneapolis is that it’s unclear how many new units would actually result from such a zoning change.

Whether, or to what extent, the upzoning proposal stays in Minneapolis 2040 remains to be seen. City planners are now combing through public feedback and are set to release a final version of the plan next month. The City Council will take up the plan for final approval before the end of the year.

What isn’t an option, as far as public officials are concerned, is doing nothing. Peter McLaughlin, a commissioner on the Hennepin County Board, which oversees investments in housing countywide, sums up the region’s situation like this: “There’s this trajectory that hot region markets, hot regions, go on,” he said. “We’re not there, but we are on this trajectory.”

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