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The quest for market-rate housing in Minneapolis’ Seward neighborhood

MinnPost photo by Bill Lindeke
Seward Commons, Phase I and II: affordable housing, some for seniors and people with mental illness.

There hasn't been a market-rate building built in Minneapolis' Seward neighborhood in over 40 years. The lack of new housing in the 7,000-person neighborhood area is surprising because Seward lies at the intersection of thriving real-estate markets. Seward is right on the Blue Line light rail, adjacent to the University of Minnesota campus area, and within shouting distance of downtown Minneapolis. Given the building booms around all three of those locations — and the thousands (!) of new units that have gone up near the university — the lack of development in Seward reflects a fundamental inequality within Minneapolis housing patterns and poses challenges for Minneapolis' ambitious plans for growth. 

Affordable versus market-rate projects

It’s not as though there’s no interest in building new developments in Seward. Currently there are plans for a new building right next to the Franklin Avenue Blue Line stop, in an old industrial area on the edge of Highway 55.

“This is one of the best sites along either one of the light rail lines, but the demographics aren’t right and it’s still surrounded by industrial,” Brian Miller, the head of Seward Re-design, told me. 

Miller’s development nonprofit has been working in Seward since 1969, and is currently trying to construct the first market-rate housing in the neighborhood in almost half a century. The group has ambitious plans for Phase III of a housing project [PDF], the first two parts of which were entirely affordable housing. Now Miller wants to build a building close to the light-rail line that would have over 100 units of market-rate housing.

But getting the financing together has proven to be a real problem.

“What we’re really talking about is a project that you can build without income limits,” Miller said. “The key to achieving diversity in the neighborhood, and offering options to a range of different people, is not having income limits, so that not only won’t you have [middle-class residents] have to move out, but they can move in in the first place.”

Like sausage making or divorce proceedings, financing for development projects is one of those things that nobody really wants to know about. A lot depends on getting financing together, a courtship ritual with lenders and an endlessly complex variety of sources of money.

As I understand it, real-estate lenders rely on comparable housing developments as benchmarks for how they make decisions. The problem in the Seward neighborhood is that there are no nearby housing projects that can serve as models to assuage risks. It leaves what Miller calls a “funding gap.”

Part of the problem is people that would otherwise invest look at data, and when looking at demographics poor as they are in Seward, and they don’t dig any deeper than that, don’t have any confidence in the market here,” Miller explained. 

Income segregation in Minneapolis

At first glance, Seward’s demographics are surprising. In Minneapolis lore, the name “Seward” – named, of course, for William Seward, the secretary of state who purchased Alaska – is synonymous with the city’s well-deserved reputation as a hippie enclave. Seward is full of older single-family homes and duplexes, and home to neighborhood anchors like the Birchwood Café, the Seward Café, and the Seward Co-op grocery. 

MinnPost photo by Bill Lindeke
The Birchwood Café in the Seward neighborhood, a local lefty landmark.

(Once when taking out-of-town guests on a walk through Seward, down beautiful Milwaukee Avenue and along the quiet residential streets, as we walked past house after house with vintage paint and native gardens, and as many strangers said “hello” to us, I had to admit that, “Yes, Minneapolis is a lot like Mr. Rogers’ neighborhood.”)

MinnPost photos by Bill Lindeke
Milwaukee Avenue covered in snow, just off Franklin Avenue in the Seward neighborhood.

But that’s only half the story. If you look up the demographics of the area, you are faced with an eye-opening reality as the neighborhood’s poverty jumps off the map. According to census data, the average annual household income in Seward has declined in Seward from $43,000 to $31,000 since 1999, and much of that has to do with the increase in affordable housing. For example, the Seward Towers project, a 640-unit building, was recently refinanced and will be remodeled to stay affordable for another generation. 

Source: Minnesota Compass
Demographics of the Seward neighborhood

Because of Seward’s economically bifurcated nature, the neighborhood has become persona non grata for the real-estate market. It’s a problem for anyone who thinks that more middle-class residents in places like along Franklin Avenue would help the neighborhood thrive.

“We have a census tract or two around the Franklin LRT that have seen a bit of affordable housing development, but now average incomes are under $20,000 a year,” Miller said. “If that pattern continues, at what point does the commercial viability of Franklin and Seward disappear?”

The way that lenders look at housing financing, Minneapolis is split up into “submarkets” that have similar rents. In hot places like downtown, you might get high rents. But relying on comparable projects to guide finances leaves other parts of the city out in the cold. In that sense, Seward offers a microcosm of Minneapolis as a whole, where wealthier urban neighborhoods co-exist, often uneasily, alongside entrenched poverty. As a result, the city and the region have lately become famous for having the largest racial and class inequalities in the country.

“The evidence is that low-income census tracts stay low income out of fear of gentrification, because people feel like it’s happening everywhere,” Renée Spillum told me. Spillum is a project manager for Seward Redesign, and has been working on the Seward Commons project.

“In Seward, we’ve built nearly 1,000 units of housing with subsidies and an income limit over the last 45 years,” Spillum said. “That’s important, but there comes a point when it becomes a place when nobody thinks you can build anything else. And what happens to the health of neighborhood?”

Minneapolis’ policy on housing

To fill in the financing gap in a place like Seward, Minneapolis would have to be willing to use tools like tax-increment financing (TIF) or other grants to spur growth. But the city’s policies have remained focus on subsidizing affordable housing, and finding money for a market-rate project is not part of the equation.

“The city has a whole slew of different financing tools that it uses to support affordable and mixed-income housing developments, and most of those tools require some form of affordability,” said Andrea Brennan, Minneapolis’ director of housing policy and development. “Today, there isn’t anything we have in our tool box that helps assist [developments] further without including affordable units.”

The Minneapolis housing policy, updated earlier this year, is focused on providing affordable housing. It's a worthy goal, particularly when the tight rental market has placed a lot of pressure on existing supplies of both government-subsidized and “naturally occurring” housing. The key section of the official policy states:

At least twenty percent (20%) of the units of each City-assisted housing project of ten or more units (whether rental or ownership) will be affordable to and occupied by households earning sixty percent (60%) or less of the Area Median Income (AMI).

Unfortunately for Seward, the well-intentioned requirements have left Minneapolis unable to intervene in neighborhoods abandoned by the real-estate market. The limitations of the city’s housing development policies mean that projects like Seward Commons are stuck between a rock and a hard place, unable to get financing for mixed-income or market-rate development.

“I don’t know what the answer is, but I know the city does not seem to have the tools to help prime the pump in some neighborhoods that might see some development if one could demonstrate there’s a market,” Brian Miller said. “I bet a lot of markets in Minneapolis or St. Paul would have the same story.”

In St. Paul, where I live, the area along the Green Line offers a similar real-estate conundrum. Since the light rail opened, all the new housing between downtown St. Paul and the far western reaches of the city have been subsidized, affordable projects. The lack of market-rate buildings along high-demand areas might be one reason rents and housing prices have been climbing in neighborhoods like Hamline-Midway, as the housing supply stays artificially constrained.

That said, the debate over the city’s and the region’s affordable housing policy does not present any easy answers. With support from Myron Orfield’s research at the Institute on Metropolitan Opportunity, three suburban cities are actively suing the Met Council for failing to evenly distribute affordable housing subsidies throughout the metro. But the idea of redistributing affordable subsidies is not a problem everyone agrees about.  By some accounts, the problem with “concentrated poverty” isn’t the concentration but the poverty. Instead of redistribution, a better solution might be focusing on reducing poverty in the first place through policies like the city’s living-wage ordinance.

The current fate of the Seward Commons project hinges on resolving the impasse between lending practices and the city’s policy on using tax-increment financing dollars. Without some help from the city, the financing can’t come together, and conversely, by including an affordable housing, lenders balk for different reasons.

“This is not that archetypical story of gentrification,” said Renée Spillum. “This is creating income diversity to prevent the stigmatization of an area. We built this $700M light rail and nothing is happening. Well, if not now, when is it going to happen?”

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Comments (25)

Contrasts within and between neighborhoods

On the West Bank, people sometimes refer to the Seward neighborhood as 'the suburbs of the West Bank." To the casual observer Seward certainly appears more yuppified than its northern neighbor, despite the isolated Seward Towers low income housing, and the Seward Coop certainly bears a strong resemblance to the Wedge. By the way, that Franklin Avenue Blue Line station is in not in the Seward neighborhood.

If you'll look closely at a variety of other places you may be surprised by stark local contrasts. I was once startled to note the relatively large population of low income residents in the Wayzata area.

Fascinating article! It looks

Fascinating article! It looks at the whole city of Minneapolis as a place where we could provide true "mixed-income" housing--not in one development project but across our geography in ways that do not exacerbate our current division into well-to-do Minneapolis and the rest of us.

As a Seward resident, my

As a Seward resident, my neighbors and I have long wondered why no new market rate housing has been developed in our neighborhood when we have land available so close to Franklin Station, and along Franklin Avenue bus routes. We know there's demand for (seemingly) market rate housing by the number of individuals who send emails on a weekly basis to the Seward Nbhd e-democracy forum looking for housing, including many who are relocating from other cities and have heard that Seward is a good place to live. This has been going on for years. It seems like it's time that housing finance organizations look to alternative metrics to understand housing demand in a particular area.

Seward is great and lots of people want to live there

Yes, I think the Seward Commons location would be great for the project they have proposed. That stretch of Franklin, in particular, could use some investment and improvements to the streetscape.

Markets are changing over next 10 years.

Don't get overly concerned about this issue at the moment. Where people live will become far less important over the next 10-20 years. Why? Self-driving cars (and trucks). Currently, people who do not own a vehicle need to be located near transit in order to be able to get to any type of work, etc. Hence the need for this income group to congregate around transit corridors. With the availability of a reasonably-priced public self-driving taxi fleet, the issue of access to transit disappears for *everyone* in the area served by the service. Thus, being located a mile or three away from a transit corridor is no big deal because there is transit access virtually anywhere (door to door). That opens up most areas to being able to have a range of mixed-income families in the same neighborhood because of the availability of transit.

That is one group that will use such a system. Lots of others would use it also. Commute to work--and no need to park a car. Summon a car, ride to destination, exit. Vehicle gets sent to pick up the next rider--and the routine repeats. Moms with small kids go wherever they want via the system--and can actually watch their kids in transit. Delivery vehicles for business (puts all businesses on equal footing for deliveries). In essence, families need fewer vehicles overall--which means more disposable income per year.

Sorry Gerald, but I disagree.

Sorry Gerald, but I disagree. I don't believe that self-driving cars will have a significant impact on where people want to live. Most people will still want to live in neighborhoods that are safe, walkable and bike-able, with easy access to commercial establishments and parks. In addition, with the likelihood that taking transit will cost a person less than using a self-driving car, people will want to live along transit corridors.

Want to vs have to--big difference.

This is the point you missed. People want to live where it is great for them. However, can they afford to live at those locations? That is the point you missed. Someone with a substantial income has a choice because he/she has the ability to pay for many of the available options open to them. But, if that same person does NOT have that large income, he/she is limited in housing options. Not having a vehicle can be an issue because the need to be near transportation eliminates a variety of housing options that essentially require a vehicle to reach. With a self-driving taxi fleet, all affordable housing within the area served by the fleet is accessible

robot cars

I've been guilty also of using the "robot cars will save us" argument. I think they will be implemented slowly and have contrasting effects. A far more radical change could be driven by doubling the gas tax, for example.

Gas tax doubling has little effect.

People can afford an extra 30-40-50 cents per gallon at the current price level for gas. The real killer is not the rate, but the volume of gas used. People are using FAR less gas than historically, so the revenues to fund road repairs, etc are not sufficient. As electric cars are introduced and adopted for general use, we will start to see mileage-based taxes PLUS the gas tax in order to fund the vehicle transit grid (roads and bridges).

Self-driving cars (as part of a public tax fleet) will, by definition, pay for the roadwork because the taxi fleet will be worthless without viable roads. However, a major expense a self-driving fleet does NOT need is traffic signals or controls, because that is an integral part of the vehicle control network.

where people life is more about community than transit

Where people live is much more about the community you want to live in that transit (including self driving cars). I would rather walk to the bank or grocery store or restaurant. I want to live in a community that works to build connections between residents. I want to live in a diverse community. I want to live in a community where it is safe to bike and walk. I want to live in a community that is connected to nature. I want to live in a community that includes lots of art of all kinds. This is why I live in Seward. Other people want other things--that is fine.

Your argument is self-contradictory.

If you live in suburbia in a house near a bank, a grocery store, and a restaurant, you are living near a shopping center. That means significant traffic much of the time--and thus a much lower home value and a lower quality of life--not just for you, but for everyone around the shopping center. You, and everyone around you, are dealing with a transit issue--which is everyone *else* driving to/from all those places to where you want to walk. Suburban living, by definition, zones out businesses from residential housing. The cost of land and taxes destroys any small business.

I lived in suburbia in the Twin Cities. The nearest commercial business was 1.5 to 2 miles away. Great for the neighborhood, but nobody was going to walk to any of those businesses unless they lived on the main road near those businesses--which got a lot of traffic. Suburbia is not conducive to small local businesses because most of business today is driven by volume. You do not have those types of stores in Seward because they are not economically viable there. High density housing is what makes living in a city affordable--smaller lots, smaller houses, centralized services (water, sewage, etc)--and elevators.

I have mostly lived in town because I prefer the convenience.

Interesting, but can you elaborate?

I'm a bit confused. Private investors are afraid a market-rate project will fail if it's located in low-income area because higher-income persons won't want to live there? If that's the case, can't investors be offered higher returns for the higher risk, or would that make such a project non-viable?

Also I'm not clear on where the comments about (the usual) the concern for gentrification fit into this issue. Is there also opposition to the project for this reason?

gentrification

In general, there is pushback on the idea of the city using TIF dollars to boost market-rate projects because of concerns over neighborhood change. But the point here is that the activity of the real-estate market is very unevenly distributed around Minneapolis. Some places see the majority of the investment while others see none.

higher returns/

One of the major financial hurdles of this project is that the investors/mortgage folks make an estimate of what the market will support for rents. In Seward, with no comparable, that is relatively low. With these rents, there is not enough cash flow to pay the returns investors can get from a project in Downtown East or Stadium Village or North Loop or Uptown. Also, the project is not designed as Luxury. While it will not meet the official "affordable housing" definition, it will be lower rents than in those areas I just mentioned.

Why Minneapolis will not support it with tax increment is complicated. First, the would if we would include 20 % affordable units. But with a project this small, those units use up all the tax increment subsidy that we would get and there is still a gap. Secondly, this tax increment policy (to use if only for projects that include affordable housing) is not that bad an overall policy. It was in-part a reaction to the over use of tax-increment financing a decade ago.

The problem now is that there are no programs at the city, state or federal level to support development in neighborhoods that need it--other than affordable housing. Back in the 70s and 80s, the first market rate projects in the downtown area and the East Hennepin/Central Avenue areas of Minneapolis were supported with subsidies. These projects showed that there was a market and now no subsidies are needed in those neighborhoods.

LRT Station Area

The end quote suggests that the Franklin Avenue LRT station should have spurred development. I think this is a foolish expectation. Some context is important: the walkshed of the Franklin Ave LRT station is very hostile to pedestrians. The station is hemmed in by the despotic Hiawatha, Cedar, and Minnehaha avenues, not to mention I94 and the maintenance facility. The grid is hopelessly disrupted in this area, severing connections to locations that aren't too distant as the crow flies. It is not desirable as a location for housing because of this isolation and the auto-centric nature of the surrounding land use.

"despotic" is good

I hate this inhumane streetscape. (see also: http://tcsidewalks.blogspot.com/2011/03/planning-blunder-8-franklin-hiaw...) There is a plan to "improve it" in a few ways that I think is going to be constructed next year. See: http://streets.mn/2016/02/12/changes-finally-coming-to-the-franklincedar...

better than you suggest.

First, let me agree with you. the Franklin LRT station is referred to as the armpit of the system. Try walking to it from Little Earth. Try walking to it from Ventura Village. Seward has it relatively good. The shortcut through the American Indian OIC parking lot works pretty good.

But there is one bright spot-- the Hiawatha LRT Bike/pedestrian trail. This works for Seward-- you can access it from 24th Street or 22nd Street and it is car-free all to the station (and then all the way to downtown with only two grade level street crossings.

This project will be right on the bike/ped trail--great access to the Blue-line. But even with that, the market is not working.

Seward Towers

" ... much of that (income decline since 1999) has to do with the increase in affordable housing. For example, the Seward Towers project, a 640-unit building, was recently refinanced ... " But the Seward Towers were built approximately 1969 to 1971. They don't represent an increase in affordable housing since 1999. Maybe there was an increase in affordable housing, but the Seward Towers don't seem to be an example of it.

just an example of recent activity

I used that to illustrate the affordable housing landscape in the neighborhood because it was recently re-financed (click the article I linked to). That is a rare fate for a large 70s-era project; typically these buildings languish. My general impression is that aff. housing development since the 90s have been smaller-scale, but I don't know the exact details.

The mantra

The mantra should be – but isn’t – “mixed-use, mixed-income.” If there’s a lesson I learned from multiple readings of Jane Jacobs, it’s that diversity is the key to a thriving city. Diversity of land use, diversity of residents, diversity of income, diversity of commercial and industrial uses are all important to a successful city. As long as Minneapolis continues to be a “have” and “have-not” city, with little or no overlap between the two, it will be handicapped in any competitive commercial environment when compared to other cities that manage those issues more effectively.

“Unfortunately for Seward, the well-intentioned requirements have left Minneapolis unable to intervene in neighborhoods abandoned by the real-estate market” reveals one of the major flaws in the usual economic conservative’s toolkit for housing that contributes to neighborhoods and even regions that are segregated by race and class.

The key word, of course, is “abandoned.” The “free market” worshipped by some is almost completely inept in the area of housing people whose pockets are not overflowing with large-denomination currency. Lenders want not only a high return, they want a high return on a sure thing – that is, they’d like an ROI as if they were taking a substantial risk, which is the intellectual justification for a high return, but they’d like that high return without actually taking the risk. It's economic hypocrisy, at the very least. There’s no reason why the City should cooperate with development plans largely based on greed. Among the best ways to provide affordable housing is to persuade land owners, lenders and developers to accept less than the maximum return on investment that they might prefer. This would require a lot of businessmen and women who pose as Christians to actually behave as Christians by being slightly less driven by profit than they usually are, so I won’t hold my breath waiting for it.

“By some accounts, the problem with “concentrated poverty” isn’t the concentration but the poverty. Instead of redistribution, a better solution might be focusing on reducing poverty in the first place through policies like the city’s living-wage ordinance.” An even better solution might be to address both issues.

There’s plenty of research to support the notion that concentrated poverty does have a negative effect on local education, crime, and, to use the word sacred in business circles, entrepreneurship, among other social and economic factors. Doing something to address poverty – like raising minimum wages – is not only desirable, it’s essential if the economic well-being of an area is to be effectively addressed, but reducing poverty is not a magic potion that makes all the other associated problems go away. It only addresses one (though it may well be the most important one) facet of the problem of inequality. The other major factor is where that poverty – those human beings who, whether working full-time, part-time, or on disability, have incomes significantly below the median for the area – is located, and how it’s distributed.

That’s where city policies, especially zoning, can and do have a sizable impact, and those policies ought to be designed and written to have a direct bearing on inequality if it’s felt to be a significant issue. Much of what I’ve read in various local sources over the past few years says that inequality IS a significant issue here, so City policies in several areas ought to address that problem in fairly direct fashion. Zoning that requires only subsidized housing in an area segregates just as obnoxiously as zoning that requires lot sizes, or housing square footage, or other factors that make residential development affordable only to the affluent. “Mixed-income” is just as important as “mixed-use,” and there are areas of the City where one or both of those features are sadly lacking.

LRT and development

Peter Roethke's comment hits the target, I believe, concerning the impact of the Franklin Avenue station on development and the specifics of that site.

The Blue Line in general--useful as it may be, especially regarding the air terminal and the Mall of America--does not seem to have been much of a driver of development. And the facts about the Green Line suggest that the most net tax revenue-generative developments that have occurred along its route on a busy street (so chosen to try to spur development) have primarily resulted from the demand for housing near the main campus of the University of Minnesota, not specifically because of the LRT. Other cities may have achieved different outcomes with their LRT lines, but almost all of theirs are faster and many are commuter-oriented.

The PRIMARY purpose of transit should be transit, not development. (Surely not like the expensive proposed Gold Line whose backers openly admit that promoting development is their main objective.)

Transit Corridors should be pricey land

In SF, the housing market is very expensive in the City and not a whole lot less expensive near train stations along the BART line - even waaaay out in the suburbs it runs to.

It seems that market forces should make property near a close-in LRT station like Franklin Ave high-priced. Too bad it doesn't seem that way on paper.

Demographics by age

Is it possible that some of the income decline may be due to elderly aging in place, owning homes but living on less income. Also as another respondent mentioned there's no indication that more affordable housing has been added to the neighborhood since 1999. Further, it seems if the neighborhood becomes more gentrified i.e. more market rate housing is built that all/most of the single famiily homes will rise in price and thus price poorer people out of the neighborhood.

Not age related

No. Not according to the data. Take a look at http://www.mncompass.org/profiles/neighborhoods/minneapolis/seward
for detailed demographic information.

Phase I and Phase II of Seward Commons added affordable housing

There has been affordable housing added since 1999. As Bill notes in the article, Seward Redesign and its development partners recently completed 100 units of affordable housing in two buildings next to the site that is planned for market-rate housing. On the other side of the Franklin LRT staion in Phillips, PPL just added around 50 units of affordable housing as well.

A decline in household income since 1999 in the census tracts is likely largely attributable to the 2008 recession and widening income and wealth inequality. But yes, as Bill suggests, if no new middle class residents can move in (even though the commercial corridor makes the neighborhood desirable) because there is no housing available to them, and the market will not fully finance market-rate development without city-backed support, the neighborhood as a whole will not have higher income levels. Aging seniors may be part of it, but stagnant wages for working people, and no new influx of middle class people, are the main causes.