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Talk to someone in a big coastal city about housing and you quickly learn how lucky we are in the Twin Cities. People regularly pay astronomical prices for a home in California, the Pacific Northwest, the Eastern Seaboard. I’ve always felt a certain Minnesotan smugness when I tell people about Twin Cities homes that cost a fraction of what they would cost in other cities. (For example, here is what $500,000 buys in the District of Columbia.)
But that might be changing.
A recent analysis from Jonathan Schroeder, a research scientist for the Institute for Social Research and Data Innovation, found that the Twin Cities metro has the tightest vacancy rate in the entire country for cities over 1 million people.
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| Metro | % Vacant |
|---|---|
| Modesto, CA | 3.50 |
| Stockton, CA | 4.11 |
| Provo-Orem, UT | 4.23 |
| Ogden-Clearfield, UT | 4.55 |
| Oxnard-Thousand Oaks-Ventura, CA | 4.56 |
| Minneapolis-St. Paul-Bloomington, MN-WI | 4.62 |
| Lancaster, PA | 4.64 |
| San Jose-Sunnyvale-Santa Clara, CA | 4.64 |
| Los Angeles-Long Beach-Anaheim, CA | 4.81 |
| Madison, WI | 4.94 |
| Seattle-Tacoma-Bellevue, WA | 5.20 |
| Portland-Vancouver-Hillsboro, OR | 5.25 |
| Boise City, ID | 5.25 |
| Salt Lake City, UT | 5.31 |
| Washington-Arlington-Alexandria, DC-VA-MD-WV | 5.57 |
| San Francisco-Oakland-Berkeley, CA | 5.58 |
| Fresno, CA | 5.66 |
| San Diego-Chula Vista-Carlsbad, CA | 5.68 |
| Colorado Springs, CO | 5.81 |
| Raleigh-Cary, NC | 5.88 |
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The number, which measures how many housing units (both rented and owned) are unoccupied at any given moment in time: 4.62%. For some context, that’s even worse than San Jose, which is famously unaffordable.
More than anything else, the vacancy rate reflects the basics of supply and demand that’s driving housing prices up across the Twin Cities. If it keeps up, we could soon find home prices and rents on par with much more expensive metros like Denver or Seattle, exacerbating existing inequality and eroding one of the key things that makes Minnesota attractive in the first place.
The origins of the housing crisis
The Twin Cities’ housing shortage has been a long time coming. Its modern origins date to the 2007 financial crisis and recession, triggered by wildly unethical housing loans orchestrated by Wall Street banks. The resulting long-term problems for U.S. cities include a long list of things like predatory lending and foreclosures that gutted homeownership rates, particularly for people of color.
Another major consequence of that housing collapse was a freeze on housing production, which dug a vast hole in the housing supply from which growing cities like Minneapolis-St. Paul have yet to escape. The rapidly increasing housing prices we’re experiencing today are a direct consequence of the shortage, which Gov. Mark Dayton’s 2017 task force reported amounted to around 50,000 homes.
“There is almost a direct drop in every single metric we use to track housing production,” explained Lisa Barajas, referring to what happened after the financial crash. “The building permits or even subdivision platting in suburban areas: all of those fell off to next to zero. If you look at big year-to-year averages, they were remarkably low during the housing bust.”
Barajas works on housing policy issues at the Met Council, which represents the Twin Cities’ superpower when it comes to tackling the housing crisis. Few other American metro areas boast an actual regional government body. For most other U.S. metro areas, local control and fragmentation mean that regional housing production goals are a nearly impossible task. That’s why California, in many ways a poster child for housing dysfunction, recently enacted a series of statewide policies aimed at wresting land-use control away from cities.
At least in the Twin Cities, the Met Council has some ability to affect housing policy. They deliver population forecasts to each of the metro’s 182 communities, and at least track whether or not each builds enough affordable housing. For example, over the last decade, only 13 metro-area cities got close to building their share of affordable housing.
Vacancy vs. affordability
If you talk to the policy wonks about which city has the nation’s worst vacancy rate, they caution that “it’s complicated.” Both Jonathan Schroeder and Lisa Barajas pointed out to me that there are lots of variables when it comes to comparing vacancy rates across cities: things like Airbnb homes, people that own second homes or differences in turnover and mobility.
Another problem is that generalized vacancy rates paper over critical differences along what one Met Council researcher calls the “affordability spectrum.” Previously, affordable housing construction was done using overall averages: anything at or below 80% of the Area Median Income (AMI) counted in the tally. But the Met Council has recently added more nuance to its affordable housing calculations.
[image_credit]Metropolitan Council[/image_credit]
The latest Housing Link data reveals that in Minneapolis there are no apartments available within city limits at the 30% AMI level.
“Vacancy rates look different across bands of affordability,” said Beard. “Again, if you generalize regional vacancy rates, you really miss the insane inequities across bands of affordability. The vacancy rate across 30% AMI is zero, and if you look at growth, where units are getting built, units at market rate 51% AMI and above are getting built, while units affordable at 50% or below are not.”
The disparate vacancy situation reveals that the housing shortage and the affordable housing crisis are really two different problems, often lumped together by narratives of convenience. While the housing shortage drives up prices across the board, the affordable housing crisis revolves around low incomes and a lack of housing subsidies at all levels of government. That said, the fundamental shortage makes the affordability problem worse for everyone.
Rent regulation and housing supply: is a ‘both/and’ approach possible?
This distinction is why, as Minneapolis studies rent stabilization and other policies aimed at providing security for the city’s renters, it will be important to tread carefully around tradeoffs.
[image_credit]Metropolitan Council[/image_credit]
This makes Minneapolis’ housing policy choices even more important for the metro area. Crafting rent regulations involves a delicate balance between alleviating pressure for renters while making sure that the pace of housing construction stays high enough. It’s a challenge that few cities have been able to meet.
This kind of “either/or” tension has been central to housing policies around the country, according to Mark Treskon, a researcher at the Urban Institute, a national housing think tank.
“There’s a lot of research on stability, that it limits people getting kicked out of gentrifying neighborhoods,” explained Treskon, when I asked him about the housing shortage. “But I don’t think rent control is something that can actually really affect the overall affordability of a complicated housing market, with millions of households and growing population. Relative to a quickly growing area, rent control can’t handle that.”
The trade-off, as Treskon explains it, is balancing regulations around stability with the need to increase the housing supply. Most of the time, these kinds of policies come at the expense of the other. For example, if the Minneapolis rent stabilization policy passes, the details of the policy could either help or hurt the overall housing shortage.
“You need to figure out some way to getting more housing units in a growing community, to keep up the pace,” explained Treskon. “Rent stabilization is more effective as a both / and to create some level of stability for renters, but you also have to create housing that does the ‘economics 101’ [thing, the] increasing supply [and] lowering the price dynamic.”
The vacancy number, and the fact that the Twin Cities’ boasts the tightest housing market in the country should be an alarm bell. Without building a lot more homes throughout the metro, the basic supply crunch will keep driving up costs for everyone.
Rent controls are sure to do one thing at least, degrade the quality of rentals. Who would put money into a rental, knowing you can never get it back? 2021 would mark the last time anything significant was done to most rentals. Would it be retroactive too? As in, if I buy a rental property, am I beholden to the rent charged by the previous owner? Only slum lord types who deliberately let property degrade, are going to want to get into the rental business.
Now, I see a lot of units going up in Minneapolis. It doesn’t appear to me that any of them are affordable. But as we are in an everything bubble, when that bubble bursts, maybe not do what happened last time, let the Fed print a lot of money to bail out the banks, money they loan to private equity at 1% to buy up the wreckage of the bubble. Maybe instead, the city of Minneapolis takes out those 1% loans and buys properties to turn into low income housing? But then I am not optimistic, as the Fed currently is printing $120 Billion a month to hand to big banks to hand to private equity to buy up properties all over America, which I assume when the bubble bursts they will bail out the big banks and private equity, and then print $200 billion/mnth to give to big banks and private equity to buy up the wreckage of the everything bubble with. Minneapolis unlike private equity would probably be charged like 6%.
Bill, even your expert from your last article sees that imperfect rent control is better than none.
https://twitter.com/ShaneDPhillips/status/1441851842435059714
Yes, exactly. Shane Phillips is not against rent stabilization, which is why he is a good source for discussing the specifics of these policies. The devil is in the details, though, which is why I asked Phillips about the specific details in the Saint Paul policy a month ago. Reducing people to either being “for” or “against” rent control in general, without describing the specific details of the policy, is a problem I keep encountering in the Twin Cities these days.
And that seems to be true in so many policy areas–looking for a quick fix and not acknowledging how complicated things can be, including how to address the problem. We pour lots of money into initiatives(some good) that often are more about what looks good vs what is really effective. Again intent and impact is important.
I get that nuance is good and all, but your readership has to reduce their decision on stabilization down to “for” or “against” in like, 2 weeks.
Also Phillips pretty clearly illustrates that he is “for” it, and is outspoken about that, but you’re using him to prop up an antithetical argument
Phillips doesn’t clearly say he is “for” the St. Paul ordinance. He expresses many concerns over the specifics of the ordinance. As a voter, I appreciated the article.
https://www.minnpost.com/cityscape/2021/09/if-approved-by-voters-st-pauls-rent-control-ordinance-would-be-among-the-strictest-in-the-world/
This isn’t that hard. There are normal rent control measures that provide some benefits and some harmful effects, but ultimately do not make too much difference. And then there is the St. Paul ordinance, which is an absolute disaster and will exacerbate the affordable housing shortage. Bill made this pretty clear.
Shane Phillips wrote a book on housing policy you can read, “The Affordable City”, that has a chapter on rent stabilization (he is for it, if it exempts new construction) and vacancy decontrol (he is against it, almost all of the time.). The book is quite good and I recommend it.
I’m inclined to go with Hannah Lamberty. Rent control has significant problems, but I have zero sympathy for landlords, mom-and-pop or corporate, and real estate prices all over the country are proving on a daily basis that “the market” has no solution – none – for housing the nation’s workers.
I live in a 67-year-old tract home in Minneapolis – there are thousands just like it on the north side (I can’t speak for south Minneapolis or St. Paul or…). Rehabbed by the city in 2008, I was just barely able to afford it in 2009 (by putting down the absolute minimum and having – fortunately – excellent credit). I lucked out, and I could not afford to purchase it today. According to Zillow, the property is now worth more than twice what I paid for it, and – not surprisingly – my retiree income has not magically doubled since I moved here. The house I left in Front Range Colorado is now valued by Zillow at more than 2-1/2 times what I paid for it 20 years ago. I can’t afford to move back to Colorado unless I want to live under a bridge.
Because there are expenses that go with home ownership beyond the monthly mortgage payment, I also look into renting from time to time, just to see what’s going on. New units a couple blocks across the river from downtown in Northeast are ridiculously expensive. I can get, literally, half the space, without the parking, for twice the monthly cost of living in less-fashionable northwest Minneapolis, and there’s no tax deduction for rental costs. It’s insane – unless you’re a realtor who still manages to limit your fee to 6% of the purchase price. Not all of them do. “Supply and demand” only works on a societal level when there’s a sort of equilibrium between the two. Otherwise, it’s the same old song: Them that has, gets. Them that don’t, don’t.
You are operating under the false impression that there is a free market in housing.
There isn’t and not sure when there truly was.
Actually, I’m not, but I’ve encountered realty agents whose belief that such a free market exists is pretty staunch.
Realty agents? Well there’s your problem.
There is a free market when it comes to the sale of homes, although artificial constraints have distorted that market as well. But when it comes to rental homes, the population or renters has far exceeded the number of units added. Zoning and nimbyism have kept the numbers down. And now the economic illiterates wanting rent control on new building in St. Paul will be part of that problem too.
It’s a free market in that your home is worth whatever someone is willing to pay for it. Its price is not limited to what government says it should be.
But the government dictates many requirements.
And only more strenuous in the future.
That is the point I am trying to make
Many of the government mandates etc are to ensure hosing is safe. I do believe they have gone way beyond that without regard to what it does to prices and rents.
Housing. Sorry fat fingers.
Supply and demand works just fine in housing as well when it is allowed to operate. Housing costs have gone up because the supply has been artificially constrained and has not kept up with demand.
Think about this a second, Ray. Do you think its going to be the landlords that are hurt by this? Of course not. The people who will get hurt are low income renters. Some people will benefit from having their their apartment rent increases controlled. But there will be fewer units available as rental units get pulled from the market and sold (what happens in any rent control scheme) and new housing isn’t built (what the St. Paul ordinance will do).
No, the only landlords that will be hurt are the mom and pop landlords. And a lot of them will end up just selling to big corporate landlords.
The elephant in the room of rapidly increasing home prices and rental rates has much to do with something few papers or writers seem to be interested in covering, Real Estate Investment Trusts. In the Twin Cities alone articles in the Strib and national housing articles have estimated that REITs purchased over 20% of recent housing stock. The result is massive amount of unregulated private equity fund cash gobbling up homes and pushing single owners out of the market. The REITs then artificially inflate both sides of the market at the same time. False scarcity in single family homes available is created by the large scale cash buying of homes on the market. Often these homes sit for many months before they are rented which reduces single family rental stock once again driving up prices. Our housing market is being totally gamed again for the benefit of Wall Street Investment banks and funds. When it crashes again everyone will be happy to find out that the losses the REITs incur can now be bailed out by Fannie Mae 🙁
I wrote about this recently, but have never seen any estimates that are near 20%. I’d love to hear more about where you found that data point.
Hi Bill, I didn’t bookmark the articles. I’m sure the 20% locally came from a Strib article a couple years ago that was referring to homes in Southwest Minneapolis. I remember friend of ours who live there wanting to talk to me about it. They had noticed the homes around them being bought up by LLCs. Sorry I don’t have a link. The 20% also showed up in WSJ, Bloomberg, and financial blogs which were calling attention to the large amount of homes Black Rock was buying up around the US.
It would seem to me that we could simply tax this problem away by drastically increasing taxes on properties that are not owner occupied. As long as the wealthy are able to use real estate as wealth storage vessels without any push back; there will never be an adequate supply of housing for working families.
That is a terrible solution. Those tax increases would just be passed along to tenants. Basically, you are calling for a massive tax increase on the poor.
Regardless of what the far-right claims; not every tax gets passed on to consumers. If that was the case, moneyed interests wouldn’t care about tax hikes at all and certainly wouldn’t spend millions fighting them tooth and nail.
Well, no, costs generally are passed along to the end user. And where the higher the demand for the product, the easier it is to do so. In a tight housing market like we have here, those costs will all be passed along. The fact that someone opposes a tax doesnt mean they will absorb the costs.
You are just proposing a massive tax increase on the poor. End of story.