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Inclusionary zoning will exacerbate the Twin Cities affordable housing shortage

photo of article author
Steve Cramer
As former city policymakers as well as longtime affordable housing developers, we have unique perspectives on the intersection of housing policy and housing production. We have experienced firsthand which measures work in successfully creating housing affordability and which measures don’t. For the past 18 months, we have been part of a unique coalition of for-profit and nonprofit developers responding to the inclusionary zoning proposals working through Minneapolis City Hall.

Unfortunately, the interim inclusionary zoning ordinance adopted last December by the Minneapolis City Council (which it proposes to make a permanent ordinance by the end of 2019) is not a measure that will help. Despite numerous warnings from the housing industry about what this ineffective and harmful public policy would mean for the future of affordable housing costs and supply, the City Council appears intent on ignoring the concerns raised by the very professionals represented by our coalition who perform the housing work.

The new policies we need

The organizations in our coalition have decades of experience building thousands of affordable housing units in Minneapolis. We are familiar with the policies, regulations, timelines and costs that go into constructing safe and secure housing, and specialize in navigating intricate benchmarks necessary for the construction of cost-effective units. We’ve watched the affordable housing crisis worsen over the past decade, and along with other local developers, have been forced to jump through hoops in order to continue building housing that is considered affordable at all levels. We need new policies that will increase affordability, expand the housing supply and encourage the preservation of naturally occurring affordable housing (NOAH). The Minneapolis ordinance will do none of these things.

Drafted by the “consultant” Grounded Solutions Network (GSN) – a national advocacy organization for inclusionary zoning – the interim inclusionary zoning ordinance up for permanent implementation this December was created without the genuine input of local developers and includes policy points that ignore key elements needed to incentivize affordable housing construction. The council is marching to a conclusion without entertaining the facts on how housing is produced. More than 90% of the funding that fuels housing production comes from investors and lenders, not the local developer. Minneapolis developers compete for investor capital against developers in Milwaukee, Nashville, St. Louis, Dallas and Indianapolis. Shifting local housing affordability costs to the private sector reduces the return for these investors and lenders, meaning investors will look to other markets for their investment opportunities, or investors will shift to buying older, NOAH properties and convert them to market-rate.


By shifting a societal crisis to the private sector to fund without the necessary support, the City Council hopes to counter market realities. Taking these market realities into account, our group proposed that all projects delivering 10% affordable units in each new project become eligible for tax increment financing to fund the cost. We have proposed exempting smaller projects, ownership and student housing to ensure such needed housing is developed. Instead, the current proposed ordinance shifts the cost of producing 8% subsidized units to the developer without providing needed financial support to the project or requires payment of a large fee. This is essentially a tax on new housing production and leaves the developer only two choices: raise rents on all the other units of the project or decline to pursue the project. Neither choice will increase affordability.

photo of article author
Steve Minn

New housing stock is essential

To make the market more affordable, we must deliver new supply that keeps pace with or exceeds demand. Without new housing stock, rents will continue to rise, and the residents who can afford higher rents will drive people out of their naturally affordable communities, further accelerating this decade-long crisis.

The well-intentioned yet misguided inclusionary policy being rushed to passage next month will only hurt the Twin Cities housing market. We respectfully urge the Minneapolis City Council to hit pause on this current proposal, and instead focus on increasing affordability, expanding the housing supply and encouraging the preservation of NOAH. We are ready and eager to work together with the council, fellow developers, investors and contractors to find a smart affordable housing solution that will guide us out of the arduous crisis experienced by Twin Cities renters and homeowners for more than a decade, and toward a future where secure, accessible housing is available for everyone.

Steve Minn is the vice president and chief finance officer for Lupe Development Partners, which plans, designs, and manages residential and mixed-use real estate in the Twin Cities urban core. He served on the Minneapolis City Council from 1994-1999. Steve Cramer is the president and CEO of the Minneapolis Downtown Council, former president of Project for Pride in Living, an affordable housing developer, and served on the Minneapolis City Council from 1985-1994. Building Minneapolis Together is a housing development industry group that represents the city’s most prolific developers of new housing – both affordable and market-rate projects, for-profit and nonprofit.

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Comments (24)

  1. Submitted by Connor OKeefe on 11/22/2019 - 09:20 am.

    I’d bet my next paycheck not one of the current members of the Mpls city council understood one word of this.

  2. Submitted by Pat Terry on 11/22/2019 - 09:47 am.

    I tend to agree, but my first thought after reading this is something that my friend Paul U has repeatedly said on this issue. I would like to see some actual numbers on what the costs involved here are. Or give us numbers for a sample project using real costs, and spell out the impact of the IZ requirement.

  3. Submitted by Paul Udstrand on 11/22/2019 - 09:59 am.

    I just have to ask: Where are all these affordable housing units that these “prolific” affordable housing builders are building? If they’re building is THAT prolific… why do we have an affordable housing crises?

    All I see here is developers complaining (again) that someone is interfering with their business model… a model that has failed to provide affordable housing for over a decade. Yes, we can see that your worried about your profits, and we can see the veiled threats that you’ll stop building in the largest and most populous city in MN. Go ahead, go build in Hinckey instead of MPLS THAT would be a genius business move eh?

    • Submitted by Jeff Klein on 11/22/2019 - 10:54 am.

      Developers have been limited to a tiny section of the city and been mandated to supply parking at $30k per spot, so perhaps it shouldn’t come as much surprise that they haven’t built much affordable housing.

      • Submitted by Adam Miller on 11/22/2019 - 11:08 am.

        Note that the builders here mention their increased costs for providing affordable units, but not their potential decreased costs in not having to provide parking.

        It’s all complicated.

      • Submitted by Paul Udstrand on 11/24/2019 - 11:00 am.

        Please, we’re in the middle a building boom, developers aren’t “hemmed” into small spaces. And we all know that 2040 eliminates the parking requirements you’re referring to.

        Developers and their supporters always assume that they can complain about “costs” without ever providing any actual information about those costs, expenses, revenue, and profit. They just claim that all this stuff is making some kind of building financially unfeasible… but they NEVER have to show us their books, they lodge complaints… but we can’t help but notice that they keep building.

  4. Submitted by Joan Estenson on 11/22/2019 - 10:42 am.

    “The organizations in our coalition have decades of experience building thousands of affordable housing units in Minneapolis. . . . We’ve watched the affordable housing crisis worsen over the past decade.

    Huh?

    I don’t believe your coalition has built thousands of affordable housing units, or there would be no crisis, or at least less of one. And if you HAD built all of those units, you couldn’t be watching the crisis worsen over the past decade.

    So your coalition is hardly in a position to propose solutions to the very real crisis of the lack of affordable housing.

  5. Submitted by cory johnson on 11/22/2019 - 11:27 am.

    What will happen is the city council will ignore people the builders and allow advocates with no real experience in the subject to write the policy. Then they will be stunned as it fails. The council’s solution will be to pay more advocate/consultants to craft another expensive replacement policy that will also fail. Then they will blame Republicans.

    • Submitted by Connor OKeefe on 11/22/2019 - 03:42 pm.

      I think you have it exactly eight, sir.

    • Submitted by Paul Udstrand on 11/24/2019 - 11:05 am.

      The idea that the only people who can resolve the crises are ones who manufacture crises is simply facile. Sure, industry could have curbed pollution back in the 50’s, but they didn’t until they were forced to in late 60’s and 70’s.

      Likewise if you’re telling us builders CAN build affordable, we have to note that they are NOT building that housing. Faith based policy is more prone to failure than intervention.

      • Submitted by Pat Terry on 11/26/2019 - 10:03 pm.

        The people who manufactured the crisis were not the builders. Rather, it was the NIMBYs and anyone who helped restrict the housing supply.

        • Submitted by Paul Udstrand on 11/27/2019 - 08:28 am.

          Yes Pat, if only we’d let these people who are trying to make as money as possible build all the low rent housing they wanted to we wouldn’t be in this mess.

          Again, if supply and demand were going to create affordable housing it would have done so long ago, we’ve had a building boom for almost a decade now. Magical thinking will never bring housing prices down. Supply and demand is NOT the bedrock of capitalism, it’s a market phenomena that influences prices in a few limited scenarios… not THIS scenario.

        • Submitted by RB Holbrook on 11/27/2019 - 09:21 am.

          The NIMBYs are an important part of the opposition to inclusionary zoning.

  6. Submitted by Michael Friedman on 11/22/2019 - 11:49 am.

    “More than 90% of the funding that fuels housing production comes from investors and lenders, not the local developer. Minneapolis developers compete for investor capital against developers in Milwaukee, Nashville, St. Louis, Dallas and Indianapolis. Shifting local housing affordability costs to the private sector reduces the return for these investors and lenders, meaning investors will look to other markets for their investment opportunities…”

    Seems to be saying that for housing, as has become true of health care as well, the economic presumptions of capitalism — primacy of profit on investment — now works against actual human need. Which is consistent with Rep Omar’s view of the situation and policy proposal.

    • Submitted by lisa miller on 11/22/2019 - 08:29 pm.

      Yet how? To say trusts will pay for it without specifics is the issue. It usually then falls to the middle class, most of whom are struggling to pay their own rent/mortgage. We also have health care to pay for and a huge agenda. Not all homeless have the same issues–some don’t have enough wages, some have mental health problems, cd issues, and some all three. I would first like to see a livable wage and quality schools that encourage kids to have a job plan or school plan–why do we have to subsidize the Walmarts of the country. Look at LA, they have expensive apartments just sitting empty and much of California has rent control, how much has it helped. I want to see evidence based solutions. Most of us want everyone to have shelter. We can bash the developers(and trust me, I don’t care for most of them); however what city has done well at building and managing their own housing. Look at MPH–one of the largest evictors in the city.

  7. Submitted by Adam Wysopal on 11/22/2019 - 01:16 pm.

    I say let this experiment happen. If the city was able to “rush” this policy through, then surely they can tweak or undo it after there’s data about how it works in practice. We will know relatively quickly …

  8. Submitted by Eric Snyder on 11/22/2019 - 01:48 pm.

    “We’ve watched the affordable housing crisis worsen over the past decade…”

    Note the passive voice. These civic-minded developers look helplessly on as the lack of affordable housing just happens by itself. Who could have possibly guessed that letting developers have a dominant role in setting housing policy could lead to such an outcome?

    Meanwhile, just two weeks ago as I was stuck in traffic in downtown Minneapolis on Hennepin Ave., made worse by a lane closure due to a new development (did anyone ask the public if they wanted to absorb the cost of this traffic obstruction for the benefit of developers and investors?), I looked to my left and saw several banners at eye level. One read “Gateway to Luxury.” To the right of it was an ad by RBC Wealth Management.

    Could this be a clue as to how market driven solutions to the housing affordability problem might not be as effective as the disciples of the market would have us believe?

    The article features a paragraph heading, “The new politics we need.”

    I agree that we need a new politics, but it’s highly questionable that for-profit developers should have any role to play in it. In fact, if we’re going to give affordable housing the priority and urgency it deserves, which it does not have at present, making it a priority with much greater value than any imagined interests of investors, financiers and developers, we need to consider banning for-profit developers/etc. from Minneapolis along with other policies.

    If this sounds excessive, I submit it’s only because of status quo bias, ideological dogma, the personal fear of city policymakers to confront money power, and the unfortunate degree to which we’ve become accustomed to what in comparison is already, right now, and with many harmful and systemic effects, far more severe – the citywide affordable housing shortage.

    Allowing developers to continue their present course without a radical course correction is really the only extremism anywhere in sight, the only unworkable measure, the only unrealistic option in front of us. The facts are already in hand about how unacceptably burdensome the housing affording problem is and how it’s been driven by developers.

    Indeed it would greatly behoove us to arrive, possibly for the first time ever, at a fully honest assessment of how much damage the development community and their financiers and investors have wreaked on individual/household finance, well-being and opportunity, and how much damage they have done to the social and cultural fabric of the Minneapolis community.

    The value of everyone in Minneapolis, regardless of income or profession, to lead lives of fulfillment without the onerous burdens forced on them by a regime of profiteering-centric housing development, has almost infinitely greater value than whether a housing investor is able to make a cent in this town. We should be more concerned about one person going homeless in Minneapolis than we should about whether an investor is ever able to business here again in the housing market.

    We have the entirety of economic history and housing practices to draw from as evidence about what can realistically be done, from public land trusts, to rent control, to housing cooperatives and more.

    What’s not the least bit realistic at this point is the illusion offered by Cramer and Minn, that subjecting the human right of housing to corporate decision making (mischaracterized by claims about alleged impartial market dictates) is a viable path forward. We need an expanded dialogue about policy alternatives. We need a city council with the ideological independence and courage to prioritize the only thing that needs it – affordable housing for everyone.

    • Submitted by Pat Terry on 11/26/2019 - 10:16 pm.

      Actually, its thinking like this comment that has caused the crisis. It will only ever be fixed by adding enough housing to catch up with demand. Any time you oppose new housing because its too expensive or developers are bad, you are making the problem worse.

      And we know this because of economic history and housing practices, just as we know rent control is a terrible failure that reduces the supply of affordable housing.

      • Submitted by Paul Udstrand on 11/27/2019 - 08:34 am.

        History has shown us repeatedly that simplistic supply and demand expectations do not determine housing prices. Everyone in the industry from builders to landlords to real estate agents and sellers is trying to make as much money as they can. They manage inventory and manipulate markets to keep prices as high as they can. Real estate and housing are not commodities like corn.

  9. Submitted by Karen Sandness on 11/22/2019 - 10:49 pm.

    I fail to see why apartments without marble countertops, without large amounts of floor space devoted to the bathroom, without swimming pools, without in-house gyms, without in-unit washer-dryers, without home theaters and party rooms, and without business centers should be more expensive than what is currently being built.

    Is the problem that the developers decide on what kind of profit they want to make before they even hire the architect so that doing without these unnecessary amenities makes it impossible for them to charge $1200 for a studio, $1600 for a 1-BR, and $2000 for a 2-BR?

    Like Mr. Udstrand, I want to see some actual figures on what these gentlemen have spent building these apartments.

    As for the parking minimums, I can imagine a situation in which an apartment near two or more bus or train lines could get a waiver from the city and market itself to people who neither drive nor want to drive and rely entirely on public transit, bicycles, taxis, Uber, or feet. We have no-smoking buildings. Why not “no driving” buildings?

  10. Submitted by Connor OKeefe on 11/23/2019 - 01:00 pm.

    For all you folks demanding to know what these guys have done, I’m guessing my finding the answers to your questions/criticisms took less time to find than It did to write thise q/c’s.

    http://lupedevelopment.com/past-projects/

    https://www.ppl-inc.org/ppl-properties

    • Submitted by Paul Udstrand on 11/27/2019 - 08:50 am.

      Connor, do you even look at the web link you post? Lupe doesn’t provide a single example of affordable housing they’ve build. They showcase their commercial developments and their luxury apartments.

      PPL is a non-profit that provides a variety of services but it doesn’t look like they actually build much affordable housing, although they do some project “management”. Their primary contribution to affordable housing seems to be as landlords collecting “affordable” rents. I’m not saying they don’t do good work but I’ll tell you what: look at PPL’s financials and you notice they pay their presidents like Mr. Cramer $250k a year.

  11. Submitted by Linda Brandt on 11/23/2019 - 08:25 pm.

    My concern is that 10% per building project is a way to “protect” the builders form truly serving the need. Our affordable solutions have not proven to affordable at all! Federal housing money turned to the “Middle class” need for relief during the Bush Administration and we have been waiting for truly affordable: 30% of income ever since. This policy is not going to change a thing downtown where I live. The council is not informed and I agree, we need to listen to the local experts in providing housing for decades. My other concern is that those 10% of lower rents will be never really on the market to those that have waited for 12 years for housing. Let’s get Ft. Snelling going, let’s build housing for those in recovery.

  12. Submitted by Bruce Pomerantz on 11/25/2019 - 09:57 am.

    People residing in one location over decades create cohesive neighborhoods, the lifeblood of a city. The majority of renters may want to remain in the same house for decades but rising rents inevitably create transitory residents. The only way to create stability in housing with three or four families is to sell the housing as mini-condominiums, thus creating home ownership.

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