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Inclusionary zoning will exacerbate the Twin Cities affordable housing shortage

The well-intentioned yet misguided inclusionary policy being rushed to passage next month will only hurt the Twin Cities housing market.

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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.

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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.

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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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