There is a well-known adage about buying a new car that says you lose $1,000 the second you drive off the lot. In many Greater Minnesota communities, that same theory applies to housing. If you are able to build a house, you lose money before you even unlock the front door — except instead of $1,000 you’re out upwards of $30,000.
In other words, the housing market in Greater Minnesota is broken.
A big obstacle to recruitment
Despite the pandemic, many manufacturers and businesses in Greater Minnesota are facing a worker shortage. Digi-Key in Thief River Falls has dozens of openings for jobs that offer good wages and benefits. The company plans to expand, adding approximately 1,000 jobs over the next decade, but the lack of market-rate housing remains a big obstacle to recruitment. A 2012 study recommended building 900 new units in Thief River Falls by 2022, but less than half that has been constructed so far.
Considering the demand, one might assume builders are eager to come to Greater Minnesota. Unfortunately, that is not the case.
According to a 2018 study by the Center for Rural Policy and Development (CRPD), there are several reasons the housing market has stalled in Greater Minnesota. While median incomes, home sale prices and rents have been growing in many rural parts of Minnesota, so too have home construction costs. According to the CRPD report, housing professionals reported a 60% to 90% increase in building costs since 2000, a much faster rate than income growth.
Financing is difficult to obtain
High costs make it incredibly difficult to obtain financing. Unless you have enough money to pay in cash — and what young worker does? — it is hard to get a new starter home built. Whether renovating an older home or building a new one, development costs in Greater Minnesota typically exceed the appraised value of the finished project.
The problem exists for multifamily housing as well, where the median rents demanded by Greater Minnesota markets are $200 to $500 less than what a developer needs per unit to finance the cost to build an apartment complex.
State’s help is needed
Many cities are taking steps to encourage housing construction by waiving fees or offering other incentives, but we need the state to partner with local communities to fix Greater Minnesota’s broken housing market. As legislators consider housing bills this session, we urge them to support these proposals that specifically address needs in Greater Minnesota:
- Create and fund a new “Greater Minnesota Fix-Up Fund” to provide grants to assist cities in rehabilitating dilapidated housing.
- Pass a bonding bill that includes funding to establish the Greater Minnesota Housing Infrastructure Grant Program to help communities offset the cost of providing essential infrastructure like water and sewer connections to new housing developments.
- Put additional money into the existing Greater Minnesota Workforce Housing Development Fund and institute policy changes to make the fund more useable for Greater Minnesota communities.
Lawmakers should also remember that different regions have different needs. A program that works for Brooklyn Center or Apple Valley may not work for Thief River Falls or Austin. Whenever possible, they should pursue targeted approaches that address specific regional or community housing concerns.
For Greater Minnesota, the housing shortage is about more than mortgages and construction materials. It is about economic development, finding ways to ensure our communities and local businesses can grow and thrive. Right now, the lack of workforce housing is holding us back.
Brian Holmer is mayor of Thief River Falls and Shane Zutz is vice president of human resources for Digi-Key.
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