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Workers can’t find housing in Greater Minnesota. Will an extra $40 million from the Legislature help?

Across Greater Minnesota, many cities and towns face a lack of housing and struggle to boost inventory to meet demand for homes. That is what inspired DFL lawmakers to expand a state program that subsidizes ‘workforce housing’ in Greater Minnesota.

Plainview Mayor Aaron Luckstein
Plainview Mayor Aaron Luckstein says in smaller Plainview, it costs roughly the same to develop homes as in a bigger city like Rochester, especially when it comes to labor and the price of materials.
MinnPost photo by Walker Orenstein

PLAINVIEW, Minn. — On the outskirts of Plainview in southeastern Minnesota, a cornfield that sits next to a golf course could be a crucial part of the small city’s future.

In theory, it will become a housing development with single-family homes, commercial property and a 43-unit apartment building on 10 acres.

The city has a population of about 3,500, and it’s home to a robust agriculture sector and medical workers because it’s close to Rochester and the Mayo Clinic. But with a steady economy, Plainview has “housing needs across the board,” said mayor Aaron Luckstein. And despite a $1.3 million grant from the state for the apartments, the housing project is on hold. Luckstein blames higher interest rates and pricier construction costs.

The drive to build housing — and the stall in its development — reflects a problem not unique to Plainview. Across Greater Minnesota, many cities and towns face a lack of housing and struggle to boost inventory to meet demand for homes. One thorny problem is building what state officials call workforce housing, which is housing with rents based on what local employers are paying.

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Developers and others say there are a litany of problems with building workforce housing, but often the finances simply don’t work.

“The problem in Greater Minnesota is essentially a market failure,” said Bradley Peterson, executive director of the Coalition of Greater Minnesota Cities: With the high cost of building houses stemming from land costs, material costs, the cost of labor and meeting housing regulations, it’s very hard to do affordably, even where employers are paying good wages.

That is what inspired Democratic lawmakers to expand a state program that subsidizes workforce housing in Greater Minnesota. The initiative had a budget of $4 million in the last two-year budget cycle. But the DFL-majority Legislature voted for a roughly 10-fold increase in money, approving almost $40 million in extra cash.

But while the program has bipartisan support, some Republican lawmakers argue it’s a band-aid fix to a much larger problem.

Housing problems in much of Greater Minnesota

The housing crunch has been such a problem in Greater Minnesota, hindering job growth in many places, that local officials and businesses around the state recount horror stories of people trying to find places to live.

In Roseau, Polaris employees have had to live in hotels as they look for scarce permanent housing, only to be displaced when hockey tournaments come to town. Scott McMahon, executive director of the nonprofit Greater Minnesota Partnership said during a February hearing at the Legislature that workers at the now-closed HyLife pork plant in Windom were busing to work from a former hotel HyLife leased in North Mankato.

Another small city with a major manufacturing plant tried to recruit two employees, only to discover both were bidding on one available house, McMahon said. “The other employee turned down the job, didn’t get the house and didn’t move to Minnesota,” he said.

A 2022 report by the Center for Rural Policy and Development and the Greater Minnesota Partnership said the cause of the workforce housing shortage is complex. One major factor is increasing construction costs that price young families out of contention for starter homes and skew the market.

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When it comes to multi-family housing, the rent that is possible to charge is not enough to “cash flow a project,” said Sara Bunn, who manages the workforce housing grant program at the Minnesota Housing Finance Agency.

For example, Luckstein said in smaller Plainview, it costs roughly the same to develop homes as in a bigger city like Rochester, especially when it comes to labor and the price of materials.

Another problem, the report says, stems from a higher percentage of seniors in rural communities. When those seniors stay in homes because they want to, or because they lack an assisted living facility to move to, it causes a bottleneck in homes for sale, the report says. It also contributes to a rise in dilapidated houses — sometimes upkeep can cost more than owners can afford.

Lakeside Foods is a part of the robust agriculture sector in Plainview.
MinnPost photo by Walker Orenstein
Lakeside Foods is a part of the robust agriculture sector in Plainview.
Luckstein said they need single-family housing and senior housing, too. When people retire, some want to move off farms nearby and move into town for conveniences like access to medical care.

Waseca paid for a 158-page report on the city’s housing problems in 2021. It said there was demand for 704 new housing units through 2030 and 62% of demand was for senior housing. For comparison, the city has a population of about 9,200 people.

But, like in Plainview, there seemed to be a need for all sorts of housing.

“Interviews with employers, Realtors, and property managers all indicated a severe shortage of market rate rentals in Waseca,” the study says. “Some employers indicated employees earn too much to qualify for affordable housing and there is no housing stock for workforce households.”

A major expansion of workforce housing program

One way the Legislature has tried to ease the shortage of workforce housing in particular is through a state grant program aimed at multi-family housing in small to midsize cities in Greater Minnesota.

Since 2017, the program has had a budget of about $2 million a year. In the most recent grant round, the state awarded $4.59 million to subsidize the construction of 289 units. The money was earmarked for Alexandria, Cold Spring, Cook County/Grand Marais, Dassel, Ellendale, Fosston, Pipestone, Warroad and Plainview. Plainview won the biggest amount, by far.

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Still, Housing officials received 23 applications for the money, with requests totaling roughly $19 million. Bunn said that was the first time the program had been “completely oversubscribed,” illustrating growing interest in financial help.

Sen. Lindsey Port, a DFLer from Burnsville who chairs the Senate’s Housing and Homelessness Prevention Committee, said she loves the program and believes it works. “We just have simply, as with everything in housing, completely underfunded it for decades,” Port said.

Plainview has a population of about 3,500.
MinnPost photo by Walker Orenstein
Plainview has a population of about 3,500.
Lawmakers approved $39 million for the program over the next two years, representing enormous growth. But it’s also one-time money. The budget for workforce housing grants will revert back to $2 million a year starting in 2026.

That wasn’t the only legislation passed by the DFL majorities aimed at helping housing issues across the state. The workforce housing money was part of a massive $1 billion housing budget bill, which includes things like $90 million to help preserve privately owned naturally occurring affordable housing and $150 million in downpayment assistance to help lower-income buyers.

Port said lawmakers separately approved money tied to senior housing in a separate budget bill. The housing legislation includes $37 million in financial help connected to manufactured home parks, sometimes known as mobile homes, which Port said have a large footprint in Greater Minnesota, and $20.5 million for a workforce homeownership program.

Peterson, from the Coalition of Greater Minnesota Cities, also promoted $5 million in the housing budget for a grant program to help Greater Minnesota cities with infrastructure like sewage systems and roads needed for housing developments, and another $3 million in the capital construction budget for those needs.

The Republican approach to housing

The workforce housing grants have some support among GOP lawmakers, who represent most rural areas and much of Greater Minnesota. At the February hearing, Sen. Rich Draheim, R-Madison Lake, said it’s a good program.

Sen. Eric Lucero, R-St. Michael, who is the top Republican on the committee and a real estate agent, said grants like this are “absolutely important” when housing is an issue across the state. But he described it as a temporary “shot in the arm” rather than a longer-term solution to a complex problem.

Lucero said it costs more to build a new single-family home in Minnesota than in surrounding states, citing data from the Housing First Minnesota, a trade association for residential builders. Lucero said building materials and other costs like interest rates should be similar across those states, so the higher overall price tag in Minnesota is due to things like more stringent building codes, fees and other regulations, he said. And the Legislature this year approved mandates Lucero said would make labor more expensive, like the new paid family leave program.

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Draheim has sponsored a bill, also proposed in the House by DFL Rep. Steve Elkins of Bloomington, that would have altered many aspects of planning and zoning regulations in an attempt to make it easier to develop housing. Supporters called it an effort to compromise in a long-running disagreement between cities and homebuilders.

And Lucero proposed a bill that would ban cities from requiring the use of specific materials, designs or other “aesthetic conditions” not required by the state’s building code. A city also could not set a minimum square footage requirement. Similar measures were in the Draheim legislation. Neither passed.

In Plainview, the $1.3 million grant for apartments in the cornfield development was ultimately not enough. Luckstein said a $600,000 shortfall has grown to a roughly $2 million project gap. For scale, the city’s total budget is about $3.5 million.

The mayor said the city has seen quite a bit of single-family housing development because the price point works better, and because it’s what developers are most familiar with. But, he said, the apartments could house young professionals and people moving to the area needing a place to temporarily rent while they look for more permanent housing.

Plainview is looking at ways to close the financial gap. That could include more money from the workforce housing program. There is interest in moving to Plainview, Luckstein said. The city just wants to ensure they have somewhere to live.

“It’s on everybody’s mind,” Luckstein said of cities across Greater Minnesota. “Everybody is looking at this as a challenge.”