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Minneapolis’ ‘inclusionary zoning’ policy takes shape, even as developers cry foul

Green on Fourth
MinnPost photo by Jessica Lee
Minneapolis’ Affordable Housing Trust Fund helped cover the cost of a new 243-unit apartment complex, Green on Fourth, in Minneapolis’ Prospect Park neighborhood. Roughly one-fourth of the units are for households that earn 60 percent of the area’s median income, or less.

Minneapolis leaders have embarked on a new chapter in their efforts to shift more responsibility to private developers to fill the city’s gap in affordable housing: deciding under what circumstances developers should be able to opt out of proposed zoning changes that would require them to set aside units for less-than-market-rate rents in all future projects.

Following failed attempts to mandate such requirements in the past, city staff and housing consultants this summer are researching alternative compliance options for real-estate developers under what is known as inclusionary zoning: rules that require housing firms to dedicate a percentage of big multifamily complexes to households that earn no more than 60 percent of the area’s median income, which is a little less than $57,000 annually for a family of four.

Municipalities nationwide have established similar programs, aiming to spur a greater amount of mixed-income rental housing and to diversify popular residential neighborhoods. The latest effort in Minneapolis will build on an interim ordinance that went into effect this year that closely aligns with Minneapolis 2040, the city’s long-term plan for development.

Despite the look at possible compliance alternatives, the overall work on behalf of city staff and researchers is not moving as quickly as some supporters would like. City Council President Lisa Bender, who has championed inclusionary zoning at City Hall, has said she is frustrated by the slow pace of the work. Meanwhile, the effort faces intense pushback from private developers who describe the idea as an inappropriate intervention in the private market that will stifle housing construction at a time the city needs it most.

A ‘straightforward and consistent’ policy for Minneapolis

Inclusionary zoning isn’t a new thing. More than 900 jurisdictions across 25 states have already established inclusionary zoning programs, according to the Portland-based housing nonprofit Grounded Solutions Network, which is under contract to research inclusionary zoning for the city of Minneapolis. 

The programs’ criteria vary from region-to-region, and so do their outcomes; Generally, cities with hot housing markets haven’t noticed a significant impact on development or the rental market when new projects are required to include affordable units, while some research shows less-competitive markets have found that inclusionary zoning hindered the development of new projects.

In the Twin Cities metro, Bloomington, Edina, Richfield and St. Louis Park already have inclusionary zoning policies, though they primarily apply to projects for which developers have received some sort of help from the city, such as subsidies or tax increment financing.  

In Minneapolis, currently developers throughout the city can opt into programs that offer public subsidies in exchange for affordable units in market-rate projects, but that only happens on a case-by-case basis. But for decades, housing advocates have wanted Minneapolis to go further and mandate requirements for all developments across the city. 

“We need to be able to make sure everyone can afford to live here,” said City Council Member Jeremy Schroeder, who served as policy director of the Minnesota Housing Partnership before winning the election in 2017. “That’s just not something we’re seeing from the market on its own without incentives.”

In December, when the City Council approved Minneapolis 2040, the council adopted the interim inclusionary zoning ordinance that pertains to any new private housing project that needs a variance (that is: any project that needs permission to depart from what’s allowed under the current zoning for its lot). 

Andrea Brennan, the city’s director of housing policy and development, and Bender, a former city planner in San Francisco, said the city must take that mandatory approach because of the latitude the current city code gives to developers for big residential projects. 

In the neighborhoods where developers are building much of the city’s new housing downtown and around the lakes zoning code allows developers to construct very large buildings with no special permissions, Bender said. That’s different from other large cities, such as New York, which often leverage zoning codes to require developers to include affordable units in exchange for adding density.

“In the part of our city where we’re getting the most housing development and an interest in the market for new housing, we can’t do [incentive-based inclusionary zoning] because previous councils made it very easy to build housing downtown with no affordable requirements,” Bender said. “We’re trying to develop a policy that is kind of straightforward and consistent across the city.”

Developers pushing back 

Not all are on board with the city’s sweeping approach. “The policy goes too far,” Steve Cramer, president of the Minneapolis Downtown Council, told council members at a July council committee meeting to discuss alternative compliance options.

Members of the Minneapolis’ Downtown Council are part of a group of developers from both the for-profit and nonprofit sectors that have organized to push back against inclusionary zoning. In meetings with representatives from Grounded Solutions and with City Council members, and in testimony before council hearings, the developers say that complying with the proposed requirements for affordability will add to the cost of developing projects, effectively discouraging new housing construction. One member described the city’s push as “legislating against market forces.” They want the city to scrap the existing concept altogether.

Many developers rushed to submit applications for construction permits at the end of last year to avoid the new requirements under the interim ordinance, said Cramer. Due to labor and construction costs, typical market-rate projects are already on the edge of financial feasibility, said Cramer, and requiring less-than-market rate units without any additional help from the government will only keep developers from building in Minneapolis.

Mpls development
MinnPost photo by Jessica Lee
In Minneapolis, currently developers throughout the city can opt into programs that offer public subsidies in exchange for affordable units in market-rate projects.
“The basic, underlying issue that our market confronts is a demand-supply imbalance that puts pressure on all rents,” especially rents of what’s often referred to as NOAH (for naturally occurring affordable housing), Cramer said. “Any regulatory policy that overreaches and causes projects to become financially infeasible will deter investment, slow down production overall and exacerbate this fundamental, underlying problem.”

Developers have also criticized the process by which the city has gone about creating the policy. Namely, they feel the city has not adequately sought their input, has employed old data to measure the economy, and relied too heavily on the input of Grounded Solutions, which they describe as an advocacy group.

“As an industry, we’re in the best position to tell you what’s going to work and not work,” Steve Minn, of Lupe Development Partners, told council members. “We’re concerned that your policy could probably likely will — have the completely opposite effect on the production and preservation of affordable housing. We’re trying to convey that message to you, and we think we’re being ignored.”

City moving forward

Despite the pleas from developers, city staff are continuing to move forward creating a permanent inclusionary zoning policy. “These sort of repetitive process complaints, when there has been a lot of engagement, starts to diminish the message that we hear from stakeholders who are making those complaints,” Bender said of developers’ opposition.

The final proposal is likely to match the criteria already included in the city’s temporary inclusionary zoning ordinance, though the permanent policy would apply to all new projects, not just those seeking variances. The temporary ordinance calls for developers of new rental properties to make 10 percent of their units affordable to households that earn 60 percent of the area’s median income (AMI). Developers who get tax increment financing from the city, meanwhile, have to make 20 percent of their units affordable to households that earn 50 percent AMI (or slightly more than $47,000 per year for a family of four), which equals a monthly maximum rent of roughly $1,179.

So far, only three housing projects have been subject to the interim policy. Yet because of other city rules, only one of the projects, a development near Bde Maka Ska by the Elevage Development Group, has actually needed to comply with the inclusionary zoning rules, and the developer has presented preliminary designs that exceed the requirements for less-than-market-rate units, said Sam Rockwell, who chairs the city’s planning commission

“My perspective is that it [the interim ordinance] needs to be amped up,” said Rockwell, so that the permanent policy has a broader scope and applies to more projects.

Compliance alternatives

City staff and council members are also determining if, or to what extent, they want to give developers more options for compliance in lieu of building affordable units onsite. 

Other cities with inclusionary zoning rules provide a variety of compliance alternatives for developers. For example, developers can sometimes pay fees in lieu of affordable units on site; or they can build new affordable units elsewhere in the city or donate land to the government for affordable housing. Another option is to  allow developers to remodel existing homes and establish new zoning requirements so that they can’t turn into high-priced, luxury housing in the future. 

The fee option is the most popular alternative tool in cities with inclusionary zoning, often because it’s easy for developers to use, according to Grounded Solutions’ Stephanie Reyes.

Whatever the options, the choices tend to have the same result: an increase of affordable units in the city’s housing market, though specific market factors can affect the success of each approach. Cities with a solid network of affordable-housing nonprofits and open land tend to be more successful with the off-site option; few developers take advantage of land-donation option (though many cities offer it); and the idea of rehabilitation is helpful in markets with a strong supply of housing at risk of sharp rent hikes, according to Reyes.

Bender says that where Minneapolis lands on the compliance options will have a significant impact on the ordinance’s overall impact. By limiting the alternatives — or having none at all — the ordinance could spur the building of more affordable housing in the city’s most rapidly developing neighborhoods. On the other hand, allowing developers to build affordable units off-site or employ other alternative compliance options could lead to more development in parts of the city that haven’t yet been touched by the building boom. By allowing in-lieu fees, the city could raise money for its Affordable Housing Trust Fund, which helps large-scale developers who want to maintain — or build more — affordable rental units, though Bender emphasized that it would not be a strong revenue-generating tool. 

“This is a pretty fundamental question to the policy, which is: Do we want to require that developers would provide affordable housing on site in the new buildings? Or are we going to allow them to pay a fee or to comply with this ordinance and requirements in some other way?” Bender said. 

She said she and her colleagues are leaning toward using the ordinance to leverage the development of more affordable units in places where they aren’t currently located. 

“We know that if we don’t have any development in the city it exacerbates our supply problem,” Bender said. “There’s no doubt that we need to be careful to shape a policy that will still allow housing to be built … and effectively leverage it for market rate units.”

Despite the continued uncertainty around compliance alternatives, Bender said she is frustrated by the slow pace of creating a permanent inclusionary zoning policy. “It’s been a number of years and, truthfully, I’m not sure why it’s taken so long,” she said. “I’m really looking forward to getting a more detailed proposal from staff to bring it through the council process for approval.”

A draft proposal of the ordinance is expected to be completed by October, said Brennan, the city’s director of housing. Then, the City Council and the city’s planning commission will host public hearings and vote to finalize the change this winter. Bender is hopeful the council will pass the zoning change before the end of the year.

But she also emphasized that the inclusionary zoning measure that the council considers could change after a 2019 vote. Many cities, she said, have established policies and changed them to reflect shifting market trends and development patterns.

Comments (29)

  1. Submitted by Pat Terry on 08/06/2019 - 11:44 am.

    Inclusionary zoning means less and more expensive housing.

    • Submitted by Betsy Larey on 08/06/2019 - 01:35 pm.

      It most certainly does not. A developer plans on X amount per unit. The government makes him/her sell 10% of the units for much cheaper. It still costs him x to build, just less profit. Surprised nobody wants to build it?

      • Submitted by Pat Terry on 08/06/2019 - 01:49 pm.

        Betsy, we are actually in agreement here. You are correct that making developers build less profitable buildings will mean less gets built. That means – as I said – that there will actually be less housing, and therefore the remaining housing will be more expensive.

      • Submitted by Michael Hess on 08/06/2019 - 04:32 pm.

        I think the other buyers or tenants will end up paying more to make the economics work, driving up market prices for everyone.

  2. Submitted by Betsy Larey on 08/06/2019 - 12:01 pm.

    When the government inserts itself into supply and demand it never turns out well. However they implement this, it will increase the cost of the untis being built. It’s no secret the cost of building is one of the highest in the country, due to fees and restrictions put on developers and even individuals trying to build in the Twin Cities.
    Keep it up, and you will run the middle class right out of town, and you’ll be stuck with the wealthy and the poor. I’m glad i don’t live in Minneapolis anymore. It was once a great place to live.

  3. Submitted by Paul Udstrand on 08/06/2019 - 01:22 pm.

    I don’t know why reporters who write about business issues like this refuse to provide examples? A single example would illustrate more than five paragraphs. How much does a building cost to build? How much does the developer make, and how? When a developer claims that they’ll lose money or make less money, what exactly is the business model? If we don’t have this information we can’t draw any conclusions.

    If you build 50 units and charge $1,000 per unit, that’s $600k a year. Without knowing how much the building cost, and what the loan terms are, how can we know whether or not “profitable”?

    Why would we ask the guys who refuse to build affordable housing, how to build affordable housing? Industries are never happy with their “margins”, but you can’t accept their claims at face value… clearly these guys are making money or they be building so much.

    • Submitted by Daniel Pinkerton on 08/11/2019 - 09:23 am.

      This is the smartest remark in the entire thread of comments. Why on earth should we listen to someone like Steve Cramer? If 10% of units (an awfully small number) must be affordable, the companies building all the luxury condos and rental units would still make a boatload of money — it would just be a slightly smaller boatload. Boo hoo.

  4. Submitted by Betsy Larey on 08/06/2019 - 01:44 pm.

    I find it interesting that Lisa Bender is the force behind this. She was an urban planner in San Francisco. How many affordable units were built in San Francisco during her tenure there? NONE. Nice track record. This is simply not going to work in Minneapolis

    • Submitted by Matthew Steele on 08/06/2019 - 03:36 pm.

      While I don’t necessarily agree with her on this policy, I’m baffled that you would blame Lisa Bender for a failure of San Francisco to build affordable units during her “tenure” as not-a-policymaker. If anything, it appears that Bender learned from crisis created by Bay Area NIMBYs and is doing an amazing job of ensuring we don’t go down that path here.

      • Submitted by Pat Terry on 08/06/2019 - 04:01 pm.

        Bender may not be driven by NIMBY-ism, but she is promoting a policy that will almost certainly by counter-productive. Why does she get a pass for bad policy driven by good intentions.

      • Submitted by lisa miller on 08/06/2019 - 06:21 pm.

        At some point there needs to be the question of how to keep those in the city who pay taxes. If you put high density everywhere, those families who want a small yard will move out; building ‘affordable’ (and what does that mean) is nice, but its more akin to a lottery system. If building more were the simple answer, wouldn’t other cities already have had progress in more affordable places? Can’t there be more of a compromise and also what about smaller homes that are snapped up by developers and then turned into something more expensive.

        • Submitted by Pat Terry on 08/06/2019 - 08:17 pm.

          Other cities HAVE had progress in adding affordable housing and reducing housing costs through building and adding density. There was this false notion that the 2040 plan is based on unproven ideas. It wasn’t.

  5. Submitted by Betsy Larey on 08/06/2019 - 05:02 pm.

    In another MinnPost story today is a great article about the city of Hilltop, essentially a trailer park with a few apartment buildings surrounded by Columbia Heights. This is perfect affordable housing. So can someone tell me why the city of Minneapolis won’t allow trailer parks to be built? So much vacant industrial land available. Probably because it makes too much sense. What say you Lisa Bender?

  6. Submitted by Ray Schoch on 08/06/2019 - 09:11 pm.

    While various commenters argue over the details, one truth seems pretty obvious: The “private market” or “free market” in housing has utterly and completely failed to provide an adequate supply of decent housing for the lower quartiles of the income spectrum in the Twin Cities metro, especially for the people in those income segments who have children.

    Zoning is a key component in modern metropolitan areas, and is often used to keep out types of development deemed undesirable, or at least less desirable, by the powers-that-be. I make no claims to understanding the Minneapolis zoning code except to say that it appears to be Euclidian (meaning that it limits development in a designated area to a particular type – single-family residential; industrial; multi-family residential; etc. – and thus an antiquated additional obstacle to the development of housing for people in the lower half of the income spectrum.

    Paul Udstrand’s complaint is on-point, I think. More facts are needed – even if the figures have to come from developer sources that should always be treated as potentially self-serving. What does a housing unit cost to build? What are the sources of that cost (materials, labor, finance charges, fees, etc.)? What’s the profit margin built into that cost? When subsidies (TIF, density bonuses, etc.) are offered to developers, who bears the cost of those subsidies? Do market-rate buyers or renters subsidize the cost of below-market-rate buyers or renters, and if so, how much of an effect does that have on the monthly housing costs of those buying or renting at market rate?

    I’d also suggest that Ms. Larey’s assertion that “When the government inserts itself into supply and demand it never turns out well” is, at best, the usual right wing anti-government propaganda. At worst, Ms. Larey is shilling for the real estate development segment of the housing industry, as she presents not even a shred of evidence to support her assertion. It’s worth pointing out that, in her final comment, Ms. Larey then contradicts herself by suggesting that Minneapolis – “the government” – insert itself into supply and demand by encouraging the development of trailer parks.

    • Submitted by Pat Terry on 08/07/2019 - 10:32 am.

      The “truth” you think is “pretty obvious” is actually completely baseless. There never has been a free market for housing because of zoning laws, NIMBY opposition, and other factors that have artificially constrained housing construction. There is an affordable housing crisis because there is a housing shortage. Housing costs have soared because the population has grown, but the amount of housing has not kept up. Part of the 2040 plan is to remedy this by eliminating the artificial constrains. Cities that have done this have seen housing costs drop as the housing supply catches up with demand.

      I am by no means a free market acolyte. I don’t share Ms. Larey’s broad statements even if she is right here. I’m just a Democrat with an economics background who has studied housing. And in this case the problem isn’t the free market – its the lack of one. You could certainly learn from the cost details, but the bottom line is that developers won’t build if they can’t turn a profit. And IZ cuts into those profits and, in places where it has been implemented, has resulted in less housing being built and higher housing costs.

  7. Submitted by Paul Udstrand on 08/07/2019 - 09:50 am.

    Ray says: “While various commenters argue over the details, one truth seems pretty obvious: The “private market” or “free market” in housing has utterly and completely failed to provide an adequate supply of decent housing for the lower quartiles of the income spectrum in the Twin Cities metro, especially for the people in those income segments who have children.”

    Absolutely. Now watch neoliberals double down on their magical thinking and “explain” the nature of supply and demand. We’re sill not having a serious conversation about affordable housing and solutions to produce it.

    • Submitted by Pat Terry on 08/07/2019 - 11:37 am.

      There is nothing liberal or conservative or “neoliberal” about the concept of supply and demand. Its a fundamental tenet of all economic theory.

      The population has grown faster than the housing supply has, which causes prices to rise. And the lack of housing growth is due to artificial constraints like zoning, not the free market – which has never had a chance to fail.

      • Submitted by Paul Udstrand on 08/10/2019 - 12:21 pm.

        Supply and demand is an extremely limited scenario that applies in a limited number of circumstances. Those whose entire knowledge of economics is limited to a single observation need to stop pretending to be the economic experts in the room. Supply and Demand is not the foundation of ALL economic systems, it’s just the only one some people are familiar with.

        The prices and availability of housing is managed by the stakeholders in the industry. They are not hapless participants is a “natural” realm of supply and demand over which they have no control.

        This is magical thinking and doubling down on it has completely failed to produce affordable housing. How many decades must go by and how catastrophic must this problem become before we abandon wizardry and get serious about addressing this problem.

        Neoliberalism assumes that problems like this will essentially solve themselves given the “nature” of markets… THAT’S the fallacy of supply and demand in a nutshell.

        • Submitted by Charles Dart on 10/20/2019 - 09:26 pm.

          “Supply and Demand is not the foundation of ALL economic systems, it’s just the only one some people are familiar with.”

          I couldn’t agree more.

          We will not solve the affordable housing crisis until government bureaucrats nationalize the construction/housing industry and provide for all — free for everyone!

          It will be nirvana.

  8. Submitted by Alex Schieferdecker on 08/07/2019 - 10:45 am.

    Inclusionary zoning (IZ) is an odd issue. At the most basic level, it’s certainly the case that if you keep ramping up price controls, you’ll reach a point where it makes no sense to continue producing the good being controlled.

    However, although many development projects do have small margins, the interim ordinance has not seemed to stifle development—in fact development proposals are ahead of last year’s pace, including several projects that fall under the ordinance. A recent project in St. Paul that was presented to neighbors suggested that the inclusion of guaranteed affordable units in that development would increase the rent of the other units by $30/mo, or roughly 2%. That’s not the end of the world, and soaking wealthier renters (though of course, wealthier renters are often less wealthy than the median homeowner) to ensure poorer renters can remain in places with access to opportunity is certainly a defensible policy.

    But this debate over pro formas seems to me to be a bit of a sideshow. The main issue with IZ is that there is no place where it has actually led to a significant amount of affordable units. The output of IZ programs has always proven to be really really small. There’s not enough talk about this, and what the city really wants to achieve by, let’s say, creating 50 affordable units a year at the risk of depressing housing production overall. Is that a valid tradeoff?

    There’s also not enough talk about the main benefit of IZ programs, which is not the affordable unit output, but the economic integration and desegregation. Most development in Minneapolis is occurring in wealthier areas of town, where demand to live is the highest. Sure 50 affordable units may not be much, but if they are occupied by low income families who benefit in other ways from living in a neighborhood with a lot of resources, that’s a benefit beyond simply having a roof and a bed that isn’t being discussed.

    It’s a challenging issue that maybe gets more attention than its consequences. I hope that Minneapolis is able to closely study whatever policy it implements. Meaningfully depressing housing production is not worth IZ, but if the effects on development are small, it will provide small but significant benefits.

    • Submitted by Pat Terry on 08/07/2019 - 11:42 am.

      Look at the Strong Towns link I put in an earlier comment. The links there suggest IZ is limiting development.

    • Submitted by Kurt Anderson on 08/07/2019 - 01:04 pm.

      A 10+ percent increase in our city’s population since the last census reflects a strong housing demand, which the market is striving to fulfill. Requiring setasides for affordable units is a reasonable price to require of the developers who are responding to the demand, and (pro rata) of the full-market rate customers who are driving it. Let’s test these hypotheses: how much, if at all, will set aside requirements depress this phenomenon?

  9. Submitted by Kurt Anderson on 08/07/2019 - 12:56 pm.

    I hope our council members stick to their guns on this one. If we are going to have these high rise weeds in the most desirable parts of our city, let’s make progress also toward our affordable housing goals. And please say “no” to a fee-based buy-out option; the Civil War is over, and the privileged are not allowed to purchase an exemption from our common effort.

  10. Submitted by Dennis Wagner on 08/07/2019 - 02:57 pm.

    Looks like a mandatory charitable contribution W/O being tax deductible. Perhaps the $ would be better spent getting folks higher up the income ladder so they could afford the market rate prices.

  11. Submitted by Arthur Swenson on 08/11/2019 - 08:32 am.

    What is “affordable” housing? If we were to consider a single person, earning that mythical $15.00/hr ($30,000/yr if full-time) that has become the Holy Grail of social planners, we find that the earner would be liable for 7.65% FICA tax ($2,300), 10-12% Federal Income tax ($2,200), 5.35% Minnesota Income tax ($1,300), and, if lucky enough to have benefits,$3,000 to $6,000 for health insurance. This leaves $20,000 ($1,666/month) or less to actually live on. When I knew anything about personal budgeting, the common rule was to spend no more than 1/3 of your income on housing. What kind of housing is currently available (or envisioned) for $550 per month?

  12. Submitted by Daniel Pinkerton on 08/11/2019 - 09:39 am.

    The problem with business types is that they decry government interference in the mythical free market except when it benefits THEM. if developers are being given something by the city government — TIF, permission to build a 40-story apartment tower in a space zoned for a maximum height of six stories — they should be required to give something back: make 10-15% of the units affordable. And I would argue that this should be a requirement for all new housing. There is no other way the city will get it.

  13. Submitted by Paul Udstrand on 08/11/2019 - 09:49 am.

    Economics has been referred to as the “dismal science”, it’s kind of a catchy phrase if you think about it. The modern era of economics starting in the 1950s has converted economics into an ideological battlefield with little or no ability to predict outcomes in any empirical sense. All but a few economists are typically caught flat footed by recessions, or any real deviations from the current status quo. Most economist kept telling us that our “fundamentals” were solid as we slid into the Great Recession for instance.

    While not quite a pseudo-science, many economists have sought legitimacy in the last few decades in the form of equation production and math wizardry. Ph.D candidates in economics will frequently earn their degree these days by simply producing a single equation that purportedly demonstrates something or another. I like to call this the “Beautiful Mind” effect.

    You will recall the 2001 film about John Forbes Nash, (played by Russel Crow) who “disovered” Game Theory? The problem is it’s difficult if not impossible to know whether or not these equations actually have a connection to reality. The dirty little secret about Game Theory for instance is that it doesn’t work, it doesn’t really predict anything with any reliability. In a universe where Game Theory works, you don’t have market collapses on a regular basis.

    This brings us to the idea of Supply and Demand and the neoliberal fascination with “natural” market forces. One problem with the idea of “empirical” economics is that it’s inherent ideologies distort the “science”. Economist have a tendency to start with a conclusion and work backwards rather than follow the evidence. And the instruments they use, no matter how mathematically elegant, tend serve purposes rather than reveal realities.

    Pat Terry gives a link to follow that will prove that Inclusionary Zoning raises prices and decreases supply. The article itself is a an advocacy piece pretending to be a lit review, and it mischaracterizes some of the literature.

    This lit review is extremely limited, it only looks at three articles in the past 40 years, and mentions two lawyers who support the authors claim.

    Let’s take a brief look at the articles:

    1. Bento et al. found that inclusionary zoning in California caused prices to increase 2 to 3 percent faster relative to jurisdictions without the policy. They found that affordable housing mandates decreased the rate of single family home starts, but found no effect on multifamily housing supply. They write, “The results are fully consistent with economic theory and demonstrate that inclusionary zoning policies do not come without costs.”

    This article actually provide mixed results. The IZ policies in question are attempting to serve dual purposes- create affordable, and encourage density. Benito actually tells us that IZ had little or no effect on multi-family housing. Furthermore, the grand conclusion that IZ policies don’t come without cost is rather weak given the fact that one of the more reliable observations in economics is that we never get free lunches. The question isn’t the existence of a “cost” but rather who pays the cost, and whether or not it’s worth is… Benito is silent in this regard.

    2. Tom Means and Ed Stringham also measured the effects of inclusionary zoning in California. They found that jurisdictions with inclusionary zoning saw their housing supply reduced by 7 percent and prices increased by 20 percent due to the policy.

    Means and Stringham throw a lot of equations into the mix but the question and analysis are extremely complex. Complexity is the enemy of analysis as a general rule, the more complex, the more likely something will go wrong. These authors clearly begin with their conclusion and work backwards. In any standard analysis the null hypothesis would be that IZ has no effect, these guys set out to prove that IZ interferes with “markets” and increases prices.

    A close examination of their “analysis” reveals a surprising number of contradictions and contrary results they then try to address with ever more complex analysis and “testing”. In the end this “study” fails to escape the basic statistical fact that correlation does not prove causation. The authors deploy a number of “tests” and find internal consistency, but this doesn’t establish validity. 2×2 always equals 4 for instance; but that doesn’t tell you your meat is safe to eat.

    Since the nation has been experience rising costs in the midst of multiple boom and bust housing cycles, its almost impossible to know whether or not this analysis is actually valid. We need to see at least two attempts to replicate this study.

    3. Schuetz et al. studied inclusionary zoning in two markets. In the Boston region, they found that inclusionary zoning rules reduced construction and caused higher house prices, but only during periods of rising prices. In the Bay Area, they found that inclusionary zoning corresponds with higher house prices during periods of rising rent prices, but that it also contributes to lower rent prices during times of falling average prices. They found no relationship between inclusionary zoning and construction in the Bay Area.

    This is yet another study that gives us mixed results. Schultz et al find that IZ “corresponds” (remember, correlation does not equal causation) with higher prices in Boston (with the caveat that prices were already rising to begin with), but not the Bay Area.

    In the end we have a lit limited lit review of three “studies”, two of which give us mixed results. The one study of the three that does unequivocally condemn IZ is fraught with potential methodological and bias errors. At the very least it needs to replicated.

    This is hardly a steak through the heart of IZ policies.

    • Submitted by Tom Trisko on 08/12/2019 - 05:19 pm.

      Regarding Economics:
      Paul makes valid criticisms of Economics as a discipline and its practitioners. As one of them, I am glad to see some of the younger Economists pointing out the narrow circumstances under which the classic supply and demand model functions accurately. Several other Macro-Econ models don’t seem to be working very well at explaining the 1970s inflation or the current lack thereof either.

      Regarding housing:
      The real estate market is only partly about economics for current residents and prospective buyers or renters. The immovable roadblock to affordable housing policies is that people want to live near people like themselves in neighborhoods that match their ideas of aesthetically acceptable architecture and landscapes. For some this is high rise apartments and condos, but for most (especially when buying for raising children) this is a single family house in a suburban style neighborhood. One of Mpls real estate attractions that kept the city viable since WWII has always been the semi-suburban feel in its residential neighborhoods with lawns, parks, lakes, off street parking, stable or rising home values and safe areas.

      The city’s new 2040 Plan and IZ policies work against these neighborhood values and real estate conditions with no guarantee of increasing the supply of affordable housing–especially in already higher price neighborhoods. There developers will likely merely buy and demolish a $300,000 house to replace it with three $500.000 each triplex units. We have already seen a precursor of how this happens in SW Mpls and Edina neighborhoods in recent years. As Minneapolis pursues higher density triplexes, etc. on small lots in single family neighborhoods with less off-street parking required, middle and upper income single family homeowners will depart. The city will become populated mostly by the rich and the poor living in high rises like Manhattan and San Francisco. This phenomenon is already visible around Lake Calhoun and from downtown to Lake Street and Uptown. If this is what Mpls voters want the city to be and look like they are free to choose it, but they should know what they will get.

      Alternatives might include:
      –owner occupied manufactured housing on cleaned up industrial sites owned by condo associations (use housing and Super Fund money for cleanup). These would be good locations for new apartment buildings also as they are frequently on transit lines. Hennepin County’s Community Development Dept and HRA have capital budgets to assist this sort of clean up and transit oriented redevelopment.
      –Seniors’ luxury and affordable coop, condo and rental buildings in each neighborhood with management and services on transit lines in walkable neighborhoods would free up single family homes. (Most developers are ignoring the affluent Boomer senior market);

      I don’t believe the voters support what Lisa Bender, the current council and the Mpls Planning Commission and Housing Department are trying to implement. We will find out in the 2021 city election. In 2017 the “Our Revolution” group and other young people with agendas took over the city DFL convention. The average voter was not very aware of these agendas. It will be interesting to see if the previous DFL generation shows up in 2021 to stage a counter revolution.

  14. Submitted by Julie Stroeve on 08/12/2019 - 08:19 am.

    The developers are doing just fine, thank you very much. The formulas for “affordable housing” don’t result in affordable housing. The $30000 example earlier is the one the city and planners should use when figuring “affordable” housing. The only way to address affordable housing in cities like Minneapolis is to offer public housing like it offers public education. Private development is never going to address affordable housing in affordable terms.

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