Minneapolis officials’ approach to affordable housing has developer Steve Minn second-guessing future projects in the city. As co-founder of Lupe Development, which he started in 1989, he has built hundreds of homes across the city. But now, he says a plan to diversify the city’s housing stock with new construction rules could force him to take new ideas elsewhere.
“It’s getting harder and harder to do,” he said of building in Minneapolis. “If it’s easier to do in other municipalities, then you know, we gotta do work where we can make money.”
The plan, dubbed “inclusionary zoning,” aims to put more responsibility on the private housing market to fill Minneapolis’ shortage of low-income housing by requiring developers to set aside a portion of units in all future complexes as affordable housing. Supporters say it is among the best tools to diversify neighborhoods over time, giving low-income residents access to amenities such as transit, schools or parks from which households of more affluent areas currently benefit.
But some developers, like Minn, have said the added cost of mandatory affordable units will keep investors from building in Minneapolis, further exacerbating the city’s housing crunch and eventually depleting the supply of affordable housing altogether.
“It’s exactly opposite what they are hoping to accomplish,” said Minn, who is part of a group of developers — from both the for-profit and nonprofit sectors — that have organized a group, “Building Minneapolis Together,” to push back against the inclusionary zoning plan.
A deterrent to doing business in Minneapolis?
The pace of new housing construction is at the core of Minneapolis’ housing problems. To meet existing demand for housing and build for future residents, cities across the Twin Cities metro would need to add more than 14,000 homes each year for the next two decades, according to the Family Housing Fund. Currently, the region is building homes at about three-fourths of that pace on average.
Meanwhile, increasing costs for land, labor and construction are driving up housing prices for both buyers and renters. And while the hikes are impacting all households, the rising cost of housing has hit low-income residents especially hard, coming after decades of declining federal funding for housing subsidies.
Enter inclusionary zoning, which has become a hot idea in urban planning across the country, especially in cities facing a shortage of affordable housing. More than 900 jurisdictions across 25 states have already established inclusionary zoning programs, including several in the Twin Cities: Bloomington, Edina, Richfield and St. Louis Park all have local inclusionary policies, though the guidelines in those places 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, the City Council adopted an interim ordinance for inclusionary zoning last December, a vote that coincided with Minneapolis 2040, the city’s long-term plan for development. The 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), or $56,580 annually for a family of four. 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 translates to a monthly maximum rent of roughly $1,179.
The temporary measure was limited in scope, however. It only pertains to any new private housing project that needs a variance, or permission to depart from what’s allowed under the current zoning for its lot. Only a handful of developments have been subject to the interim policy. To have a greater impact, supporters of the policy want new requirements that apply to all future construction of big complexes.
Instead of the mandatory approach, opponents of the policy would rather pay into a new system of tax increment financing (or TIF) for big, market-rate housing complexes in which new tax revenue pays for affordable housing. Alternatively, the developers have proposed a three-tiered system that would set aside no more than 10 percent of building units for low-income families, no matter the level of government financing. It would also offer different compliance options, allowing developers to pay for affordable housing in different ways, while also advocating for changes to the state’s existing property tax system to reduce operating costs so that existing buildings maintain affordability.
“We’ve never been against inclusionary zoning, but we’ve always said, ‘Look, you can’t overbake this policy or you run the risk of cutting off private investment into the housing supply expansion generally,’” said Steve Cramer, who is the president of the Minneapolis Downtown Council and also part of the group “Building Minneapolis Together.”
Cramer and Minn are not the only local developers worried that current conditions could deter people from doing business in Minneapolis. Council Member Lisa Goodman told the housing committee that she has friends in the development community who are taking a break from the market now because it’s too risky for their bottom line.
“I hear a lot: We just can’t do it,” Goodman said.
In part, that’s because private developers use outside investors to help finance the construction of new buildings. “We all get access to capital through investors,” said Minn, a former Minneapolis City Council member and state commerce commissioner under former Gov. Jesse Ventura. “Any investor can just go down the road to St. Louis or up the road to Milwaukee or over to Memphis or into Louisville and, you know, get the same kind of yield that they’re getting here in Minneapolis. If we make it harder, they’ll just go there.”
Cramer, a former City Council member who once led Project for Pride in Living, a nonprofit developer that currently operates about 1,570 homes for low-income households across the Twin Cities, said that the inclusionary zoning policy is a misguided approach to addressing the root of the city’s affordability problem: a lack of supply.
“The strategy of basically overregulating our marketplace… just has never been a long-term successful solution for creating more affordable housing, and you see that’s the path that the council is going down,” he said. “They’re hearing about it from their constituents. They want to do something and something they can do is pass this ordinance, pass that ordinance. But in the long run, it’s not helping. In fact it’s hurting.”
“There should be some trust invested in that advice based on a track record that goes back decades and decades of commitment to affordable housing in this community,” Cramer said.
According to Seattle’s Sightline Institute, the key to a successful inclusionary zoning policy is allowing developers to offset the cost of including less-than-market-rate housing in other ways, such as by making their buildings taller than what current zoning allows or building less parking.
Without those offsets, the cost of mandatory below-market rate housing can push some profitable developers into debt and halt new investors from starting new projects — suppressing housing choices for residents and driving up costs across the market, the institute found. “Once housing prices rise enough to make up for the expense of the new … rules, developers resume construction,” Sightline researchers wrote. “But now every home-seeker in town has to pay more for her home, not just during the slowdown in building but ever after.”
Emily Hamilton, a research fellow at the Mercatus Center at George Mason University, has come to similar conclusions: Inclusionary zoning is a popular solution to “provide affordable housing that seems like it doesn’t have trade offs, like developers or landowners will bear all of the cost of the program, but research doesn’t really bear that out,” she said. “For some cities, it has had no effect on the housing supply … but those that have had an effect have gotten an increased prices.”
Group hired by city recommends changes to proposal
On Wednesday, representatives of the Portland-based housing nonprofit Grounded Solutions Network — which is under contract to research inclusionary zoning for the city of Minneapolis — released draft recommendations for the permanent zoning change that seek to respond to some of the developers’ concerns. The council wants to finalize the plan in coming months, and the policy’s success or failure could hinge on small details, say Grounded Solutions officials.
They pointed to a study of development in Minneapolis that supports some of the worries articulated by opponents of the current plan. The study found that many of the projects that would be subject to the current inclusionary zoning proposal, especially in the downtown and Uptown areas, would not be financially feasible under the new rule.
In response, Grounded Solutions is recommending dialing back requirements from the city’s current policy. Under the recommendations, developers of new rental properties would need to make 8 percent (instead of 10 percent) of their units affordable to households that earn 60 percent AMI, or 4 percent for households that earn 30 percent AMI ($28,300 annually). Developers who get tax increment financing from the city would still have to make 20 percent of their units affordable to households that earn 50 percent AMI or go through other steps to prove that that requirement would hinder the construction project.
Grounded Solutions also recommended the city offer multiple compliance alternatives for developers: they could pay fees in lieu of affordable units on site; or they could build new affordable units elsewhere in the city or donate land to the government for affordable housing.
“The development process is incredibly risky, and when developers say, ‘We can’t make it work’ often you later see them make it work,” said Grounded Solutions’ Rick Jacobus. “It’s not necessarily the case that they were lying when they said they couldn’t make it work, it’s just that in order to make it work, they had to do something else — so they make the units smaller, they push the land prices down, they renegotiate some other deal.”
Leaders of the city’s Community Planning and Economic Development (CPED) department will use the recommendations as a guide to writing a draft ordinance, which council members are set to review in December.
In an interview last month, Andrea Brennan, the city’s director of housing policy and development, said the city acknowledges that it costs developers to add affordable units in market-rate development. But it also believes that loosening zoning codes so that developers can build bigger, taller complexes in more places throughout the city will be a benefit to the development community. She said it is good governance for the city to shift that benefit to the public good by implementing the rules for affordable housing.
“The details really matter,” she said. “It’s really important to structure a policy that really considers the specific context of the local community and that you have options, and I mean we’re doing our best to do that exactly.”
Correction: This story has been updated to note that Steve Cramer is a former leader of Project for Pride in Living.
Developers assume risk, but they also reap enormous financial gains. Are the apartments at Franklin and Portland city-owned? Who manages them? Is Minneapolis talking at all about building affordable housing with city funds and hiring private managers? How about not-for-profit housing? Are North Minneapolis neighborhoods candidates for affordable housing built by the city? I think Portland has a density model — is it working? Seems to be. Tax increment financing gives taxpayer money to private interests. (“Give us tax abatements so we can build something that is affordable for the 1% rather than the 99% and don’t ask us to throw in some cheaper units for which the current formula doesn’t work”) That money could be wisely spent on something other than private development. How about a policy that requires 50% of new construction to be “affordable” — that’s how urgent the need is. Cramer is walking a fine line: the Downtown Council President AND a developer of real estate. That just screams “conflict” to me. Btw, the Mercatus Center is a Libertarian think tank funded by the Koch family.
The apartments at Franklin and Portland are owned by Hope Community, a nonprofit community development corporation long in the community, started by nuns who originally were running a women’s shelter. The buildings were developed in association with Aeon, one of the largest nonprofit affordable housing developers in the area.
The reason the focus is on private developers is that is the only way to get enough housing built. City owned and managed housing is very expensive. There isn’t money to build enough of it.
And the idea of requiring 50 percent of units to be affordable would mean that no housing gets built. That’s the point of the article.
It’s actually pretty east to explain why this is a bad, unfair policy: it puts the entire onus of subsidizing affordable units on a particular population, specifically people that happen to inhabit a new building. These people probably have fewer resources overall than the average single family homeowner but because they’re more likely to be young renters and city newcomers, they’re a demographic that has little political power, so it’s politically easy to put the burden on them. This seems obvious enough to me that I’m surprised the city council members don’t understand it.
That’s in addition to IZ’s track record of providing very few new units and suppressing new construction. Here’s a tip for getting more of something: don’t tax the very thing you’re trying to get to get it.
If we really want to subsidize units – and we should – then everyone with means should pay. I suggest starting with a capital gains tax on home sales I this era of houses going for $30k above asking.
The problem is that many working and middle class struggle to afford homes in this market and now they have to subsidize others? That will be the argument. How about better wages, why do we need to subsidize the Walmarts of the world.
Is it possible the “bottom line” of all of this is the undiscussed idea of city already being over built ?
Rising rents are an economic indicator that there’s a shortage of housing, not a surplus. How could anyone think the city is overbuilt?
No. There is a huge shortage of housing that goes back decades. The recent uptick in construction is barely putting a dent in that shortage.
Shocking that think tank folks, who have never built a thing in their lives, can’t get this right. Expecting a developer, who is looking to maximize his investment, to build in areas where he cannot do as well is foolish. Where is HUD in this scenario? There are pages of information on help for folks looking for housing in the Twin Cities. The last thing that is needed is another tax or implement put on developers or local homeowners. If you haven’t noticed those extra taxes and regulations slow down the process, not help it. You would think that is evident by now.
Why should society tolerate anyone trying to “maximize their investment” on something so fundamental to human well-being as housing?
Why should anyone agree with your premise that this is a good thing?
Housing is a service not a human right. I built the housing unit, I got the loan, I pay the insurance and I am going to maximize my investment. If you want to build a garage apartment on your land and rent it out for free, be my guest. Buying a home and renting someone else’s property is an exchange of services, just like buying or leasing a car. Again, you can give your car away, be my guest.
Because that’s how most things actually get done.
The for-profit housing industry is manifestly incapable – even if the desire to do so were present – of meeting the housing needs of the Twin Cities, or any medium-to-large-sized city in the country. Affordability has been an issue for decades, and after much hand-wringing and crocodile tears on the part of developers, no viable solution has appeared.
The Rafter Apartments at 333 E. Hennepin in NE Minneapolis are but one of many examples of new housing projects catering to affluent, young, single adults who apparently all ride bikes or walk 3 miles to work at jobs that pay astonishing wages. I’m not in the market, fortunately, but if I were, the most “affordable” unit I could find on their website was one called the “Webb D,” a studio of 577 square feet, with rent starting – starting – at $1,800 a month.
That studio apartment has half the space of my modest 1950s tract home in a less-fashionable part of Minneapolis, and costs twice as much per month, requiring – if industry standard figures of 30% of pre-tax income spent on housing are used – a job that pays more than $70,000 annually. Similar projects are under construction nearby, but I’m left wondering what proportion of the city’s population can afford those kinds of housing costs.
Yes, what I see being built, as I continue my quest to move closer to downtown, are tiny, thin-walled apartments with Pullman kitchens (i.e. appliances lined up along one wall of the living room), with studios starting at $1000 per month.
This trend has spread to the suburbs, too, even less affluent suburbs like Richfield and Golden Valley.
These complexes all offer unnecessary amenities, such as party rooms with kitchens bigger and better than the ones in the individual apartments, swimming pools, gyms, saunas, business centers (because none of the tenants have their own phones or computers?), fire pits, and even indoor dog parks. (Oh, great, a lot of dogs left alone all day in thin-walled apartment buildings, and do you know what often happens when you leave a dog alone? It barks. For hours on end. Literally.)
I have been told, and it’s probably true, that these amenities don’t add much to the construction and maintenance costs of an apartment complex. However, they are used as an EXCUSE to label a building “luxury” and charge high prices.
I’m seeing hints that even the owners realize that their units are overpriced. One sees signs around town offering anywhere from one to three months’ free rent with a twelve-month lease. This means that if a $1,500 one-bedroom apartment is available with three months’ free rent, then, given annual rent of $18,000, the annual cost becomes $13,500, or $1,125 per month. A $1,000 studio becomes $750.
But lower the list price? Give the current tenants a break? Naa.
Yes, demand can drive up prices, but it doesn’t HAVE TO. That’s just profiteering.
This article is actually a disappointing example of “business” reporting.
The problem with business reporting is that it tends to proceed from the perspective of the business community without providing any real information. So here for example we an entire article claiming to examine the “cost” of a new policy… without providing a single dollar of cost. We ALWAYS see this with business reporting. Remember when all the restaurants complained about their oh so narrow margins that meant $15 wages would put out of business…. while never telling what their margins really are? And then of course we now have noticed that none of these guys have gone under since the wage went into effect.
So here we have builders complaining about the cost of building, without giving us any example of those costs. Normally, somebody would say something like: “Well, it costs $500k to build 40 units so we need to make $2,000 month in order to pay off the loans in six months” or something like that. But we get nothing here, no real financial information at all. Just a blanket clam that the new policy kills profit.
When industries and business groups deliberately (and this IS deliberate) omit basic information it’s usually a sign of an organized campaign. Myself, when I see someone make claims without making any attempt to illustrate or verify those claims… I don’t trust the claims.
If you’re going to write a serious article about something like this you need to dig up this information. We need to know how much it costs developers to build these things, and what kinds of rents provide what kinds of returns and profits. If the city hired somebody to study this… they should have this information because you can’t analyze this policy without THAT information. Anyone who claims to have done so is either incompetent or dishonest.
Profit is built into the DNA of capitalist economies and the number one rule is always be making money, and always be making as much money as you can. Businesses and business groups ALWAYS push back any effort to limit or reduce their profits, no matter what the “margins” are.
Anyone who thinks that builders will walk away from the largest city with the biggest housing demand in the state is probably being naive. Sure, go build in Hinkley instead, we how much you for rent there.
Listen: if builders were going to build “affordable” housing they would have done so already. And if supply and demand market models controlled prices we wouldn’t have a crises in the first place.
Listen again: So builders say they have to borrow money to build, OK, but then you have to tell us about the loans you get. Sure, maybe you borrow $500k to build 40 units, but what are your loan payments and conditions? Do you have to pay off the loan in two years or something? In theory lower rents aren’t a problem unless they make loan payments impossible.
Well put.
It’s hard to disagree with the argument that until we have total financial transparency in this industry, nothing can be taken at face value from developers. Financial transparency should be a requirement for doing business in the Twin Cities. City council members: Please make this so.
From late last year in thr Star Trib;
“In an interview, Doran said requiring 10 percent of units go to low-income renters in the Expo, a $100 million 368-unit apartment complex he is building with co-developer Gary Holmes of CSM Corp. on a former parking lot near St. Anthony Main would drive up the cost by $8 or $9 million and require raising base rents on unsubsidized units by $100 or more, starting with $1,000-a-month units.”
http://m.startribune.com/homebuilders-concerned-about-proposed-minneapolis-inclusionary-zoning-rule/498746871/
That’s useful information, but I feel it doesn’t address the gist of Paul’s comment.
If a loan(s) is involved, it would be useful to have complete information about it: where it came from, how much interest is being charged, whether the loan originated with a bank or with deep-pocketed investors.
It would also be important to know how much profit the developer is making. This then tells us how much more people are needlessly paying in rent.
How exactly is the cost of the low-income units driving up the cost? The numbers are listed, but this alone doesn’t tell you much. A detailed view of the finances of this would be required to determine if this reported extra cost is “real” or not. I don’t take anything a developer says at face value, nor should anyone.
This kind of gibberish is typical of the kinds of “claims” developers make.
Sure, charging less than market rates for rent reduces post construction profit, but it doesn’t raise construction costs. No one charges more for concrete because ten percent of your units are going to be rented out for than the other units, no sheet rock supplier even asks, they don’t care if your sheet rocking an outhouse or a basement, they just sell you the sheet rock… and builders get discounts by the way. The labor costs are the same, it’s not like you pay a different wage for the affordable units than the rest of them.
You can say you’ll make $8 to $9 million less… but what time frame is that? Is that per year or what? And without knowing what the over-all revenue is that doesn’t tell us anything.
Look if we run the numbers in this Strib story you get this:
You build a 368 unit apartment, of which 37 must be affordable rents. The average rent in the Twin cities is $1,500, and “affordable” rents for a family of 4 are calculated to be $1,100. Doran says he has to raise the rents on the non-affordable units $100, so that leaves us with 331 units at $1,600 a month and 37 units at $1,100 a month. Math that out and find that the building owner will be collecting $6,355,200 a year for the 331 markets rate units, and $488,400 a year for the “affordable” units, for a total of $7,332,000 a year. The building owner in this scenario is collecting $222,000 less a year on the “affordable” housing units, which amounts to a “loss” of 3%. And their telling us this will kill building in MPLS? And they’re telling us that somehow this is costing them $8 million? Sure, $8 million over 36 the next 36 years compared to $264 million in revenue over the next 36 years.
By the way, I serious doubt is actually costs a $100 million build this 368 unit building, if building costs were really THAT high we wouldn’t be in the middle of a building boom. Even if every unit in this scenario were rented at market rate, it would take 100+ years to pay off a $100 million loan at 5% interest. No bank is making THAT loan, no investor is settling for that kind of return, and no developer is paying 20% interest.
Listen: Ryan companies is asking for $107 million in public funding for a 122 acre development on the former Ford Plant sight… Doran says it costs him $100 million to build a single apartment building on a former parking lot?
Whatever… show me the numbers.
Looks like it is a more complicated project than that – this detail is from the Mpls St Paul Buisness Journal last June with Groundbreaking:
“
Called The Expo, the project consists of a 25-story tower with 199 units surrounded by an six-story mid-rise building with 157 apartments, 12 street-level town homes and 3,000 square feet of retail space.
The $100 million luxury project includes 60,000 square feet of amenity space, including a pub, clubrooms, fitness center, spa, entertainment suites with chef-grade kitchens, a terrace overlooking the Mississippi River with a heated pool, grills, fireplaces, bocce ball and a putting green. “
Yes, again, when a developer markets a project as a $100 million project, they don’t have to explain (and nobody asks) how they arrived at that figure… it’s a promotional figure that is typically exaggerated for marketing purposes… when you’re marketing something as “luxury” apartments you don’t low ball the building costs, and you NEVER tell anyone what it actually cost to build the thing. This is just business, you never tell the customer what your actual markup is.
And if these are “luxury” units you can probably double the revenue that I calculated.
All I’m saying is we can’t make real-world policy based on these kinds of claims.
We can acknowledge by the way that there are costs associated with actually running and maintaining buildings once they’re built, but we need to know what those costs actually are, and building owner never tell us, they just keep saying those costs are going “up”. And we know that new construction is more cost efficient so there are actually savings built into the project. A 40 unit apartment built today is more energy efficient than one built in the 1920’s, or even 60’s. so utility costs are lower per unit.
I think the city, or country, or State, should create public general contractors to build affordable housing. They would work for a salary and hire private contractors to do the actual building.
We know that simply having a general contractor or builder adds at least 20% to the cost of building, and some contractors double the cost of building and then add their 20% ON TOP of that. We have a model for this in civil engineering. Why not make affordable housing a civil engineering regime? We’ve learned from previous forays into public housing what NOT to do, so we can build intelligently if we want to.
There are many questions surrounding housing availability and affordability that are not being given their due in our political system:
Why should it be the concern of government as to whether developers like Steve Minn can operate a successful business in Minneapolis when alternative development possibilities exist?
Why haven’t we already limited developers to non-profit entities? How can it be the case that a basic human need like shelter is at all viewed as a commodified road to riches for a select few?
Since apartment rental has long since passed the point of affordability for many people (with affordability being defined according to whether you can save for retirement and afford food, health care, education, transportation, leisure, entertainment, the arts) how can we not be talking about not just rent freezes but rent reversals?
Why should any apartment renter be paying more than 15-25% of income for housing?
Why isn’t there a robust social housing policy on the table? See, e.g., https://www.jacobinmag.com/2018/04/affordable-housing-crisis-peoples-policy-project
Why aren’t we on the path to phasing out landlordism? After all, landlords typically don’t earn the money they take from renters. (There can hardly be any moral or philosophical defense of this unearned form of income other than on an argument from tradition: it’s always how we’ve done things under capitalism, therefore it’s how we always have to do it.) Landlords structurally extort money on the basis of the human need for shelter. The personal property rights of renters are routinely structurally violated by landlords – a built-in form of inequality.
Why does Minneapolis allow real estate investment companies to buy properties and jack up rents to whatever they can get away with? Of course, this is typically varnished over with fictionalizing rhetoric about “What the market will bear.” This happened in our old apartment. Rents and fees shot up for no other reason than the new owners wanted to make a higher return on investment for its investor freeloaders.
Why don’t we have a robust public banking system that could help subsidize affordable housing while helpfully shutting out profiteering investors?
The failures of the current market-driven system are all too apparent. We need a radical course correction, not placations of corporate interests.
The answer to nearly every question is that the city is trying to find realistic, workable solutions than can happen soon, and overturning capitalism and the magic unicorn solutions that Jacobin and their ilk want aren’t really relevant.
I agree that we need solutions now.
However, if there’s any unicorn in the room it’s the system we have right now whose failures lie scattered all over the floor for everyone to see. And yet we’re supposed to believe that doing variations of the same thing, presumably forever, will work. To accept this proposition as true requires no inconsiderable amount of faith or even magical thinking.
Let’s remember that the US is currently experiencing a housing crisis. Homelessness is a rampant and growing problem. The situation in NYC has been called a “humanitarian emergency.”
https://www.nybooks.com/articles/2017/08/17/tenants-under-siege-inside-new-york-city-housing-crisis/
A great many individuals struggle make ends meet. Many people appear to be working mostly to afford their rents and mortgages.
At some point the dogmatic ideologues of the market must take ownership of the social wreckage that is the result of their failed policies. And if evidence has a place at all in public policy discussions, then we have to acknowledge two things:
1) Letting the market solve this problem is sheer fantasy. There’s no evidence to support the view that market forces largely on their own will address the problems of availability and affordability. If there’s any belief that utterly fails the “realism” test, it’s this.
2) Modifying the market, as this article discusses, appears on its face to be inadequate. It may be the case that no modified market solution will achieve the availability and affordability objectives we should all want. Perhaps – and excuse my heresy in questioning the most sacred of beliefs – maybe the market just doesn’t work all that well when it comes to housing. Maybe in the course of human economic experience this is a lesson we are learning.
One needn’t overthrow capitalism to achieve decent housing for everyone. But, we might have to overthrow the power of the developers to get there.
If you believe that it’s our duty to devote a significant portion of our adult lives working to ensure that developers and investors make a fortune, I have news for you.
Nonsense.
There is plenty of evidence that eliminating zoning restrictions and letting the market build improves housing affordability. That was a big part of the impetus behind the 2040 plan. The bad guys aren’t the developers – the ones building the housing – its the NIMBYs who are stopping it.
Yes Pat… and the focus on “realistic” solutions has produced exactly zero solutions for over a decade. Perpetual failure and crises aren’t actually an effective problem solving model, although clearly some people are more comfortable with failure than others.
Actually, it hasn’t been tried. The NImBYs have had their way. But the 2040 plan should replicate the success of other cities who have taken similar action.
Oh so neoliberal economics and market capitalism hasn’t been “tried”? This is doubling down on magical thinking and faith based economics.
Putting aside your characterizations, actually, it hasn’t. That’s why the 2040 plan is such a big deal. Because it scales back the artificial constraints that keep housing expensive.
Yes Pat… give “free” markets a chance.
Look, I don’t know what construction actually costs, or how much profit developers and owners end up making, but you can’t just take vague claims at face value. We simply cannot have a legitimate policy conversation without real and reliable cost information.
I don’t blame developers or owners for pushing back on policies that reduce their revenue or profit, they’re entitled to represent themselves and their best interests. But we can’t rely on industry lobbyist or business groups marketing claims and we don’t all exist for the sole purpose of making someone else wealthy. As a society we have other legitimate priorities than can supersede profit margins. ,
The simple fact is that materials and labor costs make it too expensive to produce affordable housing, especially affordable housing for the people who are truly poor, the people who make30% of the average median income of the region. The cost to build housing has doubled since 2009 and now the private marketplace simply cannot build true affordable housing. So does government subsidize housing? Or does it force developers to either subsidize it themselves through some tricky means like letting them build more or does the developer force the other people in the building to pay for affordable housing in that building. There is no free lunch – someone has to pay. But pushing it off onto developers will mean that less housing overall will be produced, which increases housing costs overall. Not a good long-term strategy.
“The simple fact is that materials and labor costs make it too expensive to produce affordable housing,…The cost to build housing has doubled since 2009”
Again, no, this is not a simple fact, it’s an industry claim that is almost certainly bogus. Builders never supply any reliable numbers to support this claim, and by and large, reporters never even ask. In the meantime we know for a fact that most costs have not doubled since 2009.
Labor: Labor costs have not doubled. Carpenters, electricians, plumbers, concrete workers, crane and tractor operators, etc. etc. have NOT seen their wages increase 100% since 2009. They may be making more money because there’s more work but their hourly wages have not increased 100%, no one is paying construction labor double what they were in 2009.
Materials: the cost of building materials, i.e. lumber, windows and doors, plumbing and electrical materials, steel, concrete, roofing materials, has not increased 100%.
Fuel and delivery: Fuel costs associated with construction have not double, in fact that may even be lower than it was in 2009. Nor are Truck drivers who deliver the material being paid twice what they were in 2009.
Listen, modern construction methods and materials have reduced costs dramatically. There are almost no brick or block layers in residential construction for instance. That brick, block, or stone facing you see on these building are basically panels of styro-foam, that are hung in place for a fraction of what real stone or brick would cost. Almost all of the concrete is poured using pre-manufactured re-usable forms that are bolted into place. This is faster and less expensive than laying block.
Plumbers run PEX for water supply lines instead of copper pipe or PVC and PEX is way faster and easier to run than copper or PVC. The cost of PEX has NOT doubled since 2009.
Modern materials and methods have reduced the amount of workers and labor that it takes to build stuff.
Electrical Material: The cost of wires, junction and receptacle boxes, circuit boxes, breakers, outlets, switches, etc. has not double since 2009.
And bare in mind the fact that builder don’t pay retail for any of this stuff, they get 10-20% discounts. When the buy 300 Anderson windows they don’t pay what you pay for the same window at Home Depot, even the cost of THAT window has doubled since 2009.
So this leave us with the land costs. Has the land doubled since 2009? No. Listen developers don’t typically pay full market value for the land they build on in the city. By and Large they get the land at a discount because the city does the necessary cite preparation before the land is sold, and the land is frequently sold at a discount in some way. Ryan didn’t tear down the Ford Plant and clean up the cite for instance, and with TIF financing and other subsidies thrown in they won’t come close to paying market value for 122 acres in a prime location next to the river.
I’m not saying land cost hasn’t gone up, but it hasn’t doubled.
Listen: if the cost of building had actually doubled we wouldn’t be seeing a building boom in the first place. Incomes, rents, and home prices have NOT doubled since 2009. The median rent in MPLS in 2009 was $929, in 2019 it’s $1,035, you work that our for yourself but ain’t nowhere near 100% increase. If construction costs had actually doubled that would have wiped out all profit for all construction. Builders don’t build at a loss, and they don’t “boom” if the margins are narrow. That’s not how “booms” work in capitalist economies. You see “booms” when there’s a lot of money to be maid, not when less and less money is being made.
So yes, we have to talk about subsidies, and rent control, and inclusionary zoning, and a bunch of stuff, but we can’t have THAT discussion in any reasonable way if we rely on bogus claims and information.
For reference:
Cement up 26% over 7 years.
https://app.authentisign.com/Instanet/AuthentisignMobile/WDV/Sign2.aspx
Thank you Dennis. However information needs context.
“Cement” is one component of concrete, the other components being sand and water. Most builders order mixed concrete, they don’t buy “cement”, although for small jobs some will mix their own on site.
There’s also different types of “cement”, Portland Cement being the most expensive. So does the information you found about cement refer to “cement”, or mixed concrete?
26% over seven years doesn’t really tell us much without the number. For instance a bag of Quickcrete costs about $3.00 today. That would mean the cost of that bag has gone up 78 cents in the last seven years, or 9 cents a year. And remember, Quickcrete is premixed, you just add water… “cement” is part of the mix, and is cheaper than premixed stuff.
And remember, builders don’t pay full retail for any of this stuff and they order it by the ton.
So maybe we can see that some cost has gone up 26% over 7 years, but without context we can’t evaluate the financial effect of that increase. On a $50k project that might amount to $300.
Instead of all or nothing, couldn’t one have inclusionary zoning, but allow developers an exemption or modification if they open their books to the city and show that it wouldn’t be possible or only partly possible on their particular project?
At the end of the day the real question is: Should we be artificially lowering the price of everything from a loaf of bread to a Lexus because some folks are incapable of earning enough money for rent and or to purchase other amenities in life? As always the question is never asked how are these folks spending their money now? Is every $ they get being stretched to its best? do these folks even know how to stretch those $? The discussion is always what can everyone else do for these folks with no discussion on what are these folks doing for themselves? As the meme goes, in America poverty is when you can’t get all the premium channels on cable!
“At the end of the day the real question is: Should we be artificially lowering the price of everything from a loaf of bread to a Lexus because some folks are incapable of earning enough money for rent and or to purchase other amenities in life?”
That’s a actually an incoherent question. Try this: Aren’t we artificially lowering the price of construction with TIF’s and site preparations because builders can’t figure out how to make enough money? Aren’t we artificially lowering the cost of labor because employers can’t figure out how to earn enough revenue to pay their bills? Etc. etc.
Now you want to audit the poor to find out if they’re wasting their money?
Would seem that if we are providing special programs etc. we are auditing the use of the taxpayers money. More like spend your money as you chose, but it you need the taxpayer to subsidize your life style shouldn’t they know how those $ are being spent? Every year when we do our taxes we need to support our tax deductible expenses to the IRS, So why should other folks getting special financial treatment not be required to do similar? .
“More like spend your money as you chose, but it you need the taxpayer to subsidize your life style shouldn’t they know how those $ are being spent?”
Sure, let’s audit the farmers.
Dude, we’re ALL subsidized by our fellow taxpayers, and yes, we get audited once and while.
I’m not sure I need to point this out but people who live at or below the poverty line aren’t doing so by “choice”, and the spending “choices” they make aren’t choices everyone else makes. The cost of living is the same for everyone so less money you make the fewer choices you have. It’s not a spending problem, it’s a revenue problem.
Usually when government subsidies something there needs to be a strong benefit to the community as a whole. No we don’t want homelessness, but I don’t think subsidizing units with lots of bells and whistles makes sense. Earlier articles do reflect that in MN, regulations add to the cost. I also have to question why encourage endless apartment building vs small homes where people can build equity. Frey says its a right for people to live in any neighborhood they want, yet show me how many middle class can afford Linden Hills or Kenwood, etc. or working class. It’s just luck of the draw when it comes to subsidized housing as well as affordable housing. I go back to its hard to ask many who struggle to pay for their own housing and don’t qualify for programs to pay for others’ housing. Yet at the same time we do need programs for at risk groups. Nor should we have to subsidize businesses whose wages don’t keep up. I remember when people did not want to live in the city, my concern is we may go back to that as more people move out in search of cheaper housing and less taxes. We also need to encourage early on support for school kids in exploring careers that pay and providing quality schools in every neighborhood.
“Usually when government subsidies something there needs to be a strong benefit to the community as a whole. No we don’t want homelessness, but I don’t think subsidizing units with lots of bells and whistles makes sense. ”
Well, regarding “strong” community benefits, maybe that’s an “ideal” of some kind, but all the stadiums and arena’s we’ve build for billionaires obviously violate that principle. We build roads and bridges out the hinterlands that 99.8% of us will never use, does THAT qualify as a “strong” community benefit?
There’s also a simple moral principle associated with the idea of civilization, we provide safety, health care, and housing simply because these are basic principles of humanity. working towards a more perfect union can be a multi-faceted project.
Someone should point out the fact that people living with these subsidies aren’t living in any kind of luxury. You have to apply for food stamps and section 8 housing vouchers, and there are income limits and waiting lists. No one is living with all the bells and whistles, the myth of welfare “queens” was just another figment of conservative imaginations. You can “audit” these people if you want to root out fraud, but states like Florida that have done so spend 5 dollars for every 75 cents of worth of “fraud”. they uncover.
So people aren’t in some financial stress from making poor decisions, like
$3-5K a year tobacco habits, they all maximize every $? Over 35 years living inner city suggests otherwise. That doesn’t say we don’t lend a hand where applicable. It suggests there are multiple solutions to problems, and continuously creating boogie men and blaming “greedy businessmen” doesn’t help the situation
Dennis, the problem is that the ones who always want to step into peoples lives and make judgments about their decisions and choices, are always those with most severely damaged moral compasses. The idea that government services should be instruments of discipline and punishment for people who don’t make choices you think they should make is moral vacuity pretending to be fiscal responsibility.
Private industry takes the risks of developing housing. Those risks are considerable. Most developers assuage the risk by having investors underwrite and fund the projects. So… the marketplace is testing the risk and reward equation all the time.
The city council is attempting to legislate around the marketplace. They have no expertise in this, and Minneapolis is not a housing market in isolation. Investors can go elsewhere.
Food is a necessity… why not legislate that 10% of all grocery customers get to pay half price for groceries…. but the grocer has to figure out how to pay for it? Same concept as inclusionary zoning proposal in Minneapolis.
Risks? As often as not capitalism socializes the risks while privatizing the profits. Developers aren’t the only ones “at risk” when they build housing, and industries usually try to minimize their risks by transferring them to someone else. No one is entitled to a risk-free environment or market.
You can’t blame business people for trying to minimize their “risks”, but we don’t all exist simply to make investors money. We’re talking about housing here, shelter is in fact a basic human necessity. This is a pay to play scenario, the “risks” are unavoidable.
As for the grocery comparison, you do realize that we subsidize food in a variety of ways to the tune of billions of dollars a year right?