Two housing buzzwords Minneapolis staff should stop using

And one word that should be more than a buzzword.

Does the above photo make your head hurt? Good, we both feel the same way. But for me, the words of the day are “functionally obsolete” and “demands of the current housing market.” If you hear the words of the day, scream real loud.

These two phrases are bandied about by Minneapolis city staffers when they erroneously believe that housing in our community needs to be demolished instead of rehabbed. And they should be stricken from any future use on the grounds that they are employed neither objectively nor by people with professional experience in the sale of real estate. I’d go so far as to say they are redundant as well.

First, what “functional obsolescence” means…

…is that a feature or design of a home is not what matches other properties around it or what people are buying in that general area. So a two-bedroom, one-bathroom home in a part of town where similar homes have been torn down and replaced with four-bedroom, two bathroom homes could be considered “functionally obsolete” even if the house is perfectly livable.

“Functionally obsolete” has also been used to describe floor plans, closet sizes, kitchens, and a variety of other home features. Sometimes the term is accurate. Outdated wiring, for example, can be functionally obsolete and pose a hazard to the safety of those within the home. Too often, however, “functionally obsolete” is used as an easy way to recommend demolition of a property before any serious effort has gone into attempts to restore it or market it to those who would do so.

In the context of “functionally obsolete,” compare what’s happening in southwest Minneapolis or Edina to demolitions in north Minneapolis. Personally, I’m not a big fan of the mini-mansions on undersized lots going up in place of otherwise viable homes. But at least in those cases, you could classify the smaller homes as functionally obsolete due to the private market creating demand for a specific kind of house in a certain area. Over north, however, we have more vacant lots than we know what to do with, we have too many vacant homes, and we have people in need of housing. Both younger individuals and retirees often look for homes that are smaller with fewer bedrooms and bathrooms. Yet these very styles of houses are deemed obsolete and torn down.

Which brings us to the next term, that the house “doesn’t meet the demands of the current housing market.” I have to wonder if the city staffers who use this phrase are licensed realtors. If so, how many houses in north Minneapolis have they sold in the past twelve months? If they are not, and I assume that is the case, then what is their professional certificaiton that allows them to objectively make such a statement? What does the city do to market their houses before determining that they do not in fact meet the demands of the housing market?

Last I checked, smaller homes with significant rehab were selling pretty quickly and getting decent press coverage in north Minneapolis. And if we are so worried about creating houses that have different floor plans, open kitchens, bigger closets, and other modern amenities that could be considered the “demands of the current housing market,” there are over 400 vacant lots in north already, most of which are owned by the city or county. Take your pick.

(And then leave the older homes to people like me, who are just fine with their perceived drawbacks. We’ll cover the demands of the current housing market too.)

And there is a third reason to throw out these two catch phrases, and that’s so that another favorite city buzzword can actually be put into action: Equity.

Many of the homes deemed functionally obsolete or not meeting the current demands of the housing market are smaller houses, containing perhaps one or two bedrooms and one bathroom. Now I look all around my home in north Minneapolis and I see Gateway Lofts already built. Common Bond apartments are under construction around the corner. Broadway Flats will be built across the street from me. And Devean George’s apartment building will go up at Penn and Golden Valley. And to be perfectly clear, I am generally supportive of these projects.

How many bedrooms will most of these units have, and how many bathrooms? If you guessed “mostly one- or two-bedroom units” and “one bathroom,” congratulations you win the equity no-prize of the day.

So let’s get this straight: It is somehow okay to heavily subsidize the construction of hundreds of one- or two-bedroom, one-bathroom housing units in my community for people to *rent.* But when little to no subsidy is required to give people in the same income level in the same community the chance to *own* a home that functions in a similar way, suddenly that’s considered functionally obsolete.

There’s another word for such tactics when they are employed in communities of color: Redlining.

I understand that home ownership isn’t for everyone, and that the funding used to construct apartment units is often very different than (what little) public money would be needed to get these homes rehabbed. But even well-intentioned policies that have a disparate racial impact can be the basis for lawsuits or other corrective action. If we’re destroying opportunities for ownership while creating very similar opportunities for rental, that does seem fundamentally unjust.

Just this week, the mayor proposed creating two positions at the city to implement “equity,” right down to monitoring where certain products are purchased. But when it comes to actively creating equitable opportunities for home ownership in my community, it looks like the city is going backwards.

This post was written by Jeff Skrenes and originally published on North by Northside. Follow Jeff on Twitter: @northxnorthside.

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Comments (22)

  1. Submitted by Joe Smithers on 12/01/2014 - 01:09 pm.

    I don’t find it nearly as difficult to understand as the author does. Obviously the city has some facts and figures that show it would cost more to fix the house than you would get back out of it and is recommending the proper thing. Things like “structural defects” are usually costly to fix and along with the other factors listed in the picture lead them to believe it costs more to fix it than it would be worth after all repairs. Seems common sense to me.

  2. Submitted by Wayne Coppock on 12/01/2014 - 01:20 pm.

    Forgive me if I missed the point, but the condemnation referenced in the picture is due to asbestos, structural issues and the fact that the costs to rehab that particular structure would almost certainly exceed the sale price you could get once the code issues are fixed. The city doesn’t condemn structures just for having old-style amenities and floorplans. I think you may be underestimating the actual cost of rehabbing some of these houses. Once certain structural issues arise it has to be something really special (as in architecturally or historically significant) to be able to fetch a high enough sale price to justify the repairs.

    Sidenote: I would be interested in seeing some aggregate data about city condemnations and reasoning if it exists somewhere. Maybe it will support your claim–but I don’t tend to accept anecdotes as evidence.

    Regarding your issue with apartment project subsidies:
    Freestanding houses are far more expensive on a per-unit pricing scale to build and maintain than multi-unit buildings (economies of scale and the such). The city has a severe housing shortage and the most economically feasible way to provide a lot of units in an affordable way is multi-unit housing. It can be condos, but the current mortgage rules for condos make condo projects much more difficult to finance, so rental apartments are what’s getting built for the most part.

    So if you have limited funds and want to get the most bang for your buck, you subsidize apartment complexes. Not to mention the tax revenue for a denser development is better for the city long term, so they have more money to reinvest. Single family homes are a luxury, not a smart investment from a macro finance perspective when compared to other housing investment options.

  3. Submitted by Connie Sullivan on 12/01/2014 - 01:45 pm.

    Excuse me, but recent studies have shown that the best way to increase the net worth of people on the bottom of the income scale is through home ownership. Not renting, which is a real obstacle to saving money. So home ownership, as Jeff points out, is the basis of financial inequity in Minneapolis, if one compares the North Side to the South and Southwest sides of the city.

    And, be careful: “structural defects” are not the same thing as “functionally obsolete.” Jeff Skrenes makes clear the difference. You have to have another agenda not to see that, and not want to see that.

    • Submitted by Joe Smithers on 12/01/2014 - 02:20 pm.

      home ownership

      I believe the author would likely sell the house not own it so the issue of home ownership vs. renting as a means to increase net worth has little to do with the article. Also, if someone with low net worth were to own the home they would not likely be able to afford to repair the defects anyway and would be led into a situation where they owe more than what the home is worth anyway. The home is likely functionally obsolete because of the structural defects. Jeff Skrenes may think otherwise but he is just assuming. It might be Jeff that has the agenda.

      • Submitted by Jeff Skrenes on 12/01/2014 - 10:36 pm.

        Sell vs. own?

        I’m not sure what you’re getting at; I already own my house and at some point I assume I’ll sell it. The property referenced in the above report is one I would advocate be sold to a private developer for $1 (or at most the market value of the land) so that he or she could fix it up and sell it to a new owner.

        We’re not going to demo our way out of the housing issues in north Minneapolis, we’re not going to get non-profits exclusively to fix up homes; they don’t have the capacity. And many of these homes wouldn’t sell immediately to owner-occupants. There aren’t enough folks out there looking to do purchase/rehab loans on a home they’ll live in. And even if there were, the way these homes get saved is through a lot of sweat equity.

        And I am unabashed in my openness about the agenda I have. My agenda is to revitalize my community through the appropriate restoration of older homes.

        • Submitted by Joe Smithers on 12/02/2014 - 08:30 am.

          home

          “The property referenced in the above report is one I would advocate be sold to a private developer for $1 (or at most the market value of the land) so that he or she could fix it up and sell it to a new owner.”

          That is exactly why I suggest the city is probably right. You would stick more into it fixing it than it would be worth and what you could reasonably get out of it when it is done. Who sells a house for $1?

          • Submitted by j Baird on 12/02/2014 - 04:10 pm.

            Who in their right mind spends $20-30K to destroy a house, then finances another $250-350K to build another house on the same spot surrounded by a sea of $80-120K residences? Then sells this house under special financing packages for a fraction of it’s value.

            Answer- You do! The City is using your Tax Dollars to do this on the grounds that nobody wants these homes. Makes that $1 program sound a lot better, huh?

            Now consider that the Northside has thousands of Vacant homes and lots. Wouldn’t you rather let someone else make the “functional” and affordability decision regarding their homestead?

            • Submitted by Joe Smithers on 12/03/2014 - 10:45 am.

              tax dollars

              People that overspend on fixing homes and get themselves behind on loans and take a loss are also a burden on taxpayers. I’d prefer to not have people owing more on their home than what it is worth and being a burden on taxpayers. Take your pick.

              • Submitted by Brian Finstad on 12/03/2014 - 09:38 pm.

                I actually know this particular home. A high quality rehab can be done on this house for well below its value. Doesn’t even come close actually.

        • Submitted by RB Holbrook on 12/03/2014 - 11:58 am.

          “Fix it up and sell it”

          I don’t see any reasonable developer buying a home–even for $1–to fix it for resale if the cost of rehabilitation is going to be more than what she would get for it when it sells. I also don’t see a bank making a loan to finance that kind of rehabilitation.

          • Submitted by Brian Finstad on 12/03/2014 - 09:40 pm.

            I don’t see it either. Because the cost of rehabilitation for this particular home does not exceed its resale and because the many people out there who rehab condemned homes typically work with cash.

          • Submitted by Jeff Skrenes on 12/03/2014 - 10:03 pm.

            I’d buy that for a dollar

            Neither do I. But many vacant homes in my neighborhood *could* be purchased from the city for a dollar or a nominal fee, and then rehabbed to the point where they are up to code, well done, and still sell for a profit.

    • Submitted by Alex Cecchini on 12/02/2014 - 01:09 pm.

      I’m really not sure

      this is true, particularly for lower income residents. I’m not saying people shouldn’t own a home, but there has been a substantial amount of evidence showing ownership is not a money-maker long-term, and this is particularly true for low-income residents. Maintenance, costly repairs, etc all have to factor into the equation along with selling costs. The profit has to be calculated in real dollars compared to the opportunity cost of what the money (down payments, annual costs outside the mortgage/taxes/insurance) could have been grown to if invested.

      Besides, the author’s point that home ownership receives very little subsidy relative to renting is flat-out false. FHA, Fannie/Freddie, the Fed buying billions in (very risky!) mortgage-backed securities, capital gains exclusions, interest deduction exclusion (which admittedly doesn’t typically apply to lower-income families who don’t itemize deductions), property tax exclusions at state and federal levels, and simple property tax rates being lower per capita (or at least, the taxes:cost per capita ratio is much lower) for detached single family homes relative to multifamily ones. Those are all distortions/subsidies that greatly outweigh the ones present in the market-rate multi-family market, and they outweigh the subsidies for affordable multifamily housing as well.

      • Submitted by Jeff Skrenes on 12/03/2014 - 10:07 pm.

        Point taken, but subsidy from where?

        I am far more concerned with local government than federal policies. The subsidies that go into tearing down a home, holding the land while it’s off the tax rolls, shoveling, mowing, etc. and then building new in a part of town where new construction often needs a $60-70,000 subsidy, that money is almost exclusively city and county funds, meaning that Minneapolis residents pay a much higher share of that subsidy than we do for, say, the mortgage interest deduction.

        I’ve done the math; every single home kept from demolition saves $100,000 in local government (usually city funds) expenses.

        • Submitted by Alex Cecchini on 12/08/2014 - 11:04 am.

          Keep in mind

          local government does subsidize homeownership. Homestead exemptions at the city/county reduce a solid chunk of property taxes taken in by the city, placing the resulting burden on commercial/apartments. Neighborhood groups have historically favored homeowners with low-to-no interest loans for improvements/maintenance/efficiency as well (the most notable and appalling ones in my mind are the LHENA programs that deferred interest and completely forgave the money after 10 years if still an owner – pretty sweet deal).

          Again, not only federal policies, but state ones as well – property tax exemption on state taxes and the state directly giving money as property tax relief to cities (yes, the recent MinnPost article definitely highlights how it doesn’t always necessarily reduce everyone’s tax burdens).

          I respect your knowledge, so I won’t outright question the $60-70k or $100k numbers. But I’m curious if that’s only for demolition where the city has taken control of the lot. I find it hard to believe that, given the permit fees/etc associated with new construction, a property like the Colfax/Lander development will not cost the city much money (if at all), especially when you consider the additional taxes it will bring in after construction is done. If you’re arguing the city shouldn’t demo a property without very solid evidence it will be re-built on in short order, I’m 100% with you.

  4. Submitted by Brian Finstad on 12/01/2014 - 04:41 pm.

    Someone made the comment that the city “does not demolish structures just for having odd style amenities and floor plans.” Actually, the city does demolish structures just for having odd style amenities and floor plans. Maybe not in thriving areas of the city, but in impacted neighborhoods, they certainly do. That is what Jeff is talking about when he says that the term “functional obsolescence” is utilized for justifying demolition.

    Believe me, I have a long history of living in impacted neighborhoods, serving on neighborhood boards that oversee these decisions, and seeing this happen. At one point, the city shared with us a “tool” they used in evaluating houses for demolition and if a house was on a postage stamp sized lot, an alley lot, had two or less bedrooms, no alley access, or only one bathroom, those were all strikes against it for demolition.

    When my own life fell apart after a break up, I moved into a little two bedroom “worker cottage” type house (one bedroom was TINY) that had no alley access and was under 1,000 square feet. Back in the irresponsible days of the “Neighborhood Stabiliztion” money (thank GOD that is drying up!) that house would have been swept up and demolished because the city would have found it to be “functionally obsolete.” Yet it was TRUE affordable housing. I was “right sizing” into what I could afford. Not finding a big house that was somehow subsidized or something was manipulated to make it affordable for me to be able to live there. And I did survive and rebuild my life and that TRUE affordable housing opportunity was a part of what helped me to do that. Every time we demolish a house because of functional obsolescence, we are removing a non subsized affordable housing opportunity from our housing stock.

    All of the other issues with that house used in the example are nothing a typical rehab wouldn’t take care of (there is no “friable” asbestos BTW – the asbestos they are talking about is Category 2 and routinely taken care of). There are no major structural issues with that house.

    It also is not true that fixing the house costs more than what it would sell for. I know and have evaluated this very house. It is a good candidate for rehab. Demolition in North MInneapolis is heavily subsidized. Every house that is saved from demolition saves at least six figures of public money. First of all, demolition is going to cost beetween 15 -25K (depending on the size of the house). The lot then remains in public ownership and generates no tax revenue. It is on the public dime to take care of illegal dumping pick up, grass cutting, sidewalk shoveling, etc. Then, *if* the lot is rebuilt upon, because the market does not support new construction in North MInneapolis, it requires 60-80K in subsidy per house to rebuild. People always say “the numbers don’t work” to rehab a house. That is simply not true. With sweat equity and private investment they do – if bureaucracy will only get out of the way. What is real though is that the “numbers don’t work” for demolition.

    In terms of there not being a place for “functionally obsolete” houses in today’s housing market, I will share that I was the Realtor representing my friend Robin in the purchase of a house in North Minneapolis that would have otherwise gone to tax forfeiture and have been demolished and today would be one of those vacant lots sucking up public resources. The purchase price was $1.00 along with paying off the back taxes (which were not significant). The house was on a postage stamp sized lot, on an alley, and although it had two bedrooms, one of those two was about the size of some people’s closets. It had a steep quirky staircase (which I found charming BTW). The rehab however was well done, preserving original character where possible and adding in other character and amenities in interesting ways. It sold for a price that was near double what conventional wisdom would have a thought a house in that location with those circumstances would have sold for. The reason: Good design. It was the most adorable house you could imagine. Singles, young couples, empty nesters, etc. are attracted to small houses. They are NOT functionally obsolete. They are affordable and DO fit a niche in our current housing market.

  5. Submitted by Jeff Skrenes on 12/01/2014 - 10:31 pm.

    A Younger Me and a Home on 30th/Dupont

    Back when I was the housing director for the Hawthorne neighborhood, and not quite as strident of a perservationist as I am now, I fell into the “functionally obsolete” trap and it almost resulted in a demolition of a perfectly viable structure. The city asked for the neighborhood position on a house at 30th and Dupont Avenues North. It was for sale and they recommended acquisition for demolition on the grounds of the buzzwords in this article.

    Well, I was able to get into the property and…actually agreed. The floor layout was just plain weird, there weren’t much of any closets, and there wasn’t much of historical significance on the interior. I, and the neighborhood, struggled with what to recommend, because from the exterior the house looked really cute and it was structurally very sound. But not too many bedrooms and again, that floor plan…I just couldn’t figure out how someone would make it work.

    Well, because we delayed our recommendation, someone had acquired it before the city could. (Seems to have met the needs of the housing market there.) And the house is occupied by a family now, and has been for years. I wonder if they know it’s functionally obsolete and needs to be demolished?

  6. Submitted by Jeff Skrenes on 12/01/2014 - 10:39 pm.

    Asbestos and demo/rehab

    One last thing that irks me. Finstad did point out that the asbestos in the property mentioned is non-friable and more easily remediated than category 1 asbestos. However, what do you think happens to the asbestos during a demolition? It’s remediated in much the same way as it would be during a rehab. Asbestos abatement is often another red herring in the demo vs. preservation argument.

  7. Submitted by Alex Cecchini on 12/02/2014 - 01:18 pm.

    Fair tradeoff

    I’ll agree with the author that ‘functional obsolescence’ and ‘not meeting current demands’ are pretty bogus reasons to demolish a house, when taken on their own. While I respect many city leaders’ and staff collective wisdom and experience, even a team of 100 doesn’t possess the all-seeing eye, knowing exactly what the market will and won’t bear, and many of these ‘obsolete’ layouts/features may just be someone’s market rate affordable housing option. This is why I also disagree with a DOT using the term “functionally obsolete” – it’s just DOT speak for more capacity without exploring other options in response to congestion/etc.

    So let’s stop using those terms. But for the exact same reasons the author doesn’t like a gov’t official determining what can meet market demands, we also should make a tradeoff and avoid using terms like “neighborhood character” and “livability” when shaping housing policy in our city.

    “Character” is an extremely fuzzy word that could mean literally anything to anybody. Even if a democratic process comes to a majority conclusion about what gives a neighborhood character, who is to say that 10,000 other people who want to live there don’t wholly disagree? Why should we codify something in that may limit the market from meeting the demands of people to live in a neighborhood? What are the consequences of those policies (example, look to San Francisco and see what holding back supply does to prices)? You and 100 neighbors might find a bunch of craftsman style, detached homes full of character and the most livable environment for you, but a developer may be willing to bet that many others find row homes or 6 story apartments ‘livable.’ (in the same vein, let’s stop using the term “greed” to vilify developers – their motive of profit also helps people find a place to live in the neighborhood they desire most. People who use zoning/etc are just as greedy in the sense that they want to use city regs to keep something they don’t like/want out – straight up regulatory capture).

    Does that sound like a fair trade-off?

    • Submitted by Jeff Skrenes on 12/03/2014 - 10:17 pm.

      I’ll trade halfway

      I like your point about the word “livability.” The thrust of this article was to try and rid these city reports of words that mean whatever someone wants them to mean when they have a particular goal in mind. And livability falls into that category.

      “Character” is a fuzzy one. I see where you’re coming from with its misuse. But I believe that the character of a neighborhood is something that can be defined and in many cases should be preserved. I wasn’t a big fan of the recent conservation district ordinance, in part because of the fuzziness of “character,” but mostly because its language did virtually nothing to help preserve homes in north Minneapolis where we need preservation the most.

      And “greed” is a tricky one too. Look, I want a model where rehabbers can come into north Minneapolis and make money fixing up homes the right way. And I believe that can happen. But I”m not preaching the Gordon Gekko gospel of greed is good in all cases. The reacent Healy home getting demolished for new condos, for instance, is something I find disgusting. Where did the men go who were living there before? No one knows. But the owner and developer get a LOT of money, so hey, it all worked out. I think not.

      On the other hand, I have seen times when historic preservation was misused in Minneapolis – as much as I personally like to see historic things preserved. The recent development proposals in Dinkytown were thwarted due to a “historic” designation that had nothing to do with the structure of a building or what happened inside. People didn’t want that development (I agreed with them on that) and used the wrong tool (historic designation) to get what they wanted. I thought that move cheapened future legitimate calls for such designation and preservation.

      • Submitted by Alex Cecchini on 12/08/2014 - 11:11 am.

        Why is the Colfax

        ..demolition disgusting? The new building will have units charging sub-$1000 rents, for brand-new construction. The folks shouting concern for the residents who were evicted seem to forget that out of the other side of their mouth they were supporting the purchase by a rehabber who would have turned it back into a single family home, kicking out those very same folks in the process (not saying you specifically follow this line of thought, but most neighborhood opposition did – their facebook comments/posts, spoken words in videos from the vigil, etc were all very clear). If we’re serious about meeting that market for housing, then we should be pushing to re-legalize single room occupancy housing, and people chastising Councilmember Lisa Bender should also open their eyes and see she just successfully pushed through another potential low-cost housing solution (ADUs) that also happens to make large/historic/expensive-to-maintain houses more economically feasible with a rental property out back.

        Beyond that, I appreciate your honest and pragmatic responses. I think we’ll probably never agree on how much preservation is needed (I look to places like Tokyo that churns its housing stock like crazy but still has a vibrant culture and wonderful urban environment), but your assessment of the players and actions seems fair to me.

  8. Submitted by beryl john-knudson on 12/04/2014 - 09:34 am.

    Are we becoming a state where diversity in housing or

    …or otherwise is a dirty word?

    If asbestos abatement were to become prime mover of classifying “functionally obsolete” structures there are a lot of state and federal; old institutions that may qualify I suppose. Skrenes makes some wise issues here, seriously, and I agree.

    Ticky-tacky sameness sucks the soul out of old neighborhoods for the sake of new development and the almighty dollar, yes sir.

    But then nobody will notice until they look in the mirror and notice a genetic mutation of the human form that begins to look like the flat faced army of stick people on an architect’s drawing board…way to go hey and call our national tribe the faceless, mindless Americans dwelling in copy-cat boxes again, yup…

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