Minneapolis renters face huge affordable-housing shortage

MinnPost photo by Justin Miller
LaQuita Alexander had been on three waiting lists before recently landing an apartment she could afford in Minneapolis.

This article was produced in partnership with students at the University of Minnesota School of Journalism and Mass Communication.

A combination of low vacancy rates, low wages, and a lack of funding in Minneapolis has created one of the worst affordable rental shortages in more than a decade for low-income renters.

“You have to look at the market and understand what it is telling you. The wait-list is a mile long, there’s a low vacancy rate. Obviously there’s a shortage of affordable housing,” said Tom Streitz, director of the Minneapolis Community Planning and Economic Development (CPED) department. “It’s what I would call a cocktail for disaster for extreme need.”

Streitz estimates that the need for affordable housing among low-income renters has more than doubled since 2009, the latest year for which U.S. Housing and Urban Development data exist. That year, about 14,000 low-income Minneapolis renters were without affordable housing.  

Since then, rental prices have risen faster than income – especially for low-income residents – and vacancy rates have decreased dramatically. Meanwhile, the city has failed to meet funding goals for its Affordable Housing Trust Fund, and critics say that the bureaucratic process for financing development of low-income rental units makes it difficult to meet the increasing demand.

Though housing experts like Streitz can only estimate the housing shortage based on such factors, other data show a worsening trend that began at least a decade ago.

About 41 percent of low-income renters lived in affordable units in 1999, according to a “OneMinneapolis” report by the Minneapolis Foundation. By 2008-10, that number had plummeted to 20 percent, the report said.

Housing is considered affordable if a household is paying 30 percent or less of its monthly income on mortgage or rent. If housing costs step over that threshold, the share of income that can go toward necessities such as food, medicine, and child care often is inadequate.

“The housing costs keep rising, and they’ve been rising faster than incomes, especially for lower income people. This creates an ever-growing gap between what many people can afford and what is out there in the housing market,” said Edward Goetz, director of the Center for Urban and Regional Affairs at the University of Minnesota.

Rising prices, long waiting lists

LaQuita Alexander had been on three waiting lists before recently getting into an affordable apartment. For nearly five years, she bounced around Minneapolis, living for short times in apartments she couldn’t afford or with friends or relatives. She lived in a shelter for nearly three months. At one point she found a subsidized apartment, but she was only allowed there for two years.

The 26-year-old mother of three even looked into moving to North Dakota to find an affordable place, but the waiting list was too long for a nonresident of the state.

“I feel like there should be more affordable places, especially if you have more than one kid,” Alexander said. ”The waiting lists shouldn’t be so long.”

The rental shortage in Minneapolis reflects a national trend. Nearly half of the country’s renters paid more than 30 percent of their income on rent, a 12-percent increase over a decade, according to a Harvard University study.

Increased unemployment, stagnated wages and home foreclosures from the Great Recession added more families like Alexander’s to the waiting lists, while rental prices increased.

Minneapolis rental prices rose by 23 percent from 2006 to 2013, while average weekly wages rose just 16 percent in about the same period, according to the city’s Minneapolis Quarterly Trends report. Wages for many lower-paying jobs, such as retail and food service, grew far less than the average.

A renter would need to make nearly $20 per hour to afford the average rental unit in Minneapolis, assuming affordability means spending 30 percent of one’s income on rent. A renter making minimum wage would have to work 110 hours a week.

Meanwhile, rental vacancy rates have dropped from about 7 percent in 2009 to about 2 percent currently. The low rates, signifying high demand, make it hard for those like Alexander to find affordable housing. A healthy rental market – one that strikes a relatively fair balance of supply and demand – is 5 percent, according to Streitz.

Average rent in MinneapolisSource: Minneapolis Quarterly Trend reports

The Minneapolis Public Housing Authority has about 10,000 people on its waiting list; the Section 8 voucher program has more than 9,000 on its waiting list, according to officials. The average wait time is five to 10 years for Section 8, and up to seven years for low-income public housing.

Private developers of affordable housing see the shortage regularly.

“We have dozens and dozens of people calling and saying that they’re looking for a decent place to stay that’s affordable,” said Alan Arthur, president and CEO of Aeon, which is a Minneapolis-based nonprofit developer, owner and manager of affordable housing. “That’s frustrating and disappointing.”

Barbara McCormick, who directs Project for Pride in Living’s affordable housing program, sees a similar problem. She said the nonprofit is seeing its highest occupancy rates in about 15 years, with little turnover. A telling example, she said, is the 120 names PPL had on the application list for a new 40-unit development.

Government help dwindling

Key sources of funding for affordable housing have declined in recent years, in large part because of declining federal funding. The city’s main fund is the Affordable Housing Trust Fund, made up mostly of money from federal Community Development Block Grants and the federal HOME Program Fund.

The federal funding to Minneapolis has declined steadily over the past decade, and the money available for affordable housing has declined with it. The city has met its $10-million-per-year funding goal for the Affordable Housing Trust Fund only once since 2005.

Former Minneapolis Mayor R. T. Rybak’s 2014 budget plan allocated only $6.2 million, the majority of which comes from federal funds. However, on Dec. 4 the City Council’s budget committee called for an additional $1.5 million to be added from the city’s development account.

“Given the current situation, we really need to get as close to that [$10 million] number as possible. Minneapolis is being dominated by very high-end development right now,” Streitz said. “When you’re in a city that is growing like Minneapolis, there’s a high demand for land. Nobody wants to build affordable housing on their own.”

The fund, which provides low-interest loans for affordable housing, is often the first place developers look to offset costs.

“We’d do five times, 10 times the number of units a year if we could,” said Aeon CEO Arthur. “But the resources aren’t available.”

Minnesota Affordable Housing Trust Fund yearly fundingSource: City of Minneapolis

From its creation in 2002 until 2012, the city invested about $73 million in the fund while attracting about $777 million in additional outside investment. The result has been the development of more than 6,000 affordable units.

“I would hate to think what would happen had we not been doing what we’ve been doing for the past 10 years,” Streitz said.

The state, the Metropolitan Council and Hennepin County also provide financial incentives. But developers say the patchwork of funding can create a bureaucracy that slows down development.

“You know you have a problem when it takes three to five years to do 50 units of affordable, quality housing,” Arthur said. “You have too many sources making a deal too complicated.”

Said Streitz: “There’s not enough in any one of those pots by itself to do the deal . . . One of the only ways for that cycle to speed up is for one of those agencies to fully fund a project, and we simply don’t have enough money for that.”

Path to more funding?

To some who advocate for more access to affordable housing, the root of the problem lies beyond just a lack of funding.

“The housing trust fund for the city of Minneapolis is just a symbol of sentiment, really, of a bigger problem,” Arthur said, “which is a misdirection, a misprioritization of the resources in our community.”

State and federal tax incentives to buy second homes, Arthur said, are examples of a misguided focus. “Other resources should be directed to people who don’t have homes at all.”

U.S. Rep. Keith Ellison introduced a bill in March to address the problem. His legislation would, in part, eliminate tax deductions for mortgages over $500,000 and direct the government savings – estimated at nearly $200 billion over 10 years – to programs addressing the national rental shortage.  

The bill has been stalled in committee since March.

In Minneapolis, Mayor-Elect Betsy Hodges ran on a campaign that promised to meet the funding goals of the city’s Affordable Housing Trust Fund. She has support from City Council member John Quincy, who said he’ll continue to advocate for adding money to the trust fund from other city sources.   

Streitz said cities must be creative, considering, for instance, setting aside more land for affordable housing, creating incentives for high-density development and making zoning changes. “I think it means that cities have to be much more nimble and creative in how they make resources available for housing,” he said.

Justin Miller is a student at the University of Minnesota School of Journalism and Mass Communication.

Comments (9)

  1. Submitted by Matt Haas on 01/14/2014 - 09:31 am.

    Well then…

    Ask and ye shall receive. Good illustration of the issue, fail to see a real solution beyond “well we need to find the money”. One thing is certain, putting up another hundred luxury condo buildings won’t do it.

    • Submitted by Alex Cecchini on 01/14/2014 - 11:06 am.

      New/luxury units

      are not the only solution, but it’s painfully obvious we have a huge mismatch between housing supply and demand in this city. New units (regardless of quality/finishes) coming on the market lowers the market equilibrium price. The more that can come on, the better, since they’ll be competing with each other on price. They also help keep older units from charging higher rents if their finishes/amenities aren’t up to par with what’s coming on the market today. Older units with lower loans (or none at all if they’re paid off) have the option of not investing in higher quality finishes and just lowering rent instead while remaining profitable. The problem is that we’ve constrained new market housing for decades through neighborhood/community efforts (height restrictions, architectural reviews, historic preservation, overly-firm use zoning that doesn’t respond to the market, etc), so there is a gap in supply from 10, 20, 30 years ago for housing that would be middle-to-lower income housing today.

      We also need solutions that don’t rely on larger developers. We’ve priced individual contributors to the housing market out. The inability to easily and cheaply create laneway houses, above garage apartments, small commercial units with 1-2 stories of housing above, etc can all add up to housing supply. Lot coverage and FAR maximums, minimum dwelling unit size, (up until recently) minimum lot area per dwelling unit, and most importantly parking minimums have all made it impossible or not economical for would-be housing entrepreneurs to compete in the housing market.

      Of course, these are housing market-only issues and won’t solve the issue entirely (not by a long shot). Transportation needs would have to be addressed to support car-lite or no-car living, to say nothing of the potential influx in people. Larger structural issues of where jobs are located would remain a challenge. And of course the wage/cost of living beyond H+T is entirely outside the capability of a city to handle. But that shouldn’t stop Minneapolis and St Paul from liberating the market as soon as possible.

  2. Submitted by Karen Sandness on 01/14/2014 - 11:21 am.

    Right, there are apartments going up all over the city

    but then you look at their websites and find that they start at $1200–for a studio– and go up to $4000 for more than one bedroom.

    One can only hope that there aren’t enough affluent people to rent these places and that the prices will come down.

  3. Submitted by Janne Flisrand on 01/14/2014 - 11:40 am.

    Free Stragey suggestion

    Reduce parking requirements! It costs about $20,000 to build an underground parking space in Minneapolis. AND many of those build parking spaces go unused, especially in affordable housing. Why are we using public funds to build an unneeded amenity?

    Another alternative — that could go hand in hand with that one. Allow developers to meet their parking requirements by leasing from another nearby property that has excess parking capacity.

  4. Submitted by David Markle on 01/14/2014 - 12:38 pm.

    Shortage of what?

    It should be made clear that it’s probably a shortage of apartments with three or more bedrooms, which has been the case for quite some time.

  5. Submitted by David Washburn on 01/14/2014 - 02:53 pm.

    Affordable housing

    I agree we need more quality affordable housing options. I am an investor in four market rate rental projects in Minneapolis. Three are recently completed, in the rented-up phase, and one is under construction. From this perspective, let me offer these observations:

    One, for all kinds of reasons there is pent up demand for apartment housing which is demonstrated by both the current levels of market rate apartments being built in Minneapolis and by the affordable housing waiting lists cited in the article. However, one driver is the strength of the local economy. Minneapolis’ economy is currently one of the best in the country and young people are moving to Mpls for high paying jobs and employed young people are moving out of their parents homes. Both of these factors are increasing demand for apartments. Overall, the strong economy and the attraction of young people to the City are good things in the long run, however, in the near term it has caused housing shortages and rising rents.

    Two, market rate apartments aren’t the ‘enemy” of affordable housing. In fact, it will turn out that this current building boom will ultimately meet and exceed the demand for unsubidized housing and market rate rents will stop increasing and probably will decrease as supply exceeds demand. As an investor in market rate apartments I can already see absorption rates and time to lease up slowing down. In the past two years, market apartment projects leased up quickly without incentives like free rent or free parking. That’s not the case now, where many recently completed projects are offerring incentives for new tenants.

    Three, even though the apartment industry experts publicly are saying there is endless demand for high end market rate apartments, I would wager that the truth is that there are so many apartment units under construction or in the pipeline currently, that within the next several years there will be vacancy rates exceeding 5% and there will be lower rental rates coming.

    These lower rates will start at the higher end apartments and work there way down the various levels of apartments. While not a complete solution to affordable housing, the coming overbuilding of market rate housing will lower rental rates across the board and will help solve the need for more affordable housing in Mpls. I feel sorry for the folks on waiting lists but relief is coming.

    Four, at current prices for materials, construction labor and land, it is not possible to build apartments without subsidy that can rent for less than $2+ dollars per square foot per month. While the City says it wants more affordable housing, current zoning rules and City bureaucracy keep building costs high, and as a result, rents are high. If the City were serious about getting more affordable housing built, they would figure out how current policies create unnecessary cost in building unsubsidized affordable housing and enact changes to poicy that would make it easier for developers to build apartments that could rent for less. Bad policy and too much bureaucracy make it difficult for non-profit and for profit apartment builders to provide affordable housing.

    Five, it has always seemed to me to be bad tax policy to make interest deductible on mortgages over $500k. I’m sure it never occurred to anyone that mortgages would ever be so high when the policy was originally drafted, but it doesn’t make any sense now. However, unless legislation was drafted to lower the deductiblity of mortgage interest and specifically direct the resulting tax revenue towards building affordable housing, these new tax revenues would likely go towards funding wars, health care and general obligations. Details matter so I hope Rep Elison has directed those tax revenues in his bill to affordable housing. If not, they aren’t likely to be a part of the affordable housing solution.

    • Submitted by Matt Haas on 01/14/2014 - 05:10 pm.

      Whilst I defer to your expertise

      I think looking at things from such a lofty perspective doesn’t address the actual day to day experience of renters. I haven’t been a renter for going on seven years now (yes I keep track as I absolutely hated rental living, neither here nor there). That being said, I keep an eye on the rates “just in case” the need were to arise. Throughout the time I spent renting, good economies and bad, my rate never ceased increasing. Multiple styles of rental property, multiple locations, no difference. Looking at rates now, this far down the line shows me that the same has been occurring ever since. Inflation plays a role of course, but that matters little to I or anyone else who’s wages have stagnated and simply see the rental rate raking a larger and larger chunk every year. Now I’m sure you’ll show statistics and such to refute my anecdotal evidence but I urge you to take a look on the ground and see if those statistics bear out in real people’s lives, and in the stories they tell of their experience. I’ve heard the promise of “lower rates are coming” for nigh on 2 decades now, how much longer will the struggling have to wait?

  6. Submitted by Rachel Kahler on 01/14/2014 - 08:04 pm.

    I have an idea

    Build more government housing and stop subsidizing rent. I know it sounds cruel, but one of the reasons lower quality housing prices are increasing is because they can. The cash is available to pay for for-profit housing. Take out the middle man. Investor above offers an alternate–keep building overpriced, low quality “luxury” apartment complexes until there are too many. Then wait for the market to work. In the meanwhile, let’s just hope no one freezes to death at the doorstep of these new “luxury” apartment complexes. (As someone who has lived in such a “luxury” complex, I can attest that the only thing luxury about them is the price.)

  7. Submitted by mark wallek on 01/15/2014 - 09:34 am.

    Rent control

    In the push for the rental income my neighborhood of single family homes here on the northside has been under a quality of life assault. You can easily spot a rental house from a resident owners house, because while the resident owner is investing in the property, maintaining and improving it, the absentee landlord is taking his profit away, and you can see it in the yards and structures. On many rental lots, evidence of storm damage from the tornado still remains unrepaired. Not so the resident owner properties. A person tends to treat the property differently when actually living on site, so an absence of absentee landlords is a most desireable circumstance. With rent control, renters will not be victims of market forces and landlords will have a different mindset going in. Perhaps some will even sell to resident owners.
    That would be a service to the neighborhood.

Leave a Reply