No slowdown for teardowns in Minneapolis under new housing rules

MinnPost photo by John Whiting
A new home being built on the 5000 block of Xerxes.

In March of 2014, shortly after taking office representing the 13th Ward in 2014, Minneapolis Council Member Linea Palmisano kicked a hornet’s nest, pushing for a moratorium on teardowns of existing homes in some of the city’s most affluent neighborhoods, such as Linden Hills and Fulton. The point was to slow down the trend of demolishing existing homes and replacing them with homes that were often much larger — and much uglier.

The moratorium was lifted once the city crafted a “construction management agreement” to deal with the day-to-day complaints by neighborhood residents. And later in 2014, new zoning rules were added to respond to the height, massing and appearance of the replacement houses.

All of which is why, after getting plenty of grief over the last two years for trying to do something about teardowns, Palmisano wasn’t going to stand for being accused of doing nothing in the pages of Governing Magazine.

While the article, in the magazine’s December issue, was focused on next-door Edina, it also included a dismissive aside about the 2014 moratorium put in place by the Minneapolis City Council: “They had to pull the plug on the idea less than a month later in the face of widespread complaints,” the article noted.

In response, Palmisano wrote to the magazine: “I believe that the 16 zoning code changes I have authored, and, construction management agreements we were able to move into place  … have shown quite a bit of betterment of quality of life as these changes happen in our neighborhood.”

It is understandable that Palmisano would be sensitive about the issue. Winning council support for the moratorium — which affected teardowns and large remodeling projects in five southwest neighborhoods — was one of the first issues she took on after taking office in January 2014. At the time, she was responding to horror stories about teardowns and so-called Monster Houses built in their place. It wasn’t just noise, dust, debris spilling into neighboring yards, or the dumpsters and portable toilets placed where they shouldn’t be. The complaints also concerned public health and safety issues, including disruptions to the water table and damages to foundations of nearby homes.

While public hearings that resulted from Palmisano’s push offered a chance for residents to vent their concerns, they also drew builders, who said they were fulfilling a demand for larger and more-modern homes in a part of town where many mid-century houses were worth less than the land they occupied. Urbanists complained that the moratorium was a response to people who didn’t want the city to grow, to change. And Realtors noted that buyers blocked from building what they wanted in Minneapolis would take their projects — and tax dollars — across to Edina, which has embraced the teardown trend.

When the moratorium was eventually lifted, in the spring of 2014, Palmisano said it was worth the political pain, even though the process “felt a little bit like standing in front of a train.”

Now, 15 months after the new rules became effective, an odd thing has happened. An equilibrium has developed, balancing concerns of the neighborhoods and the demands of the marketplace. Short of stopping teardowns completely, the system seems to have successfully created a way to quickly respond to construction problems, even while it assures that the new, larger houses don’t become monsters.

“There are still problem developers and there are still problem properties,” Palmisano said. “But I think that between the toolkit and the construction management rules, it has gone a lot better.”

A short-lived moratorium

The moratorium took effect in March of 2014, after it was introduced by Palmisano and approved by a unanimous council. To remain in place, however, it would have needed to get the approval of a council committee and another vote of the full council.

Council Member Linea Palmisano
MinnPost file photo by Terry Gydesen
Council Member Linea Palmisano

But before that could happen, city staff drafted a construction management agreement that put building standards in place. That agreement addressed builders hours of operation, noise, posting of contact information, neighbor notification, storage of equipment, crew parking and even a requirement for a pre-construction meeting between the builders and neighbors.

Later a “Toolkit for Neighbors of New Construction” was unveiled, a guide to help neighbors navigate the bureaucracy, explain the construction management agreement and give advice as to how to exercise their rights. (It ended with advice to “Try to avoid taking your frustrations out on the people who have chosen to live on your block.”)

Then, on Oct. 1, 2014, 16 zoning code changes took effect, rules that governed what the new houses could look like, how they sit on the lot, how much of the lot they could occupy as well as their height and mass.

Construction confusion

Before the zoning changes could take effect, there was a rush to the permit counter by builders who preferred the old rules to the new. In September of 2014, 24 permits for new, single family homes were issued. Of those, 14 were issued during the last week of the month.

The glut of September permits led to some confusion during the following construction season. “One of the things about last year and last building seasons is: I wasn’t sure when a house was being built whether it was the old rules or the new rules,” Palmisano said last week. “There were some I could tell because there were flagrant things about them that we made sure can’t happen anymore. But there were still brand new houses being built under the old rules.”

Eventually, though, as those permits were used or abandoned, more and more of the new homes fell under the post-moratorium system. In a report to the city council on the one-year-anniversary of those rules taking effect, Jason Wittenberg, the city’s manager of land use, design and preservation, said the transition went reasonably well. That might have been foreshadowed by the fact that only one person testified against the new zoning rules when they went before the planning commission. “Entering the process, we would not have anticipated that level of consensus given the range of issues that have been brought forward,” Wittenberg said.

The new rules include limits on height; on how high basement foundations can stand above the natural grade of the lot; demands for larger side-yard setbacks; and ratios to assure that houses take up less space on lots. Builders also must include some combination of features favored by the city, from including a basement and a detached garage to using higher quality exterior materials and keeping a house within range of a neighborhood’s predominant house height.

The rules discourage attached garages in another way as well: by counting their square footage in the “floor area ratio,” which measures the amount of square footage that can be built as a relationship to the size of the lot. Moreover, front “tuck under” garages are not allowed if the lot has alley access.

Wittenberg said architects and builders seem to be able to abide by the rules. “They have either come in the door having met the standards or were amended in a way where they met the threshold,” he said.

There remains an ongoing issue around what are termed “virtual teardowns,” however. Some builders have taken existing homes nearly down to the foundation and built from there. But oftentimes those foundations do not meet the new side-yard setback requirements. The city is continuing to look into ways to enforce a requirement that any demolition that takes down more than 60 percent of a house constitutes a teardown, and therefore must meet the new rules.

Builders reaction

Andrea Corbin has reason to dislike the new rules. She had to take down a house that had been framed to the second story after the city noticed that it was too tall by 18 inches. Corbin, who said she does six to eight teardowns a year, mostly in southwest Minneapolis, said the violation was caused by a surveying error, but didn’t fight the order to take it down and start over.

While a few other houses were stopped at the foundation level, the house at 40th and Thomas might be considered the first teardown of a teardown. Yet Corbin, who owns Contract Design, considers herself a fan of the new rules. “Overall, I think they’re great changes,” she said, calling them a “happy medium” between concerns of neighbors for their neighborhood and the response by builders to market demands for larger and more-modern houses.

Corbin estimates that meeting the rules — both for design and construction management — adds about $15,000 to the costs of building. But the houses she builds sell in the million-dollar range. “It’s like anything else,” she said. “When it’s new you have to change the way you do things. Once you get used to it, it’s no big deal.”

A builder with a less favorable view is Loren Schirber, the owner and business manager of Castle Building and Remodeling, who said he lost a $400,000 contract because the remodel his clients wanted wasn’t allowed under the new regulations. The problem arose when his clients, looking to remodel their house to help them “age in place,” wanted an attached garage at the rear of the house. But because the square footage of attached garages are now included in the floor area ratio, the plans turned out to be 424 feet over the limits.

5100 block of Abbott
MinnPost photo by John Whiting
A new home being built on the 5100 block of Abbott.

Schirber wrote Palmisano and other council members and said the rules not only cost him a contract, but are likely costing the city economic activity. His clients decided to sell and do a project in nearby Edina.

Only Palmisano wrote back: “From our perspective, building bulk is building bulk — and excluding attached garages from FAR [floor area ratio] actually encouraged the building of attached garages when we’re trying to incentivize detached garages as the traditional urban form.”

Schirber said he remains frustrated and disappointed. The type of project he lost is outside his regular business of smaller remodels. But he said he is trying to expand into what he termed a “Property Brothers” line of work, where he gets the client first and then helps them shop for homes to remodel into what they are looking for. “A big job is nice,” he said. “It is easier to sell one $350,000 project than 30 $10,000 projects. So they hurt when you lose one.”

Schirber said he understands the issues and “gets” the new rules, especially as they are applied to the street and side elevations  — those visible from front of the house. “But if people want to ruin their (back) yard with an attached garage, it’s their yard,” Schirber said. “It doesn’t effect the front of the house.”

One impact of the teardown phenomenon is in property tax collections. Each $250,000 house that is replaced with a million dollar house adds significantly to the taxes paid. A trip down the 5300 block of South Chowen Avenue in the Fulton neighborhood illustrates that. A house on the corner sold for $250,000 in March of 2014; its replacement sold for $756,000 one year later. Another house sold for $260,000 was replaced by one that eventually sold for $800,000.

Though taxes lag increases in value, the $250,000 house paid $4,600 in taxes a year ago. A neighboring house that sold for $785,000 in the summer of 2014 is paying $12,204.

No slow down

Jamie Long is the chair of the Linden Hills Neighborhood Council, the same position Palmisano held before being elected to council. He said there does not appear to be any lessening in teardown activity, and the rebuilding in the area west of Lake Harriet and south of Lake Calhoun remains a hot topic in the neighborhood.

“I hear fewer complaints, although there are still complaints on a lot-by-lot basis,” Long said. He says the thinks the new rules strike a balance between complaints about height and mass and the demand for new housing. He also said he thinks the problems surrounding water table penetration and ground water infiltration have been reduced.

And while he said the new houses add to the housing mix in the neighborhood, something he said “makes a neighborhood interesting,” he does worry that existing smaller houses will be lost completely.

“I hope it doesn’t become every single lot filled to the brim,” Long said. To promote the mix of housing in Linden Hills, where one-third of residents rent their homes, the association is sponsoring a “Little Homes Tour” this summer to highlight smaller homes which are defined as less than 2,000 square feet.

Larry LaVercombe has watched the teardown controversy from both sides. A former chair of the Linden Hills Neighborhood Council’s zoning committee, he is also a real estate agent with an office in the area.

“The tension that I was tracking was the tension between neighbors who wanted to maintain the quaint community aspects of the neighborhood and the perceived need of the city to increase density and the market for bigger houses,” LaVercombe said. He described the new rules as “enormously successful.”

“While Councilmember Palmisano took a lot of heat for the moratorium, the serious nature of the moratorium is what got the builder’s attention,” he said. “I’m for the changes that are attempting to balance issues of the historical makeup of the neighborhoods relative to the fact that it has become the most attractive neighborhood in the city for people who want to build their own home. You can buy a lot for $300,000, and for $300,000 more build a family home worth $900,000.”

Did the rules slow demand? “Not in the least,” he said.

“Some developers have decided they don’t want to work in the neighborhood, but there are plenty of others. Builders and Realtors are clambering for properties.”

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Comments (10)

  1. Submitted by Michael Hess on 01/29/2016 - 06:04 pm.

    The moratorium moratorium

    Remember the moratorium as proposed by CM Palmisano was to last a year with extensive study to come out the other end with code improvements. Thankfully more seasoned politicians got involved and cooler heads prevailed,.

  2. Submitted by David Markle on 01/29/2016 - 06:12 pm.

    A related subject

    As usual a fine article from Peter Callaghan. It reminded me of another issue that stayed before some of us for many years, that the city consistently tore down more low income housing than was getting built (and didn’t like to admit it). I wonder how we’ve been doing lately in that respect.

  3. Submitted by stuart klipper on 01/30/2016 - 12:59 pm.

    That’s my house! Not the new-build,but the yellow one next to it

    I never really had any significant cause to lodge an actual complaint, but I did speak with Linnea’s office a few times because I was curious to see whatall they might know about the very slow progress being made on the construction next door to me. The scape-away happened last Feb. 2 — odd to see a house that harbored life for over 90 years be demolished in 1 1/2 hours; poignant, really. The site stood untouched for nearly 3 months. Work commenced on a very piece meal way. The surmise was that the developer was new to this and the cash flow ebbed and waned. Lately, there’s been a flourish of external finishing plus garage building. All in the coldest weeks of the winter; a friend observed, Well that’s when the labor is the cheapest. I’ve been patient and generous –esp, to the laborers who to a one have been really nice fellows, but, I’ll be happy when I can finally meet my new neighbors. NB: It seems that many of these new houses stand unsold for long periods of time.

  4. Submitted by Joel Brand on 01/30/2016 - 01:25 pm.

    Rules ignored?

    Yes, but note the overflowing dumpster that is not covered at night as required. Dumpsters cannot be over full, and must be covered when no work is going on. New rules not being followed, and calls to inspections get nothing done.

  5. Submitted by Constance Pepin on 01/31/2016 - 09:30 am.

    As a supporter and fan of MinnPost, I’m disappointed to read such a one-sided story about this complex and important issue that affects so many people now and will shape our neighborhoods for decades to come. This article reads like a political endorsement/favor for Council Member Palmisano and a platform for her to dispute the statement (in the linked article) that Minneapolis pulled the plug on its moratorium within a month in the face of widespread complaints, which is actually true.

    Using catchphrases like “demands of the marketplace” also makes the story sound like a mouthpiece for a City Council too eager to please developers at the expense of neighborhoods.

    I wonder whether the author sought out or talked to any of the many southwest Minneapolis residents who don’t agree at all that “An equilibrium has developed, balancing concerns of the neighborhoods and the demands of the marketplace.” If the author had tried, he would have found many people to interview about the lack of sufficient attention and actions at City Hall to find such a balance.

    Perhaps a reason for fewer complaints is that people are sadly resigned to the teardowns because some elected officials, in their zeal to increase property tax revenues, seem more aligned with developers than with their constituents. If the City were serious about finding a balance and protecting the unique characteristics and environmental health of Minneapolis neighborhoods, it would follow Edina’s lead in raising permit fees to pay for a “residential development coordinator” or similar position to monitor residents’ continuing concerns as the “demands of the marketplace” take precedence over negative effects of teardowns on stormwater management, tree canopy, historical character, scale, and livability. Instead, CPED strives to make the process easier for developers as its stated customers, while dismissing concerns and using local media as a platform to marginalize and dismiss residents’ concerns.

  6. Submitted by Pat Backen on 01/31/2016 - 01:23 pm.

    Tax Increases

    The section about increased property tax collections is not accurate. It is a common misconception but the city does not collect additional revenue when property values increase.

    When the tax levy is passed each year, it sets in stone the amount of money collected by the city, and it does not change until the next levy is passed the following year.

    The amount each home and business pays is determined by a complicated formula primarily based on the value of the property. As the value of property change from year to year, the percentage of the levy each pays changes as well.

    When older homes are leveled and more expensive homes are built, property tax collections do not rise overall, but those new properties pay a larger portion of the levy, while other properties then pay less.

    • Submitted by Constance Pepin on 01/31/2016 - 08:03 pm.

      Property Taxes

      From the article:

      “One impact of the teardown phenomenon is in property tax collections. Each $250,000 house that is replaced with a million dollar house adds significantly to the taxes paid. A trip down the 5300 block of South Chowen Avenue in the Fulton neighborhood illustrates that. A house on the corner sold for $250,000 in March of 2014; its replacement sold for $756,000 one year later. Another house sold for $260,000 was replaced by one that eventually sold for $800,000.

      “Though taxes lag increases in value, the $250,000 house paid $4,600 in taxes a year ago. A neighboring house that sold for $785,000 in the summer of 2014 is paying $12,204.”

      The City desperately needs revenue, property tax revenues have been steadily increasing, and all indications are that property taxes will continue to increase.

      • Submitted by Pat Backen on 02/01/2016 - 09:25 am.

        Property Taxes

        And I am saying that the article’s description is inaccurate.

        While those two properties paid more in taxes, other properties then paid less. The *only* way for the city to increase revenue is to raise the amount they ask for in the yearly levy.

        Greatly simplified, property tax calculations are a two part process. The levy (the amount of money the city asks for from their property owners) is set each year. Once it is set that’s the total amount of money the city will receive in property taxes. By state law it can not change until the next levy.

        The value of property is set in a separate process, and it uses comparable sales to set the value of each property (again greatly simplified).

        The portion of the levy each property pays is based on the percentage of the total value of the city’s properties.

        If you will indulge me, a very simple example using a city with two properties:

        Year one the city asks for a total of $1000 from it’s taxpayers.

        Property A and B are both worth $100,000. The total value of the properties in the city is $200,000. Each property is 50% of the total value. Each would pay $500.

        Year two the city asks for the same amount, $1000.

        Property A adds a second story on their home, and their value rises to $200,000. Property B stays the same at $100,000. Total value of property in the city is $300,000. Property A’s portion of the total value is now 66%, while property B’s is 33%.

        Property A pays $667, Property B pays $333.

        The total amount of tax never changes, despite the increase in value of all the property in the city.

        As a Council Member in a small city, this is one of the least understood concepts I run across, and rightfully so as it is fairly complicated.

        People think cities set the values of homes higher so they can get more money, when they have no control of values at all – it is a function of the real estate market. And it doesn’t matter in the slightest (at least when it comes to property taxes), the city gets the same amount no matter the value of the properties.

        • Submitted by Pat Berg on 02/01/2016 - 01:48 pm.

          But . . . .

          (and this is a sincere question – I have no idea how these scenarios work) might a city in which many homes of higher value have been built replacing homes of lesser value, then feel justified in saying “Since we have so many more higher value homes than we had last year, we are going to ask for a higher levy this year because the homes now existing can support that increase”? So it’s not that higher value homeowners pay more tax directly because their home is now worth more, but rather, that the new existence of these higher value homes then sort of becomes a self-fulfilling prophecy of sorts where the increase in the total requested levy (and subsequently the taxes paid by homeowners) is concerned.

          It seems to me that is a scenario that could certainly play out, even in light of the situation as you describe it.

          • Submitted by Pat Backen on 02/01/2016 - 08:43 pm.

            Possible….

            That may be true in some cities, but our main focus is always keeping levy increases as small as we can. I suspect that is the case in most cities, nobody likes to take 5%+ increases to the public. Good budget practices year after year can limit large increases to large projects or emergencies.

            2016’s 4.99% increase is our largest in at least 10 years. And that was primarily due to a large reduction in aid from the fiscal disparities program.

            Fast growing suburbs with brand new development may be able to raise taxes in larger percentages, and they need to, to pay for added infrastructure, parks, schools, etc.

            But fully developed cities are typically trying to keep increases to a minimum, at least in my experience.

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