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Is there — or is there not — an affordable housing crisis in the Twin Cities?

MinnPost file photo by Jana Freiband
Today, a lot of the people who are renters might not have been in years past.

Minneapolis city officials are saying it, a St. Paul neighborhood group is saying it, and housing advocacy groups are saying it: the Twin Cities are in an affordable housing crisis.

That might come as a surprise to some. After all, this isn’t San Francisco, overrun with wealthy tech bros and with limited room to expand. To be sure, the Twin Cities are more affordable than a lot of coastal cities.

In fact, overall, data on housing affordability in Minneapolis and St. Paul indicates that the portion of income people spend on housing is actually going down.

So does that mean talk of a crisis in housing affordability is overblown? Not quite. Because what that overall number fails to show is that even as housing becomes more affordable for some, it’s becoming less so for others.

Measuring affordability

First things first: how do we know whether housing is unaffordable or not? The standard measure for whether housing is affordable or not is if a household is spending 30 percent or more of its income on housing expenses.

That means a household making $30,000 a year shouldn’t spend more than about $750 a month on an apartment or house and utilities. A household making $100,000 a year shouldn’t spend over $2,500. If they do, they’re considered “cost-burdened.”

The 30 percent metric evolved out of federal housing programs, beginning in 1937, when the United States National Housing Act created the public housing program and set limits on the amount families could make to qualify for it, according to the U.S. Census Bureau. Eventually, a share of income — first 25 percent and then 30 percent— was adopted as a standard. Since 30 percent became a widely used benchmark for determining how much households would spend on rent and still be able to pay for their other expenses, it was adopted in the mainstream housing market.

But is a standard developed 80 years ago still relevant today? Not everyone thinks so. Critics dismiss the 30 percent benchmark as all but meaningless because it doesn’t account for the differences in other expenses households have, be they medical or transportation costs. Plus, they say, there’s no reasonable expectation that two households should aim to spend the same amount of their income on housing. Generally, poorer people spend a larger share of their income on rents or mortgages, while high-income people spend less.

“Clearly, Bill Gates doesn't spend 30 percent of his income on housing,” said David Bieri, an associate professor of urban affairs at Virginia Tech.

So what alternative measures are out there? One general way to think about housing affordability, Bieri said, is to ask whether or not a household could stay in its housing for the average duration of unemployment in the area. If it could, the housing might be considered affordable. If not, that household might be cost-burdened. But this would be complicated to measure in a comprehensive way for all households in a given area.

Sticking to numbers that are easier to measure, another metric, preferred by some, is the H+T index, calculated by the Center for Neighborhood Technology. H+T starts with a regular income threshold and adds in transportation costs, which it says are most households’ second-largest expense.

According to this measure, housing is affordable if households spend no more than 45 percent of their income on housing and transportation. When you factor in transportation like this, some parts of the suburbs, where households would presumably spend more on transportation, become less affordable.

In Minneapolis, the average moderate income household, making $55,000 a year, spends 44 percent of its income on housing and transportation costs — just under the 45 percent threshold — while in St. Paul, the average is 43, according to this index.

In San Francisco, a moderate income household makes $65,000 and spends 50 percent of that on housing and transportation. In New York, where a moderate-income household makes nearly $54,000, the figure is 47 percent.

Compared to other cities, this measure makes the Twin Cities look relatively affordable for moderate income households. Even in Houston and Detroit, the average household spends a higher share of its income on housing and transportation than the Twin Cities, according to this index.

Who pays most in the Twin Cities

But even if the Depression-era 30 percent of income threshold is a flawed metric, it’s the one that’s most commonly used — and studied.

By the 30 percent rule, the share of Twin Cities residents who can’t afford their housing has actually gone down in recent years: from about 35 percent in 2011, to 28 percent in 2016 according to Minnesota Compass, a research division of the Amherst H. Wilder Foundation located in St. Paul. That’s still up, however, from 26 percent in 1990 and 24 percent in 2000.

But still, a seven point decline in housing unaffordability in five years seems like the opposite of an affordable housing crisis, right? Not, it turns out, if you break these figures down for different levels of income.

“Overall, housing cost burden has gone down in the Twin Cities,” said Allison Liuzzi, the director of Minnesota Compass. “But when we break it down by household income, we see some different patterns.”

Cost-burdened Twin Cities households by annual income, 2011-2016
Households that spend more than 30 percent of income on housing expenses are considered "cost-burdened."
Source: U.S. Census Bureau, compiled by Minnesota Compass

For the Twin Cities’ poorest households, the rate of unaffordable housing has stayed steady — and high. More than 4 out of 5 households earning less than $20,000 per year are cost burdened when it comes to housing.

The two wealthiest groups of households in Wilder’s data, households making between $50,000 and 74,999 per year and those making $75,000 per year or more have seen the share that are cost burdened decrease between 2011 and 2016, from 29 percent to 23 percent and from 8 percent to 4 percent respectively.

But there’s one group of households that has seen their ability to afford housing actually decline — the households earning between $20,000 and $34,999. In 2011, 66 percent of these households were cost-burdened. In 2016, that figure was 72 percent.

Struggling to pay rent

It’s clear then, that even though overall Twin Cities affordability has improved over the last five years, for some households’ housing is getting less affordable. What’s behind this discrepancy?

One explanation is that there is a lot more competition for rental housing than there used to be.

Americans’ pocketbooks took a hit during the recession, and even now, years after the economy’s recovery, wages are slow in keeping up. This helped turn more people into renters, which, in turn, put more pressure on the rental housing stock.

Today, a lot of the people who are renters might not have been in years past. A report by the Minnesota Housing Partnership looked at the dynamics of this phenomenon:  In the years following the recession, an increased number of renter households were making more than $50,000 per year. Nearly half of these new renters, even, made more than $100,000, data compiled by MHP found.

Number of renter households by income, 2010 versus 2014
The number of households making more than $50,000 who were renters increased by more than 27,000 in the Twin Cities between 2010 and 2014.
Source: U.S. Census Bureau, compiled by Minnesota Housing Partnership

Many of these new, higher-income renters might be homebuyers if it weren’t for a small stock of starter homes available, said Chip Halbach, the executive director of the Minnesota Housing Partnership, who has been working on housing affordability in the Twin Cities since the late-’70s.

When more people want to rent, landlords have an incentive to invest in rentals, renovate them, and jack up the rent. That can destroy what’s called “naturally occurring affordable housing,” in the industry, a term that refers to housing becoming naturally less expensive as it becomes older and less attractive to people with more money in the bank.

“So you have rents increasing across the board, but then in specific properties that are seen as ones that could be made attractive to higher income tenants, basically taking them out of buying reach of lower income people,” Halbach said.

Not only are existing rentals getting more expensive, but new rentals are pricier than they used to be, to suit this new crop of renters who want amenities — gyms, dog parks and the like. One new apartment building in Golden Valley even advertises “Minneapolis’ one and only lazy river pool experience.”

By 2015, the average rent in the Twin Cities metro rose to $1,046 per month, which MHP says is $130 more than the median renter can afford. The vacancy rate for rentals, around 3 percent, is below the 5 percent threshold often used to denote a healthy housing market.

Average Twin Cities rent, 2009-2015
The average rent for a housing unit in the Twin Cities has increased from $907 in 2009 to $1,046 in 2015.
Source: Source: Marquette Advisors Rent & Vacancy Data, compiled by Minnesota Housing Partnership

It remains to be seen whether efforts to combat the shortage of affordable housing in the Twin Cities, such as an increase in the minimum wage and the just-approved Ford Site plan, which is expected to include hundreds of affordable housing units, will relieve some of the housing cost burden on Twin Cities residents.

But Halbach said it will take more than one policy to fix the problem, from increasing the supply of housing to ensuring that older units maintain their affordability.

“It’s been a perpetual crisis, but right now we are in a wave of lack and loss of housing affordability that’s really unique,” he said.

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Comments (11)

Thanks

Thanks for a well-written, informative article!

Location, location, location

Compared to Portland or Seattle, metro Denver's housing is a bargain. Compared to Denver (I speak from experience on this one), metro Twin Cities housing is a bargain. Compared to the Twin Cities, metro St. Louis housing is a bargain.

It's not just where you want to live in a given area that determines the cost of the housing there, it's the desirability, or at least the perceived desirability, of the area itself that does much to determine the cost of housing. Many people I know regard the Twin Cities as "flyover country," and some consider almost any area that's not on a seacoast in that same light. Those attitudes dramatically affect the prices people are willing to pay to live here, or in Seatlle, or Denver, or wherever.

My Minneapolis house, a modest 1,000 square feet, would easily sell for tens of thousands more in much of metro Denver. Some of that difference might be due to policy choices by the states and metro areas involved, including things like taxes, but some of that difference has much to do with factors over which neither prospective buyers nor policy-makers in government have much control.

The 30% threshold is, as Greta points out, far from perfect, but it's a useful rule of thumb for people just getting into the housing market. It's also worth noting that the "market" in housing is subject to forces over which buyers, sellers, and even realtors have little control. All are at the mercy of fluctuating mortgage interest rates, for example, not to mention the tax policies of both the federal government and the relevant state and local governments. My favorite example in this context is a simple rhetorical question: What would happen to residential real estate prices and development if the customary mortgage interest deduction were no longer available?

Historically, the federal government has promoted home ownership since the 1930s as a way for barely-middle-class families to amass a bit of equity, and thus wealth, over time. That policy initiative has taken some strange turns in the decades since it was first implemented. Relative affordability of housing for individual families is just one (very important to those families, obviously) little gear in a large and complex machine that's the housing industry.

Well done

Thank you as well for examining a complex, hot-button issue of concern and making the mysteries and puzzles of it better understood.

Housing Complex

You also need to consider quality of housing and the amount of space per person, safety and other considerations. I think you're mistaken in assuming the 30% housing allowance stems from the Great Depression. I can remember when it was wrongly raised from 25%. At 25%, one can presumably still pay rent with an unexpected expense, one can pay rent with one week's income, live on another week's income, and save one weeks' income, with a cushion. That is how it needs to be. Over one week's income, and you create a recipe for evictions. Also, you need to consider if the available housing is in the area a person needs to live in for work, family or other reasons.
The Upper Midwest has historically been a lower-cost area to live in, but also lower in pay, so for it's housing costs to nearly match any coastal cities is a sign of real trouble. And what about food costs, which have inflated beyond all reason? That is higher than transportation.

Great Article Which Exposes the 30% Myth

Thank you for a great article which finally says what I have been saying for years, the 30% of income rule is a myth, it is meaningless and is actually not an offical number.

This number was never intended to be applied to market rate renters or homeowners, as the article statess this was used for low income project tenants in the 1930s.

I have always paid out more then 30% of my income on rent and I don't make a huge amount of money, around 50K a year. I was paying out over 30% back in the 1980s when I first moved out of home.

This number is used by "housing advocates" to try and get huge tax increases passed on middle and upper middle income people and then use that money through HUD to get lifetime subsides for those people who make next to nothing or don't work at all.

The only shortage we have is of people with a work ethic who have the mental capacity to take care of themselves. You want a fancy apartment, you go work for it.

Hopefully Ben Carson will get an actual real number put out there and offically put it in regulation or law. .I would say its around 40 to 45% of income.

This article screams for better jobs not cheaper housing.

If you make under $20,000 a year housing, food, transportation are all not affordable. Poor folks don't need more Government handouts they need a good job. If bigger Government, more programs for the poor, helped them go from lower class to middle class (nesessary to be able to own a home) you think we would have seen it with 20TRILLION we have spent on "the war on poverty" since 1965. If politicians really wanted to help the poor they would spend all their time doing everything possible to help the poor get better jobs. Much easier to complain about lack of affordable houses and not enough money being spent on the poor.... So sad for the poor folks caught in this cycle!!

Working poor limitations

It's nice to think that someone can just "get a job", can just pump up an income that can sustain $1,000 per month rental cost with first month, last month, and a safety deposit built in.

There are many thousands of people for whom such a "get a job" bromide will not work. Starting at the young end of the demographic spectrum, recent college grads have crippling student loan payments that will last for many years. High school grads or people of whatever age holding GED diplomas aren't about to waltz into median income jobs. Teenagers who've landed on the street for reasons beyond their limited control number in the many hundreds in Minneapolis alone.

Then there are the many ex-felons who were railroaded into prison - they aren't going to be flashing c-notes, much less $2,000-$3,000, with their convictions and parole stipulations on rental application forms.

Much more telling to me personally at age 79 are the marching battalions of baby boomers who are discovering that their savings are petty cash in this economy. That their square miles of bungalows in Minneapolis are individually becoming unsustainable. Empty nesters who are no more welcome in the workforce than the 50-somethings who have discovered that employers are finding more bang for their bucks with much younger employees. This is becoming a demographic tidal wave that pushes against erstwhile claims of ample affordable housing.

Health demands are another defining element. Not just the lame, the halt, and the blind but also families and individuals who have crisis after crisis as chronic conditions emerge.

Parents who are nowhere near able to pay for expensive child care with healthy children, much less children with special needs.

Build all the upscale housing the market demands, but also realize that there is a large segment of our population who will inevitably need serious and thoughtful public support.

Reminds me of the visual of Trump throwing rolls of paper towels into a well-heeled crowd while ignoring the vast tracts of inhabited areas in Puerto Rico that are overwhelmed in the hurricane aftermath.

American democracy is going bankrupt and Minneapolis is no exception to that insight.

Insightful Comments by Mr. Marcus; Mr. Barnes, Not So Much....

Mr. Marcus' points are right on the mark. While I grew up in a privileged setting, I also experienced medical trauma for thirty years and do not have a lot of verifiable employment at age 55. My parents were aware of the "safety net" which our state and federal governments -- in bipartisan approaches -- provided for people like myself and those among whom I live from war torn nations, now, as both refugees, immigrants, and their kids -- who, in my frequent conversations with kids from 7-23 years, are intent on becoming eminent students and professionals.

My family lives into their 90's and 100's, so I have many years left in me, now that I am finally healthy enough to work and enjoy the fruits of my creativity and intellect. However, I've been having difficulty becoming employed on a full-time basis, despite my volunteer and other official community service work for Hennepin County's Board of Commissioners and, secondarily as one who has helped add insight to our state governor's office through an appointment I received through the board of commissioners.

I have lived among the international community, both domestically and on three continents as a civilian. When asked, at Macalester College, what I wanted to do as an older adult, I said I was interested in diplomacy. I have met three diplomats and three Nobel Laureates in my day, and worked on behalf of a man who received the Nobel Peace Prize for his work on bringing peace and friendship to the Middle East; and, I have been moved by their kindness and insight. Yet, I live in Section-8 housing.

One writer put it very well: We need entry-level and career jobs for people who are receiving Section-8 and Social Security Disability Income. Sadly, the press and Hollywood have made people who have histories of chronic illness and who have lived "in the projects" look so routinely bad in their presentations that it is no wonder that many people, like myself -- regardless of our educations and upbringing -- remain in poverty.

Mr. Trump's attitudes about people in my earlier and current financial position do no good for the long-term bottom line of our nation; and I've heard from one East Coast CEO and insider that Dr. Ben Carson, HUD commissioner, is not so adept at sharing insightful commentary with his HUD staff about the need for less expensive than luxury-cost housing, but instead talks a lot about his medical career and medical procedures -- neither of which are indicative of sound management of affordable housing stock. I will add that I do not routinely base my comments about leaders on second-hand information which I have not verified through personal research. However, one wonders how an orthopedic surgeon, with no significant training or history in housing development, was put in office by a president who has also worked to cut the very jewels of civilization which both previous Republicans, Independents, and Democrats have together brought in as our nation's contribution to progress, health, and safety.

I thank Mr. George Sherman and his staff at Sherman-Associates, a nationally operating property development firm -- with a strong portfolio with commercial, multifamily residences, and industrial properties, and based in Minneapolis, for providing a hygienic and comfortable place for people on Section-8 programs a place to live. One of my interests is in engaging in property development, as my family and friends' families, and my former landlord, the late Jim Cargill, and Mr. Sherman have led me to think about in a serious and "can do" manner. I have been studying basics in real estate investment in both the fixing and flipping of single and small multi-family residences, as well, took my real estate seller's course in 2002 -- but stayed out of the market as I didn't then, nor do I have now, a reliable automobile.

I survive on $970 a month from Social Security Disability Income, and a minor wage from working at a sandwich shop. I desire to pull out of, and remain out of, poverty. I still do not have enough money to buy and pay for all related expenses involved in owning and operating a vehicle of my own. Mr. Barnes' speculation on us having enough money, after only spending 30% of our income on rent, was not insightful. For those who owe student loan money, this is little more than a poor trap. With the influx of the use of credit and expensive payments for student housing near the University of Minnesota campus, and other campuses, the plight of the students during the past 40-years, can be difficult for these groups.

Affordable housing, and community service-mindedness is not an altogether dead set of goals and realities. Once our communities begin to realize how blessed they are, and realize, as I have seen among friends and acquaintances who are high and ultra-high net worth people and families, that giving into the community provides room for good health and hygiene in the community, and supports the kind of environment that people enjoy working in, the drastic cuts that our Trump administration has been making will dissolve. The next problem is to get progressives and ultra-left-wing activists to stop engaging in speech and proposals which demand that we "get our fair share," of the financial universe. If they only understood how alienating and unappreciative that kind of language strikes people who may otherwise care to give their money to community development, we'd be much better off.

There are 10's of thousands of jobs in the trades

that need to be filled. Because a person goes to college, gets degree in the humanities, has huge college debt and can't get a job is called a bad decision. No one forced that person to go to college! You can walk into a 65,000 plus job by becoming a welder, electrician, H-vac tech and many of the other trades, 2 years out of High School.
Total cop out saying folks can't get a middle class paying job. You will have to hustle for it because no one is going to come to your house knock on your door and offer you that job. You may have to work up to it over time (that is why it is good to 18-23 years old) but those jobs exist.
The "we are all victims because we can't get the perfect job that I want" is not only counter productive, it is not true. If you are willing to hustle and think out if the box a bit, there are jobs. Too bad High Schools took away the trades and don't help young people be ready for the competitive world of jobs and real life.... Much easy to blame others and complain!

The question answered?

The title of this excellent article poses a question which then remains unanswered at its close. By explaining how affordability is calculated and producing demographic information based on those variables it would seem clear that the answer to the question in the article's title is 'no.' Even if the revised rate of 45% is used to set affordability limits, the answer remains 'no.'
Since any number of groups demanding large-scale developments like the Ford site hang their arguments on this need to support of massive expenditures for new development, this failure is problematic. The fact is that demand has declined by 7% overall.The fact that rents have increased does not alter the fact that that the need based on ability to pay has declined.

The only fact that might lead to an answer of 'yes' is if the number of affordable units has declined at a faster rate. Might this be grist for another article?

Factor in debt and medical expenses

What about factoring in the amount of income spent on paying off debt from student loans and credit cards or debt reduction loans? Many of us have struggled to get by through the recession and have added debt as a result that we are working hard to pay off, but that prevents us from being able to afford rent, much less save money for a down payment on a first home purchase. Plus the cost of medical care, especially for those of us who haven't had it available through an employer and have had to pay higher and higher insurance premiums and deductibles. The 30% rule seems pretty useless when there are these other huge factors in play.