Why ‘fixing’ Minneapolis’ housing crisis is going to be lot harder than people think

MinnPost photo by Greta Kaul
High-rise apartments being constructed in Northeast Minneapolis.

Almost anywhere you look in Minneapolis these days, new construction is pushing the city skyward, inexorably changing neighborhoods that, just a few years ago, were smaller, quieter and roomier. Uptown. Northeast. Dinkytown. All are building up.

The building boom is needed to accommodate steady growth in population in the area: The Twin Cities metro area has added more than 83,000 households since 2010, while building less than 64,000 new homes to accommodate those newcomers, according to the Metropolitan Council. As a result, it’s not just new luxury apartments towering over Twin Cities residents, but rents, too, which continue to rise despite all the construction.

It’s an issue across the state, but it's being especially felt in Minneapolis. During his budget address last week, Mayor Jacob Frey called the shortage of affordable housing in Minneapolis a crisis unlike the city has ever seen.

Frey is not alone in decrying the city’s housing crunch. City planners, housing experts and other elected officials — including Gov. Mark Dayton — are all scrambling to find ways to alleviate the problem. But while they all agree on the solution — that we need to build, build, build to give people enough affordable places to live — what's less clear is how, and if, Minneapolis will be able to do that once theory meets practice; once political ideals meet political reality.

How to create a housing crisis

Nowhere is there a better example of what a full-blown affordable housing crisis looks like than in San Francisco. A booming tech economy has helped expand the Bay Area’s population by more than 9 percent since 2010. Meanwhile, its housing supply has grown by less than 4 percent.

And perhaps nowhere in the Bay Area is the human cost of this housing shortage more evident than in San Francisco's Mission District. There, families from Latin America settled into old Victorians and created a thriving neighborhood, full of taquerias, panaderías and mercados. But in recent years, many of those longtime residents and businesses have been displaced by young people drawn by high-paying jobs at tech companies. Along with them came boutiques, juice bars and brunch.

In theory, the law of supply and demand would dictate that the market would respond by building enough new housing to meet the needs of residents old and new, rich and poor. That’s the Econ 101 version of the world, anyway. In real life, though, there are neighbors and zoning laws — and geography — that make it difficult to build enough homes in a city to accommodate the people who want to live there.

In San Francisco, for example, the city has almost nowhere to grow but up. Located on a 47-square mile peninsula and locked in by the San Francisco Bay and the Pacific Ocean, the city is much bigger in imagination than in fact. As demand for the limited number of housing units in the city increases, rents have become the priciest in the country, averaging $3,664 a month for a two-bedroom apartment, according to a 2018 report from Deutsche Bank. Not even San Francisco’s relatively well-paid teachers can afford to live there anymore.

And while the cost of living in coastal markets like San Francisco is partly the result of their desirability — the fact that so many people want to live there — that doesn’t entirely explain why housing costs are so much higher than in other places, said Brian Uhler, of California's Legislative Analyst’s Office. “When there is a lack of supply when there is limited construction, you see a faster appreciation of prices and rents,” he said.

One way the city could deal with this type of influx, writes Bloomberg columnist Noah Smith, is to build a lot of high-end housing close to the areas where high-income residents want to work. If there’s enough space for the rich newbies in these sleek, upscale “yuppie fish tanks,” he argues, they’re less likely to disturb longtime residents in established neighborhoods.

San Francisco's Mission District
MinnPost photo by Greta Kaul
Perhaps nowhere is the human cost of the Bay Area's affordable housing crisis more evident than in San Francisco's Mission District, where longtime residents, many with Latin American roots, are being displaced by newcomers with high-paying tech jobs.

But constructing new homes —  yuppie fish tanks or otherwise — is a contentious thing. A new apartment building can change the character of a neighborhood: adding people, removing parking spots, changing the way a place looks and feels. As a result, plans to build more housing often run aground at the city level, when neighbors oppose plans or fight over the specifics: Who is going to live there? How tall should a new building be?

In addition, elected officials can be reluctant to lose constituent support by approving new projects or changing zoning laws to build more or promote density.

That’s what’s happened in San Francisco and several other coastal cities, where community opposition — along with high building costs, strict zoning and environmental concerns — has meant that construction of housing hasn’t happened at a scale large enough to put a big dent in the problem, according to a California Legislative Analyst report.

Instead, what’s going on is what Dan Bertolet, of Seattle’s Sightline Institute, calls a “cruel game of musical chairs.” In cities with a growing population of high-wage workers, the newcomers often outbid current residents, who then resort to cheaper housing and take up space formerly for people of lower incomes.

“When you have a housing shortage, and you have people with money moving to a city, basically, the people at the bottom lose,” he said.

To remedy this loss of affordable housing, experts and policymakers often recommend expanding subsidized housing, which can include federal subsidies for landlords who rent to low-income tenants and tax breaks for developers who build affordable units.

These types of projects often come with their own roadblocks, of course: neighbors concerned about their property values, even if there’s not a lot of evidence that building subsidized apartment buildings has a negative effect on the value of nearby homes, said Corianne Scally, a researcher at the Urban Institute.

Even when cities can overcome such obstacles, however, experts say cities can’t just subsidize their way out of an affordable housing problem. Berkeley’s Karen Chapple, a professor of city and regional planning, put numbers behind the theory, and found that in order to keep the same number of people housed in the San Francisco region, developers need to produce two or more market-rate units for every one subsidized unit. “You can’t go wrong with subsidized housing, but market rate won’t hurt either,” she said.

Take note, Minneapolis

Up the coast from San Francisco, Seattle is attempting to deal with its own yuppie influx, as tech giants such as Amazon transform the Rainy City’s housing market — and fast. Once a desolate industrial area, the city’s South Lake Union neighborhood, for example, is now a global tech center where about 40,000 Amazon workers have found work in recent years. The rapid hiring has put the city among the fastest growing in the country. Its median rent price has reached $2,700.

To help low- to middle-wage workers and the unemployed left behind in the skyrocketing economy, Seattle officials are working on a bundle of policies to make housing more accessible. It includes linking mandatory requirements for developers to build more affordable homes or pay for them elsewhere, as well as a proposal to expand the neighborhoods where developers can build higher, bigger buildings. That change would only apply to 6 percent of the city’s neighborhoods that are now designated solely for single-family homes, a process of code modification known as “upzoning.”

Seattle
MinnPost photo by Greta Kaul
Attempts to alleviate an affordable housing crunch in Seattle, fueled by an influx of tech workers, are hitting roadblocks.

But community organizations have filed a legal appeal against an environmental review of the proposed changes. That appeal is blocking the entire process from moving forward. “Any kind of tampering with single-family zoning is always politically charged,” Bertolet said of the opposition. “The rezone was intended to fix zoning done in the past that wasn’t” made for the city’s current size and demographics.

Complicating work — and arguments — from pro-density activists everywhere is a lack of concrete data to make housing forecasts. It takes years, if not decades, to measure how zoning changes and different types of construction shape an area’s housing supply. And few cities, if any, have a database of zoning changes, Chapple said. “We’re left with kind of making guesses.”

Doing nothing not an option

Not every U.S. city is seeing housing affordability problems to the degree they’re happening in San Francisco, Seattle and even Minneapolis. There are places where supply does keep up better with demand, like Phoenix, Atlanta and Houston, says Issi Romem, the chief economist at BuildZoom, which connects homeowners and companies with contractors.

“When these cities hit boom times, what they do is have a lot of new construction … this demand, instead of being channeled into rising housing prices, is channeled into population growth and housing growth,” Romem said.

Romem has categorized cities into three types: legacy cities, like Detroit, where demand for housing has collapsed compared to the past; expensive cities, like San Francisco and Seattle, which are in demand and not building a lot of housing and have thus become more expensive, and expansive cities, like Phoenix and Atlanta, which can build out and tend to meet demand with supply.

Minneapolis is a mixture of expensive and expansive. It has a solid economy, solid housing demand and some room to grow, but the housing stock is not growing fast enough to keep up with current demand, especially as the pool of high-income renters expands, which puts pressure on rents.

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

The urgency to address Minneapolis’ housing shortage took front and center last week, when Mayor Jacob Frey made his first budget presentation. He said he wants to commit a record-high of $21 million toward what’s called the “Affordable Housing Trust Fund Program,” which is a pool of federal and city money set aside to help large-scale developers who want to maintain or build more affordable rental units.

City Council President Lisa Bender wants to develop a policy — similar to the one in Seattle — that would require developers of large-scale, multifamily housing to include a certain number of affordable units in otherwise market-rate projects, though the city is still doing an analysis to determine the idea’s specifics.

Officials’ ideas for the immediate future fit within with the city’s long-term plan for development, Minneapolis 2040. Though currently still in draft form, the plan proposes changing zoning in all neighborhoods — even those now currently reserved exclusively for single-family homes — so they can have multifamily housing of up to four units, aka fourplexes. That idea has stirred controversy among some residents who are leery of the changes — for many of the same reasons such proposals have run into opposition in other cities: concerns over people and parking and changing the character of a neighborhood.

Complicating matters in Minneapolis is that it’s unclear how many new units would actually result from such a zoning change.

Whether, or to what extent, the upzoning proposal stays in Minneapolis 2040 remains to be seen. City planners are now combing through public feedback and are set to release a final version of the plan next month. The City Council will take up the plan for final approval before the end of the year.

What isn't an option, as far as public officials are concerned, is doing nothing. Peter McLaughlin, a commissioner on the Hennepin County Board, which oversees investments in housing countywide, sums up the region’s situation like this: “There’s this trajectory that hot region markets, hot regions, go on,” he said. “We’re not there, but we are on this trajectory.”

Comments (18)

  1. Submitted by Diane Lindgren on 08/23/2018 - 01:38 pm.

    Comparing Minneapolis to Bay Area, SF the peninsula laughable

    This area is fairly unique, no more land, it’s a peninsula, plus living north of SF to commute to Silicon Valley isn’t feasible because of the lack of highway through SF. Here if we look at the metropolitan area, there is no land shortage. Why the emphasis on just on Minneapolis‽ Seems planning should be metro wide. Lots and lots of affordable housing talk but let’s face it, it’s high end that’s built. The high end many storied housing becomes so dense that scale, sense of neighborhood is missing. I shudder every time I go through uptown. There isn’t even any planning for pedestrians there, try crossing Lakestreet east of Hennepin.

    • Submitted by Pat Terry on 08/24/2018 - 11:27 am.

      Wrong

      The comparison to San Francisco is not laughable at all – its completely accurate if you take the time to understand housing costs. Despite the geographic differences, the underlying problem is the same – the increase in demand for housing has far exceeded the increase in supply. And a big part of the problem is resistance through zoning codes and neighborhood opposition to adding the housing we need.

      It isn’t true that only high-end housing is being built. But even high-end housing helps the affordable housing problem by adding housing units to the market. If you care about affordable housing, you shouldn’t shudder at the construction in Uptown and other places. That is addressing the problem. Its the attitude that the cities are too dense and adding housing destroys the sense of neighborhood that causes the problem.

      There are a lot of reasons why this is Minneapolis and not metro-wide. Minneapolis is where the greatest demand is and where a lot of jobs are. A lot of people don’t want to (or can’t afford to) drive from outer-ring suburbs where there is available land. And finally, the suburbs don’t have the acute problem Minneapolis does and their leadership is generally not interested in adding affordable housing.

  2. Submitted by Alex Schieferdecker on 08/23/2018 - 02:21 pm.

    The Elephant in the Room

    Thank you for this succinct article on the urban housing crisis. Clearly an effort was made to be both comprehensive and accessible, and I think it was a success.

    However, one important points are missing from this piece.

    The first point is transportation costs. “Expansive” sunbelt cities like Phoenix and Atlanta do offer cheap housing through sprawl. But that development pattern has other costs that make living much more expensive, and in some cases, eat up the savings from housing. When a private car is needed to commute to work, move kids to activities, go shopping, and visit destinations, then that is a massive hidden cost on households that is not reflected in the housing price. A home in an expansive may cost much less than an expensive city, but if it requires your household purchase an additional car and spend 250% more on gas, is it worthwhile?

    The second point, which is related, is climate change. We know that climate change will be extraordinarily costly for our cities in the future. Transportation is now the number one producer of greenhouse gas emissions in the United States. Sprawling cities, through their inefficient transportation and land-use, contribute more on a per-capita basis to climate change.

    The only solution that addresses both the issue of supply and the issue of climate change is density, especially the kind of mid to low scale density like mid-rise apartments and fourplexes that can be built cheaply, but allow for dense enough concentrations to people to justify the services that support car-free living.

  3. Submitted by Adam Miller on 08/23/2018 - 02:40 pm.

    This is a great summary

    Thank you

  4. Submitted by Bill McKinney on 08/23/2018 - 03:49 pm.

    Nice article!

    Thanks for a good article that highlights both the risks and opportunities related to our housing shortage. The trade-offs Alex mentions are a critical piece of the puzzle. One city that you didn’t mention but that has succeeded in growing population without driving up housing costs is Tokyo. I have heard Edmonton is also succeeding here, although I admit I don’t know much about what they’ve done.

    It would be great to see another article that dug into some of these cities and contrasted them to the Atlanta and Phoenix approach which I agree with Alex comes with some awful trade-offs.

  5. Submitted by Ray Schoch on 08/23/2018 - 04:33 pm.

    Zoning

    This is a good summary of the issue, for the most part. Better transit – sorely needed here – would alleviate some of the concern over density, but wouldn’t do away with NIMBY sentiment entirely. Offhand, I can’t think of anything that would. Once people have settled into an area they like, they generally don’t want to see substantial changes unless there’s some overtly aggravating problem that everyone in the area agrees needs to be fixed, and those kinds of issues are few and far between.

    My experience as a planning commissioner in a pair of smaller cities (60,000 and 145,000) in another state was that zoning is often the key, and also often the most difficult factor to manage in a reasonable and rational way. At this point in our urban society’s development, most zoning is “Euclidian” (named after a town in Ohio, not the mathematician). Translated to ordinary English, Euclidian zoning essentially is single-use zoning: an industrial area should have only industrial use, and should not have residential development; a commercial area should have only commercial development, and shouldn’t have any industrial development, and so on. That sort of single-use zoning makes all sorts of issues that come up in this “We need more housing” context much more difficult to solve.

    Toss in the usual NIMBY sentiments regarding any substantive change in a neighborhood that people like, add a couple dashes of public policy tweaks that annoy many, like parking limitations or rules about how many square feet can / must be allotted to a particular use, or how large the residential unit has to be, and it gets complicated very quickly. I should add that most zoning rules (not all, but the majority) are **exclusionary,** and have much more to do with what’s **not** allowed than what **is** allowed. That often makes a substantial difference in development costs and affordability.

  6. Submitted by Kathie Noga on 08/23/2018 - 05:52 pm.

    Housing Crisis

    Let us talk about cooperative housing where tennants pool their money and own the buildings. There are number of successful coops in Minneapolis for housing. Talk to Representative Ray Dehn about this situation. He used to build affordable housing and then was an architect and designed it, too. He is a policy wonk on the topic. Do an article.

  7. Submitted by Paul Udstrand on 08/25/2018 - 05:54 pm.

    OK, so can we finally stop with the “law” of supply and demand?

    Look, gravity is a “law”. No matter what you drop, or where you drop it on planet earth, it will fall to the ground eventually. Some things fall slower than others… but everything falls- THAT’S a law.

    I don’t know how many times we have write and read articles about wages that fail to rise and property values that fail to fall in accordance with the “law” of supply and demand before we acknowledge that is NO SUCH LAW?

    Supply and demand describes circumstances that can, but often do not determine prices in a given market. The “law” of supply and demand is largely a myth of “free markets” that are never really “free”. Neoliberal “free market” ideology is largely a product of magical thinking, and since there is no such thing as magic, whether we’re talking about the “impossibility” of world wide financial collapses, or unaffordable housing, you will find a plethora of so-called economic “laws” failing to function throughout history and our economy.

    Building booms never reduce property values. Nor do building booms occur in scenarios where property values are decreasing. No one builds things in order to sell them for less than they were selling them before. Sure, when real estate bubbles collapse, prices can fall, but THAT’S not a planned and desired product of development. Developers will build, often irrationally, and keep building as long as they THINK they can get the prices they want and make the money they want. But developers never deliberately build to the point where the stuff they build won’t sell, so they can build sell for less. When the stuff builders build stops selling… they stop building. Developers don’t keep building when prices start falling and declare that their plan to create affordable housing is FINALLY working! They stop building until prices recover.

    Fantasies of supply and demand will never solve this problem. There are two root causes of unaffordable housing. 1) Low wages and salaries. The reason so many people can’t afford to buy or rent housing is that they simply are not paid enough. If you don’t have the income, you afford housing. 2) The entire real estate industry, from the developers to the landlords, is geared towards charging the highest prices they can get. It’s systemically irrational to expect that an industry like this will produce low priced housing.

    When people are ready to have a serious discussion about this problem… let us know.

    • Submitted by Karen Sandness on 08/26/2018 - 03:16 pm.

      Indeed, when one hears of people having their rent raised in the middle of a lease period or being charged an extra $500 per month to renew a lease, even though the landlord has incurred no extraordinary expenses (such as might occur after severe damage to the building from fire or weather or during a remodeling project), that’s profiteering.

    • Submitted by Scott Walters on 08/27/2018 - 06:31 pm.

      I sort of agree, but sort of disagree

      I agree that no developer plans to sell or rent for less than their highly profitable business plan indicates, but if we know anything about plans, it’s that “the best laid plans of mice and men often go awry.” And that’s what we are hoping for…that a whole bunch of developers develop a whole bunch of properties, planning to rent them all for a tidy profit…and then their plans go awry. With the bright orange anger yam leading our economy, a whole bunch of awry plans isn’t too far fetched.

      This I can guarantee, law or no law…if they DON’T build, the rent absolutely will be too damn high. If they do build, we might have a chance.

      This I can also guarantee…no government is going to build us out of the problem. Period.

      This I can further guarantee…no private developer is going to lay even one single brick if they think they are going to lose money on the deal.

      So, it seems to me that our best hope in the system we have (which is the only system we have right now) is to encourage as much building as possible, as fast as possible, with as many affordable units as we can encourage as possible. At the same time, we should work to adjust the system to be able to cajole more affordable units, and build as many affordable units, as possible.

      I also agree that a “serious discussion” is needed, no doubt. But serious discussions take a lot of time. Creating a framework where a significant amount of affordable housing is constructed will require massive investment. Nobody, other than for-profit developers and landlords, is in any position to launch serious construction quickly. There’s no harm in them implementing their best laid plans, quickly. Maybe their plans come to fruition, and today’s finest luxury apartments turn into tomorrow’s grade B apartments, and today’s grade Bs turn into tomorrow’s affordable housing. Or maybe their plans go awry, and we get a whole bunch of what were supposed to be Grade A luxury apartments that turn straight into Section 8 welcomed affordable housing complete with granite countertops, steam baths, Tesla superchargers, Viking appliances, and uniformed doormen.

      Let’s let them build. Can’t hurt, might help.

      • Submitted by Paul Udstrand on 08/28/2018 - 08:54 am.

        Circular reasoning won’t solve the problem.

        Actually, it looks like “building” IS hurting not helping by pushing housing prices up. We can’t talk about developers “plans” to build low cost housing because they have no such plans, and that’s not what they’re doing. This isn’t a best laid plan gone awry, making as much money as possible IS the plan, builders aren’t accidentally building unaffordable housing, and Grade A luxury units NEVER become section 8 housing.

        So we’re basically back to the proposition that a system designed to yield maximum profit might accidentally produce affordable housing, which is magical thinking.

        The choice between building or not building is a contrived scenario. Ever since human’s moved out of caves they’ve built housing when they needed it. If builders stop building, they’ll go out of business and new builders will emerge.

  8. Submitted by Patrick Weibeler on 08/26/2018 - 12:23 pm.

    The authors have left out some important factors in the San Francisco rental situation. Essentially, longtime residents who remain in rent control apartments have NOT been displaced by the influx of new residents.
    Over 60 percent of San Francisco renters live in housing subject to the city’s rent control ordinance. Since some 65 percent of city residents rent, that means more than 39 percent of the entire SF population lives in rent controlled housing. While there is no limit on the amount of rent a landlord may charge the new tenant when first renting a vacant unit, the annual allowable increase for existing tenants under rent control, effective March 1, 2018 through February 28, 2019 is 1.6 %.

    • Submitted by Paul Udstrand on 08/27/2018 - 10:17 am.

      Thank’s Patrick

      This could be very useful insight in a discussion of why and how it’s nonsensical to consider this a “free”market of some kind. Once you start tossing in rent controls, and subsidies, and tax breaks or increment financing, and the availability or unavailability of banking services, not to mention jobs and income, you quickly find that the level playing fields that “free markets” are supposed to rest upon were never more than illusions.

  9. Submitted by Paul Udstrand on 08/27/2018 - 08:47 am.

    So yes… things usually don’t “fix” themselves.

    Listen, Sure, if you thought the housing “crises” was going to fix itself via the magic of markets and “development”, this is going to be a lot harder than you thought it would be… After all, having to do something is always more burdensome than having to do nothing. But the real question is: “Why were you thinking THAT in the first place?”.

    This question gets us into the liberal buy-in to magical thinking that defines neoliberalism. It matters because this buy-in to the notion that consumerism or self regulating markets can or will resolve complex and serious problems by themselves while everyone just goes their merry way has inflicted a huge amount of damage over the last 3-4 decades. Major crises ranging from a variety of inequalities to global warming have been festering and exploding while liberals and conservatives alike have been busy doubling down on magic.

    This article is really nice expression of neoliberal mentality, and that’s useful because I know a lot of liberals and Democrats have a hard time getting their heads around the concept of neoliberalsm. Basically what we have here over the decades is an economic assumption that dictates inaction. This works for affluent people who live with the privilege of observing major problems from a distance, but for those living in tents… not so much. When you see these expressions of wonderment and amazement that things aren’t fixing themselves, you’re usually looking at a neoliberal mentality. How are we going to fix this… without actually doing anything to fix this? It’s a puzzler alright. And sure enough, things don’t get fixed. Who’d a thunk?

  10. Submitted by Dennis Wagner on 08/27/2018 - 09:50 am.

    And

    What are the expectations for the folks that are suppose to get the subsidized housing? What are they gogin to do to help alleviate the problem? In Minneapolis some of the City council folks think we should provide single family homes, pretty rich living for a subsidized family? Then they complain about “gentrification” on the other hand, but say nothing about how that strategy artificially deprives local long term home owners of potential gains in their home values, ironically in the lower income neighborhoods, where this subsidized housing is most prevalent, many of the beneficiaries of the housing value growth would be minorities! And, on an on and on with all the socioeconomic, livability etc. issues that tend to accompany low income.rental housing.

    • Submitted by Paul Udstrand on 08/27/2018 - 10:22 am.

      Sure…

      I’m not saying expectations AREN’T a legitimate concern, but the problem is that one way or another we’re actually subsidizing unafordable housing, not affordable housing. This stereotype of low income people and families living the dream in subsidized housing is impossible to discuss because it’s a fantasy in search of an example.

  11. Submitted by Joe Musich on 08/27/2018 - 03:15 pm.

    My …

    take away….”…Complicating work — and arguments — from pro-density activists everywhere is a lack of concrete data to make housing forecasts. It takes years, if not decades, to measure how zoning changes and different types of construction shape an area’s housing supply. And few cities, if any, have a database of zoning changes, Chapple said. “We’re left with kind of making guesses.”

    • Submitted by Paul Udstrand on 08/29/2018 - 09:01 am.

      Yeah, the density thing get’s a little dodgey

      Often times I’ve found that the density advocates are urban chauvinists pretending to be analysts. If you run a quick analysis comparing city budgets per capita you’ll find that it actually costs more per capita to run MPLS than it does most less densely populated suburbs. I asked some density/urbanists to explain that a few years ago and to my surprise, it was obvious that they’d never even considered such a comparison, they just always assumed that “density” is more efficient.

      I’m not saying density can’t be efficient, but when you look at real life scenarios things get quite complex. For instance in theory shorter distances and more compact utility services and distribution networks could be more efficient; but in reality that infrastructure in existing cities is at least 100 years old and disintegrating, and the more people you try to accommodate the more your stress those systems and the more costly it becomes.

      There’s also a sense of urban entitlement that can become problematic. Most cities want to grow their populations for instance, but you see density advocates here basically assuming that MPLS and St. Paul are ENTITLED to population growth, and the whole region should dumping resources into the cities to promote that growth. Meanwhile there’s no serious analysis as what the “ideal” population number should be? How do we know that MPLS isn’t approaching it’s ideal population level right now?

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