Could a global deal between builders and local governments help increase affordability — and decrease segregation — in Minnesota?

State Rep. Steve Elkins thinks he might be the person who can cut a deal to address one of Minnesota’s most intractable conflicts — the one between Minnesota cities and homebuilders over planning and zoning regulations.

Homebuilders in the state complain that regulations imposed by local governments throughout Minnesota — and that often differ from city to city — have greatly increased the cost of housing. Large lot sizes, exterior materials standards, garage and storage requirements, park set asides all add to the ultimate price of new houses.

City governments argue they need those regulations to respond to local concerns — and to keep developers from leaving behind costs that must be borne by current residents.

Would cities accept a clear-cut way of recovering costs for roads and other infrastructure in return for state preemption of some local zoning authority? 

Elkins is trying to find out. Currently a DFL representative from Bloomington, Elkins is also a former city council member, former planning commissioner and former member of the Metropolitan Council. And in just three years as a legislator, he’s received awards from both the League of Minnesota Cities and Housing First, which represents homebuilders. “If you did the Venn Diagram of state legislators who have both of those awards, I think it will say ‘Elkins’ in the one little sliver of the overlap,” he said. 

His proposed bill, which he calls the comprehensive housing affordability act, tries to strike a balance for cities and developers frustrated with the current situation, allowing development fees for the former and fewer restrictions for the latter.  “When these things move separately, if it’s stuff the cities want and the builders hate, the builders are able to block it,” Elkins said. “And if it’s stuff that the builders want and the cities hate, the cities are able to block it.” 

What the bill would do

Right now, cities have broad zoning authority under Minnesota law and can collect the costs of water, sewer and stormwater improvements. Some also impose park dedication fees and have tried, with less success, to charge road improvement fees. Some cities also use an approach called planned unit development, which lets planners and councils waive certain zoning requirements, such as minimum lot sizes, in exchange for developers paying for more infrastructure and even donating land for parks and other public uses.

General development fees — a set cost per housing unit, for example — are currently not allowed under Minnesota law. A 2018 state Supreme Court decision — Harstad v. Woodbury — made it clear that mandatory street fees are not legal. 

The Elkins bill would give cities the ability to impose both development fees and street maintenance fees. In return, the bill would establish that developing land according to comprehensive plans and zoning would be a right. In addition, cities would give up the power to declare development moratoriums, and would be required to allow at least duplexes in single-family zones. 

Cities could also no longer require the planned unit development process, and they would lose the authority to require “upscale” exterior materials or multi-car garages. They would also see their authority to demand large lot sizes limited.

The bill also makes it harder to block or prevent multi-family or low-income housing projects, and would require cities to act on building permits within 60 days. Finally, it would limit energy code changes to those that will pay for themselves over the life of a 30-year mortgage.

While he said cities may end up getting similar amounts of money from developers as they do now, the process would be more transparent and more reliable. “The level of fees might not change that much overall but the risk to the developer will decline, the cost of buildable lots will decline,” Elkins said.

Cities wary of ‘one-size-fits-all’

Reaction to the proposal has been somewhat predictable — and showed the difficulty of brokering a deal. Home builders liked what they saw; cities were suspicious.

House First Minnesota’s executive director David Siegel called it a “good starting point” and urged the Legislative Commission on Housing Affordability to meet and “get to work on this proposal.” 

That committee has met just once, according to member Rep. Jim Nash. And that was 18 months ago.

Daniel Lightfoot, an intergovernmental relations representative for the League of Minnesota Cities, which represents the interests of Minnesota’s local governments, said the bill presents a one-size-fits-all regime that doesn’t take into account municipalities of different sizes and locations that often have very different concerns.

“It’s challenging when you treat a city like Rosseau the exact same way as you treat a city like Richfield,” Lightfoot said. “There is a broad agreement that we need to do more in the housing space and the affordability space, and you’re seeing a lot of cities stepping up in their individual communities to discuss what that looks like.”

Cities have sought legislation in the past that would give them some of the power they lost in the 2018 state Supreme Court decision. But the trade-offs in the Elkins bill are more than local governments are willing to give, Lightfoot said.

The issue of fees “is an important piece,” but “there’s a lot in there that is concerning to the cities.” 

An equity issue

Not surprisingly, the issue has become partisan at the Capitol, with Republicans pushing for changes to help develop housing more cheaply and DFLers tending to support the cities’ position.

But the politics of the impasse has changed recently, as proponents of reforming the law blame the status quo for not only contributing to housing unaffordability but also to segregation: using zoning to discourage lower-income and people of color from living in suburban communities. What had once been cities vs. developers is now sometimes seen as cities vs. equity.

“These kinds of zoning restrictions have a clearly disparate impact on communities of color and in some cases have their origins in racism,” said Elkins. “Anyone who has served on a city council in a developing suburban community encountered people at the podium talking about this density will bring ‘those people’ into the community.”

Housing First Minnesota noted the home-ownership gap between white residents and people of color in the state is among the nation’s highest, with 76 percent of white residents owning homes but just 25 percent of Black residents.

Lightfoot, of the League of Minnesota Cities, said local governments are trying different methods — including allowing homes on smaller lots and seeking ways to subsidize affordable housing — to remedy that issue. Larger cities like Minneapolis are considering inclusionary zoning ordinances that would require a certain number of affordable units in any new development.

But it’s those responses that builders and developers often implicate in increasing their costs, since affordable housing is in effect subsidized in the price of market-rate units. 

Paul Heuer, the director of land planning and entitlement for Pulte Homes, a national developer, said he spent half his career as a city engineer and half as a developer, and he has seen median home prices increase due, he said, to increased costs of regulation.

Heuer separates what he terms “good regulation” — wetlands protection, storm water collection and energy codes — from regulations that are mostly aesthetic. The latter have moved Minnesota higher in one assessment of affordability, which divides median home cost by median income. While The Twin Cities scores 3.9 on the scale — 3 is considered affordable — its ratio has been climbing. Denver scores a 5.8, Seattle a 6.6, San Francisco a 9.6. 

Heuer said he has faced demands for larger garages and more storage space inside a house. He often has to put decorative stone on the front of houses and sometimes has to dress up the exterior on the rear of  houses if they face a park or open space, requirements that have  accumulated over the years, Heuer said.

The regulations imposed by local governments are often in reaction to complaints by neighbors, who oppose a new development and use the rules to make projects more palatable and aesthetically pleasing. 

But it all comes at a cost. And while the residents are voters, the developer often is not. “Can you really call it a negotiation when one side has all the power?” Heuer asked. 

That same power imbalance exists in the Legislature, where the no-change option favors the cities, not the developers. “I’m pessimistic about the future,” Heuer said. “I do not see cities changing their ways. The only solution I can come up with is state legislation that restricts burdensome legislation.” 

This isn’t the first time a lawmaker has tried to strike a deal that could get enough votes to pass in both the DFL House and the GOP Senate. In the waning hours of the 2020 session, now-Senate Housing Committee Chair Rich Draheim, R-Madison Lake, combined many of the regulation reform measures developers want with $100 million for pandemic-related rental assistance and $100 million in housing infrastructure bonds to pay for affordable housing.

Those changes went further than the Elkins bill would, and though it passed the Senate, it did not make it through the House. 

“They are linking the money to what we and others perceive as bad policy,” House Housing Committee Chair Alice Hausman, DFL-St. Paul, said at the time. 

The bonds were ultimately adopted and the rental assistance was imposed by executive order by Gov. Tim Walz using federal funds from the 2019 CARES Act.