Minneapolis, like most cities, has a housing affordability problem. While the city has recently received national attention for its relatively steady housing prices, a third of Minneapolis residents pay more than 30% of their income on housing costs. Various factors — residents’ incomes, the overall availability of housing, the cost of construction, the availability of public subsidy — shape the level of housing affordability.
This Southwest Voices series will focus on one element of the housing affordability challenge: how we can have more affordable and diverse forms of housing, by making it easier and cheaper to build. Before focusing on details, however, this article will focus on a big-picture problem affecting housing affordability: the housing shortage.
To say there is a “housing shortage” encapsulates three different but related shortages. There is the aggregate shortage: across our metro and across our country, there is not as much housing as there should be to accommodate the demand. There are the localized shortages: certain areas, such as wealthy urban neighborhoods or suburbs, are particularly short on housing relative to the amount of people who’d like to live in those places. And there is the affordable shortage: everywhere and anywhere, there’s a dearth of housing that low-income people can afford. While each shortage is distinct, they are also tightly linked to each other. Many of the policies that would address, or exacerbate, one type of shortage would also assist with, or worsen, the others.
The aggregate housing shortage reflects a systemic lack of housing in the United States. The below graph, created by White House economists, shows that our housing production has had a long-term decline relative to the population.
New housing relative to the population doesn't tell the whole story, because demand for housing has grown even faster. Over the past few decades, the average household size has fallen — for example, more people are living alone — meaning that more housing units are needed for a given population level. Over time, the average household has demanded more and more living space. All this was further exacerbated by a huge spike in housing demand from remote work.
Altogether, this has snowballed into a gargantuan imbalance between the supply of housing and the demand for it. Researchers have assessed the scale of this shortage at various geographic magnitudes. The national research and advocacy group Up For Growth, for example, estimates that in the aggregate, the United States is short a staggering 3.79 million homes. A report from the 2018 Governor's Task Force on Housing estimated that Minnesota is short 50,000 homes, a crunch for which the Twin Cities bear much of the weight.
Much of the housing shortage is due to large-scale, macroeconomic factors, with a particularly devastating decline in housing construction after the Great Recession. And with interest rates at their highest in nearly two decades, our housing shortage may soon be worsened as new construction becomes less financially feasible. Yet interest rates are not the only tool that we have to combat our broad housing shortage. Localities have developed a set of rules that systematically reduce the total amount of housing that’s built, while increasing costs for the housing that we do get. These rules are many: strict zoning rules, such as apartment bans or large minimum lot sizes, prevent the construction of denser or smaller housing. Onerous city permitting and approval processes cost both time and money, while making development riskier. Other codes require housing development to have to pay the costs of particular external materials or parking spots.
And this brings us to our localized housing shortages: While nearly all cities in the country need more housing, these aforementioned housing restrictions also create acute, local shortages of housing. By tightly limiting local construction, certain localities or neighborhoods become exclusionary.
In Minneapolis, historic neighborhood policies have led to such local housing shortages. In the 1960s, Minneapolis introduced a new zoning code, bringing comprehensive single-family zoning to the city for the first time. Attempting to concentrate population growth closer to downtown, neighborhoods to the south and west of Minneapolis were zoned for large, single-family detached homes, largely preventing the construction of apartments or even smaller, more affordable types of detached homes.
Preventing future construction of larger apartment buildings or smaller homes prevented change in these neighborhoods. In a paper presented at the Population Association conference this year, researchers at the University of Minnesota found that places with a strictly limited capacity for housing had no population growth in ensuing decades, even as the rest of the city grew around them.
Areas defined in the study as Southwest and Calhoun-Isles, which generally maintained very tight zoning rules, have nearly identical populations as they did in 1990. Even when there is large demand to live in these areas, the neighborhoods cannot accommodate more residences because of how the land is zoned.
Even after zoning changes were implemented from the Minneapolis 2040 Plan, these areas continue to have rules creating localized shortages. Evan Roberts, a sociology professor and co-author of this research, said that in recent years Minneapolis has concentrated housing growth on heavily-trafficked arterial streets, but kept rules fairly stringent on the internal neighborhoods. Even the 2040 Plan’s much-discussed legalization of duplexes and triplexes in neighborhoods contained rules sharply restricting the size of those housing types, said Roberts. These rules include floor-area ratios and requirements that houses are set back from the sidewalk or the edge of their lot, and they make duplexes and triplexes very difficult to build.
“There's ample room in these areas, but the regulations don’t allow any more housing,” said Roberts. “The implication [of more housing] would be the look of these neighborhoods changing.”
Underlying these aggregate and localized housing shortages is a specific lack of housing for our lowest-income residents. The aggregate and localized housing shortages have not always been such prominent housing challenges; they’ve built up over decades of slow construction and restrictive policy.
According to the local nonprofit HousingLink, there are consistently almost no housing units that are affordable for residents making 30% of the area median income (i.e., $37,250 for a family of four) or less. Providing housing that’s affordable for the lowest-income residents is nearly impossible without public subsidy, leaving low-income residents to pay excessive amounts of their income — in many cases, more than half — on housing. There is much too little housing affordable to low income residents, which is impossible to provide without subsidy.
These problems have accumulated over a long time, and addressing this triple shortage will be a long-term endeavor.
Fortunately, addressing one shortage will also help address the others. Changing local land use rules to make housing less difficult and expensive to build is key to addressing localized housing shortages and opening access to historically exclusive neighborhoods. At the same time, successful implementation of such reforms would help address our aggregate housing shortage, too.
Addressing the aggregate and local housing shortages can then impact affordable housing shortages. Consider an important finding from the economist Evan Mast: when new market-rate apartments open, people move into them and leave behind apartments in the cheaper apartments they moved out of, creating a “vacancy chain” that increases the availability of housing across the income spectrum, all happening within a few years. In other words, tackling the aggregate shortage can mitigate, though certainly not solve, the affordability shortage.
And while the affordability shortage cannot be fundamentally solved without public funding, other economic research suggests that regulatory reforms to increase housing and reduce housing costs throughout the broader housing market will allow for subsidy dollars to be spread around further.
When it comes to the policy changes that can help accomplish these goals, it’s necessary to sweat the details. That will be a focus of future articles in this series, which will be published in the coming weeks.
Our Housing Affordability series is sponsored by Housing First Minnesota.