The first part of this series described a triplet of housing shortages: an aggregate shortage of housing supply across the country, a localized shortage of housing in exclusive locations, and an affordable housing shortage for low-income people. These three shortfalls are daunting, but they are also closely related. Solutions that address one of the shortages will also help address the others.

In Minneapolis — along with nearly all local jurisdictions in the United States — there are a series of rules that can systematically make housing more slow, expensive, and difficult to build.

These rules create two problems. One, they exacerbate housing shortages, increasing competition for existing homes. Two, they raise the costs of the housing that we do get, which is inevitably passed onto the residents of that housing.

Making housing more broadly affordable will depend on fixing these two problems. We must build more housing, and we must build it more cheaply. Doing that depends on policy fixes.

“For building homes, people often describe three primary categories of costs: land, labor, and lumber,” said Libby Starling, a Senior Community Development Advisor at the Federal Reserve Bank of Minneapolis. Starling works on research and policy analysis around regional housing policies affecting low and moderate-income households.

A long series of rules affect the productivity of inputs within each of these categories, Starling says. For example, land costs are in part dependent on various regulatory requirements that limit how much a developer can reduce per-unit land costs.

Other rules raise labor costs by adding time outside of actual construction, such as necessitating legal costs or the time developers must wait for approval before breaking ground on a building. And lumber costs — or more broadly, the costs of building materials — vary by the materials and building processes that cities mandate.

Sometimes, regulations meant to address larger issues outside of housing harm the overall goal of building more housing.

For example, building material mandates, like the one recently proposed in Minneapolis, risk raising the costs of building housing. In July, City staff proposed formal building material requirements with the primary aim of increasing the environmental sustainability of housing, and the secondary goal of improving building design, that would restrict the types of materials that could be used in new development.

As local geographer Bill Lindeke wrote in MinnPost, these requirements have the potential to “create a real burden for more affordable apartments,” because they are mandating particularly expensive materials for use in construction. Climate goals, Lindeke argued, are no doubt important, but we must be extremely precise and cautious when implementing material requirements that could increase the cost burden of housing.

Various rules also limit how efficiently housing can utilize land.

Land value typically accounts for a significant portion of overall housing costs, and divvying up that cost over multiple units — either by putting more housing units on the same amount of land, or by putting individual homes on smaller pieces of land — can help reduce that cost.

For example, many commercial corridors in Minneapolis have zoning designations that allow for taller, multifamily buildings. But rules like setback requirements, which require buildings to sit a predetermined distance away from the edge of their lot, can subtly limit the quantity of housing that’s built.

“That’s how regulations affect affordability,” said Brit Anbach, a volunteer with the housing advocacy group Neighbors for More Neighbors. “They affect how tall you can build, how many units you can put on a lot.”

For example, take Cody Fischer: a small-scale housing developer in the Twin Cities that’s building a four-story apartment building on NE Van Buren Street. Side setback requirements for this corridor start by requiring housing to sit at least five feet from both adjacent lots. But if buildings go taller than 42 feet — three stories, or a very short four stories — they must successively incorporate longer setbacks, reducing the amount of housing units that are actually viable. In other words, taller buildings end up being squished onto a smaller plot of land that isn’t very enticing for developers to build on.

“For the 60 foot-wide lot that this apartment will be built on, the increasing setbacks reduce the viability of adding gross floor space,” said Fischer.

These rules give Fischer a binding constraint on the amount of space he can build for residents to live in. This is all despite the fact that Fischer was building on an unusually wide lot, as a standard city lot is 40 feet wide — thus for standard city lots, the side setbacks are an even bigger constraint to adding housing.

This is certainly a small technicality, and not a rule that broadly shapes the level of housing affordability in the Twin Cities. But it’s one example of the many little features that can strain the Minneapolis housing market.

And while some rules restrict the ability of larger multifamily housing from efficiently utilizing land, others do the same for small-scale buildings. One of the clearest examples is minimum lot size requirements.

Housing in many neighborhoods cannot sit on parcels with less than 5,000 square feet of land. In low-density Minneapolis neighborhoods, about half of lots are between 5,000 and 6,500 square feet, though some are considerably bigger. Thus, it’s not feasible to split a lot and build a second home, or build two narrow, adjacent townhomes. This acts as a “consumption floor,” requiring buyers to pay for a minimum amount of land. And in areas where the land is expensive, lower-income buyers are priced out of the housing market.

Another instance of policy and process limiting housing affordability is with the permitting and approval of housing.

“We have policies that instead say ‘if you’re gonna build, develop, and improve housing, you need to spend a lot of money on soft costs to mitigate risks that are purely regulatory,’” says Alex Schieferdecker, a planning consultant and housing advocate in Minneapolis.

When developers are required to apply for a zoning code variance, which they are not certain to receive, or when neighbors attempt to block a housing project, the result is more developer time and money spent on approval processes, or developers facing the chance that initial investments to support a project fall through. As with other regulatory issues, the net impact is the raising of housing costs.

Minneapolis policymakers have made meaningful progress on changing some rules that do allow for building more housing, more quickly.

Changes to clarify the zoning code and reduce costly uncertainty in housing approvals have made development happen much more smoothly in Minneapolis, says Jason Wittenberg, a planning manager in the Minneapolis Community Planning and Economic Development Department. Wittenberg points to a large drop in the usage of zoning variances for new housing, which require a special approval from the Minneapolis City Planning Commission. Variances represented 45% of building applications at the CPC in 2020, but only 29% of 2022 applications.

“We have significantly reduced the amount of negotiation in the [housing approval] process, partly through having far fewer variances necessary to develop in the city, as well as having much more clarity about how tall a building can be in a particular location,” Wittenberg said.

Another significant change was the reduction and then elimination of parking minimums. For years, Minneapolis had required that all new housing provide specific quantities of off-street parking spots for all buildings. Minneapolis significantly relaxed those requirements in 2015, before eliminating them completely in 2021.

“Removing [parking requirements] has really allowed more innovation in housing, allowing developers to right-size how much parking they use,” said Brit Anbach, an advocate with the organization Neighbors for More Neighbors.

As a result, many new apartment buildings in Minneapolis used substantially less parking, going from an average of about one parking spot per unit in 2011-2014, to an average of 0.7 parking spots per unit from 2016 to today. This represents a substantial reduction in building costs.

This is a typical example of the benefits that policy changes to reduce the costs of housing can provide. By mandating less costly elements of new construction, we can get more homes and build them more cheaply, which can tangibly increase affordability for those who inhabit those homes. Minneapolis has made meaningful progress in addressing these kinds of housing affordability problems, even though policy barriers still remain.

The most famous effort to address this problem in recent years was the Minneapolis 2040 Comprehensive Plan, which set in motion a great deal of policy change around housing and land use — including key elements of the two positive changes described above. This plan contained both substantial successes and shortfalls towards increasing housing affordability in the Twin Cities. The next article in this series will look more closely into the details of the 2040 Plan.

The Southwest Voices Housing Affordability series is sponsored by Housing First Minnesota.