Earlier this year, Housing First MN, a Minnesota trade group that advocates for the interests of the housing industry and homeowners, issued a powerful report entitled Priced Out: The True Cost of Minnesota’s Broken Housing Market (full disclosure: the author represents this organization). The report confirms what others have speculated about in recent years and that is the dramatic difference in the cost of building an identical new home in Minnesota as compared to jurisdictions outside Minnesota. While you may quibble about sections of the report, the central thesis that Minnesota’s regulatory climate is making it virtually impossible to construct new housing that is affordable to entry-level homebuyers has not been seriously challenged. In fact, other objective organizations, including the Minneapolis branch of the Federal Reserve, have reached the same conclusion. One of the final acts of the Dayton administration was to issue a task force report stating that 300,000 new homes need to be constructed by 2030 to meet the exploding demand for affordable housing of all types, both market based and subsidized; under current conditions, this is an impossible task. Minnesota cannot come close to solving the problem through direct subsidy alone; market solutions are required to seriously address the problem.
Housing First takes pains in its report to not single out any regulation or organization as the culprit, rather noting that housing construction is a complicated industry with many competing forces affecting cost, not only regulatory costs. Having said that, the report documents that approximately 25% of the cost of constructing a new home in Minnesota is attributable to state and local regulation. The central recommendation of the Housing First report is that the Minnesota Legislature should establish a bipartisan legislative oversight commission for the sole purpose of evaluating why housing costs so much to build in Minnesota versus surrounding states in the Upper Midwest and recommend potential responses. This recommendation originates with Governor Dayton’s housing task force report. Formation of a bipartisan oversight commission allows for the development of continuity and expertise amongst the panel members; it is an approach routinely used for disparate issues such as data privacy and public pensions. One would think that housing affordability, especially home ownership, which has widespread, documented benefits to our society, would rise to the level such that policymakers would eagerly embrace the idea of a concerted oversight process.
Well, yes and no; the Minnesota Senate has advanced bipartisan oversight commission legislation authored by Republican Sen. Rich Draheim. The House companion, authored by Democrat Andrew Carlson, which also enjoys bipartisan support, has thus far been denied a hearing. Instead, the House seems intent on advancing only Governor Tim Walz’s budget initiative to funnel hundreds of millions toward subsidized housing (the irony is that the same regulatory costs noted above will consume a quarter of whatever amount is approved by the legislature). Ignoring the burden of regulatory cost on housing affordability will not make it go away.
The response of city representatives has been to attack the integrity of the Housing First report. Several proposals introduced into the 2019 legislative session would, in fact, take us in the wrong direction by enabling cities to enact broad new, expensive transportation impact fees. Last year a modest legislative oversight bill targeting state agency regulatory costs was attacked and defeated by state agency representatives and their stakeholders. So far, the regulators are winning and proponents of housing affordability are losing.
The full Priced Out: The True Cost of Minnesota’s Broken Housing Market report can be downloaded here: https://www.housingaffordabilityinstitute.org