The United States doesn’t have enough housing. And it certainly doesn’t boast enough affordable housing. Not surprisingly, the same can be said of the Minneapolis-St. Paul market and its suburbs.
Renters and buyers alike are struggling today to find affordable housing in their communities.
Blame it on the high prices for single-family homes. The higher mortgage interest rates aren’t helping, either. Both are preventing many renters from making the leap to homeownership. This only increases the demand and need for more multifamily housing.
But when this housing is built? It’s often targeted to wealthier renters. That’s because it’s so difficult for developers to recoup their money on affordable housing. They simply can’t charge high enough rents to offset their construction and operational costs.
What are the solutions? Minnesota Real Estate Journal spoke with two affordable-housing advocates about the challenges in this arena and about what can be done to increase the supply of affordable multifamily units in the Twin Cities market.
Here is some of what they had to say.
Anne Mavity
Executive Director
Minnesota Housing Partnership
St. Paul
Can you tell our readers a little about what the Minnesota Housing Partnership does?
Anne Mavity: Our mission is to make sure that everyone in Minnesota has a home. We conduct housing research and use that research for policy development. We help lead coalitions dedicated to bringing more housing to the state.
We are a hub in the state for driving affordable-housing solutions at the state level and in the state legislature. We provide direct technical assistance for rural communities and Native American communities across the state. We provide housing experts for communities that are too small to have that expertise. We help communities identify solutions to their housing needs and help them write applications for new housing.
How hard is it for renters and buyers to find affordable housing in Minnesota today?
Mavity: Across the country we do not have enough housing. We are seeing this in Minnesota, too. In every county in Minnesota, we need more housing. We need housing of every kind in every corner of the state.
The Twin Cities area is a hub of the state. It’s also a hub that showcases the disparities of what people can afford and how much housing costs. We track several data points to understand when people are paying too much for housing. Overpaying for housing is a big issue in the Twin Cities. It doesn’t just stress a family’s budget. It stresses our larger community, too. When people are spending too much on housing, they don’t have enough money for transportation and healthcare. That makes it hard for kids to thrive in schools. It makes it hard to develop a good workforce.
It makes sense that those with lower incomes are the most stressed. In the Twin Cities market, 83% of low-income people are paying more for housing than they can afford. That is a stunning statistic.
Why is the problem so severe today?
Mavity: We are in this mess because of things that happened almost 20 years ago. We are still trying to make up for the collapse in the production of new housing units that happened during the recession in 2006 through 2008. We are trying to catch up to that housing gap. The housing gap is particularly acute with our lowest-income households. It’s difficult for them to find rents that they can afford.
We track the most in-demand jobs. Where is job growth happening? This is the first year in which those working in the higher-paying jobs were not earning enough to afford a basic two-bedroom rental apartment. This is the first year in which a registered nurse is not earning enough to access homeownership.
Whether we are looking at homeownership or rentals, we are not producing enough homes. The squeeze is happening both in single-family and multifamily homes.
How have higher interest rates and construction costs exacerbated the problem?
Mavity: It’s tightened the flow of capital that can go into projects. Everything costs more because of higher labor costs, materials costs and property insurance. Property insurance is a big one.
There is a nervousness in the housing market. There are all these higher costs and not as much money flowing from the banking system because interest rates are so high. Everything has slowed down.
In Minneapolis, part of the slowdown is also because of the court review and hold on the 2040 plan. That plan gives the city the tools it needs to increase density in certain neighborhoods and build more housing. The Minnesota Court of Appeals earlier this year reversed a decision by a lower court to put a hold on that plan. It’ s good that the city can move forward on that plan now. Minneapolis was a leader in creating units of housing. That ruling by the lower court froze hundreds of housing units that were in the pipeline. Minneapolis is such a driver for what is happening in this region. If housing is slowed in Minneapolis, it impacts the entire region.
Do developers need financial assistance from government and public sources to build affordable housing?
Mavity: There is a book called Homelessness is a Housing Problem (by Gregg Colburn and Clayton Page Aldern) that says that of all the factors that people think cause homelessness none of them are as statistically significant as the supply of available housing. The supply of housing is the biggest determinant of homelessness. The problem here is that the market can’t produce enough housing, with all the costs that it takes to produce that housing, for what someone working a full-time minimum-wage job can afford to pay. That is the gap that needs to be filled.
Yes, developers do need assistance to build these projects. But it’s more than just that. We are losing the battle to create these homes project by project. The neighbors might say that a project doesn’t fit the character of their community. That sort of neighborhood opposition is one of the barriers that is preventing the market from unleashing market innovation and production to address this housing shortage. Our whole system is set up in a way that gives the power to stop a project to the person down the block.
The Minnesota Housing Partnership is helping to convene a statewide coalition, a multi-sector coalition of people to help address the housing supply and remove barriers that add time and cost and, frankly, often stop good projects from happening. We are working on zoning and land-use reforms at the state level. It’s about trying to ensure that communities can guide and steer their vision but also make it easier to release market innovations that result in more housing.
Are there any positive signs in the affordable-housing market?
Mavity: Housing is now recognized as a top-tier issue in the state. If Minnesota wants to be the best state in the nation for children to thrive, we need more homes. If businesses want to expand, they need housing for their workers. Bringing more affordable housing to the state has support on a bipartisan level. People want to solve this issue.
Here is one easy solution: If an area is already zoned for commercial use, allow multifamily housing to be built there. There is no reason not to allow for that.
There are three big levers that we can use to find solutions. First, we can make land-use and zoning reforms so that it’s easier and faster to get approval for a project. Second, we need robust resources to fund housing solutions for the next generation. If we want housing to be affordable, we need public subsidies to bridge that gap. The third area is rental assistance. Low-income people need help to pay their rents. We helped create a rental assistance program last year in the metro area through the metro sales tax. We have to make sure that gets funded statewide.
Eric Anthony Johnson
President and chief executive officer
Aeon
Minneapolis
Can you gives us an explanation of what Aeon is?
Eric Anthony Johnson: We provide affordable housing. We have about 6,000 units of affordable housing that we have provided in the Minneapolis area. Aeon has been around close to 40 years. It came to be when the convention center was built and displaced so much housing. Our mission was to provide housing for the people who were losing their homes. We focus on everything from tax credits and supportive housing to seniors housing. We have about 1,000 affordable units in downtown Minneapolis. We also have units in Brooklyn Park, Edina and Bloomington. We are constantly looking at ways to address affordable housing issues here.
We operate heavily in what is known as naturally occurring affordable housing. These are older buildings built in the mid to late 1960s. We preserve that housing, maintain them and often renovate them. These properties usually come with significant capital-improvement needs. Private investors often buy them, fix them up and raise the rents. We buy those properties when we can. We try to fix them up with the goal of preserving them as affordable housing.
How difficult is it to provide affordable housing in today’s market?
Johnson: There is a supply and demand disconnect. For years, there wasn’t enough housing being built. The shortage is a significant one. We have to build at least 18,000 new units a year just of regular, market-rate housing. Then you drill down further. By 2030, there is a need in the Minneapolis-St. Paul region for 38,000 more units of affordable housing. Some progress is being made, but the challenge is daunting. There is a significant disconnect between the incomes that people here are earning and the cost of housing in this region. Some would argue that we have an income problem. People don’t make enough to pay housing costs.
Part of the problem is that everyone treats this as a zero-sum game. It’s a fight, with developers vs. the community and the community vs. the government. We need to reset how we engage with each other to find solutions to this housing challenge. That is the big challenge that we are facing. The impact of not having enough housing is so significant. It impacts the economy. It impacts the health of individuals. We have to break free of this zero-sum-game thought pattern so that we can work together in a more creative way. We must create new strategies.
What are some of the more creative approaches that developers, communities and governments can take to solve the housing shortage?
Johnson: We are dealing with a housing system that has been static. On the affordable housing beat, we have a few select tools. We can turn to the Low-Income Housing Tax Credit. But that’s a very competitive process. It’s a limited tool. There’s also the public housing system. Those systems that are still operating have significant backlogs. The bulk of public housing is moving more toward a voucher system. What is left is for local governments to use their limited money to subsidize developers. Unfortunately, there are not enough subsidies to adequately address the need for more housing.
We are in this age of change and disruption, yet there is a serious lack of creativity in the affordable housing space. We have restrictive zoning. We have high land costs and construction costs. We have high labor costs. We face NIMBYism. We have not come up with creative solutions. What we need is a whole other level of education. Policymakers need to work with communities and up our game when it comes to educating people about the benefits of affordable housing. We have to remove some of the subjective nature of this conversation.
We must show courage in coming up with new ideas. Let’s try some pilot programs. Let’s educate people about the link between affordable housing and economic stability. Let’s identify developer partners and align our resources to get this done. The numbers are staggering, but the way in which we have been attacking this problem is by doing the same things over and over.
You mentioned NIMBYism. How serious of a problem is this for affordable housing?
Johnson: NIMBYism can stop projects in their tracks. People worry that affordable housing will lower their property values. But there is no research that shows that affordable housing will lower the value of your property. NIMBYism can be a very loud voice. Without us educating people, it’s difficult for elected officials to wade through this. Neighbors need to understand that the people who need affordable housing are working at the hospital. They are working regular jobs. For some reason, the narrative around affordable housing is so skewed. The idea of it scares people.
Are the challenges in the single-family housing market putting additional strain on the existing multifamily properties in the Twin Cities?
Johnson: Given the price of a single-family home in the Twin Cities area, I don’t know how people with low to moderate incomes can ever afford to buy a home, unless there is some massive subsidy involved. That says to me that we are going to need quality multifamily units that rent at a price point that people can afford. If you can’t provide that, you will see an increase in homelessness.
There are increased costs to build housing. Insurance costs are going through the roof. Material prices are high. All these issues are making it more difficult to sustain the affordable housing we have and to build new. We hope interest rates will go down. But that’s not guaranteed. You travel all over the country and you’ll see the same thing over and over.
