Affordable units now a requirement for new apartment buildings in Minneapolis

After Minneapolis leaders pitched a plan to require affordable housing inside new apartment buildings, some developers issued a threat: Enact it, and we will flee.

On Friday, the city decided to move ahead anyway.

"We need to be brave enough to make policy that addresses a problem with the status quo," Council President Lisa Bender said. "If we are too concerned about making changes, what we are really doing is leaving folks out of our growth."

One prominent developer, Kelly Doran of Doran Cos., said he has already stopped pursuing new projects in Minneapolis and is instead focusing on the suburbs and other states.

"I just know from a business standpoint the numbers won't work, so why look?" he said.

The City Council voted unanimously Friday to approve the new policy, called inclusionary zoning. It's a hallmark of the 2040 Plan that will guide development in the city for the next two decades. Minneapolis officials hope that by requiring affordable housing units in many new buildings, they will allow renters to stay in a city where the housing costs are continually rising.

Inclusionary zoning exists in at least 300 jurisdictions, but its impact on the housing market can vary widely depending on how the requirements are worded and how much funding, if any, comes along with them, according to an analysis by New York University's Furman Center for Real Estate & Urban Policy.

The Minneapolis policy, which goes into effect Jan. 1, requires people who are constructing apartment buildings with 20 or more units to meet certain criteria.

For at least 20 years, they can make 4 to 8% of their units available to people who make certain amounts below the area median income. Or, if they commit to making 20% of their units affordable for 30 years, they can seek financial assistance from the city.

They can also leave affordable housing units out of their new buildings if they create or preserve them nearby, pay a fee to the city or donate land to the city.

City officials and developers agree that there is a housing crisis. But developers don't think this policy will help solve it because it doesn't come with wider financial incentives. They argue the requirements will drive up rents and stifle housing growth in a market that is already pinched.

"There's nobody in the industry that is philosophically against this," Doran said. "There's nobody that says we don't want those people. That doesn't exist. It's about math — and money."

Supporters note that similar policies have been adopted elsewhere in the country, including in some Minneapolis suburbs. But Steve Cramer, president and CEO of the Minneapolis Downtown Council, contends that some of those places offer larger financial assistance to developers. "That's the key distinction," he said.

Council Member Lisa Goodman, like others on the council, questioned whether the requirements would truly drive away housing development. She noted that she has seen out-of-town developers pursue projects in Minneapolis.

"What we're trying to do is even the playing field for affordable housing," she said, adding later: "We're not talking about adding a massive burden here. We're asking about doing your fair share."

In the coming months, Cramer will watch to see how the number of building projects coming to Minneapolis compares with development in other areas. He said he hopes that the City Council will revisit the issue if members see signs that the new policy is having a chilling effect.

During the same meeting — the council's last of the year — members also passed an ordinance requiring landlords who lose their licenses to give their tenants three months of rent to help them relocate. If the landlords fail to do so, that money will be added to their property tax bill, along with a $500 administrative fee charged by the city. The new policy goes into effect in June.

Council Member Phillipe Cunningham, who sponsored the new ordinance, said he hopes this will add more accountability for landlords, noting that city officials in the past have had to weigh the public benefit of getting a landlord out of the business against the ordeal of forcing their tenants to move.

The council also voted to eliminate maximum occupancy rules, which limited the number of unrelated people who could live together in some portions of the city. Mayor Jacob Frey will approve all three housing measures, according to spokesman Darwin Forsyth.

Liz Navratil • 612-673-4994