Minnesota homebuilding leader points to city fees as key to bringing down housing costs

Can a house be built in the Twin Cities for less than $375,000? The state's biggest group of homebuilders, Housing First Minnesota, doesn't think so. In a recent report, the group said municipal fees and regulations make it nearly impossible to build a single-family home for less than that price. John Rask, president of Housing First, saw the cities' view working as an official in Plymouth and Hugo. Now a regional vice president for national homebuilder M/I Homes, Rask said rules and fees make new houses in the Twin Cities cost tens of thousands more than they do in any other city in the Midwest. Excerpts from an interview:

Q: Excluding land, what is the cheapest that a single-family home can be built in the Twin Cities?

A: The least-expensive home I've seen recently is about $290,000 for what we call a "villa home," which is a slab-on-grade [concrete slab foundation built on top of soil], one-level home that's geared toward the empty nester, starting at 1,200 square feet. As builders have struggled to bring homes to market at a price that people can afford, we are starting to see homes go down in size. If you look at a traditional single-family home or a two-story home on a regular single-family lot, it's hard to get much less than $350,000 in this market.

Q: What percentage of the total cost of building a home in the Twin Cities is regulatory cost and fees?

A: Probably 20 to 25% depending on the municipality. I've seen it as high as 30%. Across the board, we're just higher than most regions in the country.

Q: What's the balance between a city's rights to maintain standards and a homebuilder's ability to build houses for different income groups?

A: Oftentimes there's just a disconnect from the people writing the codes to people enforcing the codes and then folks like us that have to build the homes under those codes. All three of us can look at it and interpret it differently. We certainly want to build safe and decent homes. We're not opposed to codes. We're not opposed to regulations. We want to make sure that we're delivering a good home.

When you look at the housing market today, it's not the traditional nuclear family anymore. Two-thirds of the market are empty nesters, young people without children, single people. Is it fair to ask a single person moving into a home to pay an $8,000 park fee when they don't have kids and they may not use the parks?

Q: Are fees rising faster than construction costs and land costs?

A: Both fees and construction costs are rising. I have not seen an increase in land costs as much, and part of that is builders can't afford to pay more for land because we're paying more for housing costs and because of labor and material, but then we're also paying more in fees.

One city may say, "John, you got to pay $8,000 a house for a park fee." The next may say, "John, we don't want you to pay that fee, we want you to give us a half a million dollars' worth of land and build the park." All of that goes right into the house cost and the buyer, of course, pays it. They [cities] require us to make certain improvements [to the environment] and that side of the cost of a home has increased faster than construction.

Q: What ideas do you have for lowering the cost of housing for prospective homeowners?

A: It takes generally a minimum of two years from the time you find a raw piece of ground to [when] you can close on a home with the buyer. Certainly if we could shorten that up — and part of shortening that up is reducing some of the redundancy in the regulatory world.

There are five different government agencies that will review stormwater and wetlands: the Pollution Control Agency (MPCA), Department of Natural Resources (DNR), the Army Corps of Engineers, watershed districts and cities … By comparison, we build and develop in Wisconsin, I go to essentially one agency, the DNR in Wisconsin, versus five in Minnesota, and I can get my project permitted.

Q: What issue should the [new] Legislative Commission on Housing Affordability prioritize first?

A: What's broken in the housing world is the fact that we've got a huge demand for housing and we got an undersupply and then we got really high pricing … We can't meet the demand because we're not able to increase the supply and the reason we can't increase the supply is we can't deliver homes at a price people can afford.

Prices stay high because supply is low and demand is high. If we could figure out the supply problem, demand is going to subside and price is going to come down. In Minneapolis, they don't have vacant land. What they were trying to do, and we applaud their efforts, is to just increase the supply of housing within the city. You're not going to see prices come down if the housing stock stays flat or even declines. You need to add to that. If you look at the Twin Cities, we're adding about 18,000 households a year to the market. But when you look at what we've built over the last decade, it was sometimes as low as 6,000 a year. Every year that goes by, we lose ground. If we don't do something, in five years the numbers are going to be worse.