High housing costs are not the problem, but a symptom

Broad agreement exists that we suffer an affordable housing crisis in Minnesota — especially in the Twin Cities. The cause is no mystery.

Affordable housing is scarce here because state and local governments effectively make it illegal to build.

Fortunately, bipartisan legislation proposed at the State Capitol would seek to change that.

Let me explain.

It has been reported that, outside coastal states like New York and California, the Twin Cities rank at the top for housing costs, with Twin Cities residents paying an average of some 26% more than neighboring states.

This situation should be a cause of concern to political conservatives, libertarians, small government/free market types or whatever label you might want to use (no doubt readers can offer some pungent suggestions) for all who generally share the belief that, with honest, productive work, a person should be able to provide a decent life for themselves and their family.

Fact is, a good place to live is an important part of that decent life, but it is beyond the reach of too many here.

It is especially important for free-market believers to address the affordable housing shortage — because they have the solutions.

A price is not a problem so much as the indicator of a problem. A high price, which is how our affordable housing crisis manifests itself, acts like a big flashing light, screaming to us that demand is high relative to supply. The price is the symptom, the supply-demand mismatch is the illness.

Attempts to treat the "symptom" of high price without treating the underlying "illness" of inadequate supply — such as St. Paul's disastrous rent control policy or proposals to pump more money into the housing market by subsidizing buyers and tenants — will only make the problem worse.

To treat the illness we need to figure out what is causing it. In 2017, the Pioneer Press asked 60 government officials, builders, Realtors, housing and energy lobbyists, and home buyers. The leading culprits were "regulations, including energy-saving rules and safety codes, [which] are tougher and costlier than in surrounding states"; the cost of metro-area land, which "is elevated by centralized planning, larger mandated lot sizes and a public resistance to development"; and "an increasing use of city fees, tucked into the price of a new house," which can add tens of thousands of dollars.

A 2019 study by Housing First found that municipal fees and regulations in the Twin Cities account for up to one-third of the price of a new house here so that an average home in Lake Elmo would cost $47,000 less in Hudson, Wis., and that a new home in the Twin Cities costs as much as $82,000 more than a similar home built by the same builder in the southwestern Chicago suburbs.

If "regulations" is too vague, Paul Heuer, a developer and former city engineer, offered examples in the Star Tribune last year: "requiring stone on the fronts of starter homes, having five or six wetland experts meet on site to verify that wetland boundaries are correct, navigating through duplicative stormwater reviews from both cities and watershed districts, [and] completing Environmental Assessment Worksheets for modest size neighborhoods."

These regulations offer cities a way to raise the funds to cover the costs of providing new infrastructure. They are used because general development fees — a set cost per housing unit, for example — and mandatory street fees are not allowed under Minnesota law.

Bills proposed in the Legislature by Reps. Steve Elkins, DFL-Bloomington; Mike Howard, DFL-Richfield; Athena Hollins, DFL-St. Paul, and Sen. Rich Draheim, R-Madison Lake, would change that. They would give cities the ability to impose both development fees and street maintenance fees. In return, cities would give up the power to impose development moratoriums, to require the planned unit development process, to require "upscale" exterior materials or multicar garages, and their authority to demand large minimum lot sizes.

Cities also would be required to allow at least duplexes in single-family zones and act on building permits within 60 days. The right to develop land according to comprehensive plans and zoning would be established.

These bills clearly leave a long way to go but they are definite steps in the right direction. They tackle the supply illness, not the price symptom, and will help bring the American dream of homeownership closer for many Minnesotans.

John Phelan is an economist at the Center of the American Experiment.