Ramstad: Success for Minnesota’s affordable housing providers is when they’re no longer needed

Many of the state’s affordable housing developers want Minnesotans to support a state constitutional amendment that would enshrine a funding mechanism to them for years to come.

It’s the wrong time for them to be seeking that, after legislators last spring allocated the most state money ever to the construction of affordable housing.

Creating an ongoing fund assumes an ongoing need. Minnesota’s policy goal on affordable housing, however, should be to eliminate the need. Success for an affordable housing organization is when it is no longer needed.

As I wrote on Sunday, every place in Minnesota needs more homes of every kind and price. With the state population growing more slowly than ever and its workforce flipped from abundant to scarce, the worst thing for Minnesota’s economic competitiveness would be to become an expensive place to buy a home.

The best way to assure that doesn’t happen is to build. Build everywhere. Less arguing, more building.

I also noted Sunday that construction of affordable housing — meaning the kind the government subsidizes because it is aimed at lower-income people — will be a higher percentage of overall homebuilding in Minnesota this year. That’s due to the combination of high interest rates slowing down private development and the outsized, $1 billion expenditure for affordable housing that was approved by the Legislature last spring.

Affordable housing providers and advocates, through a new effort called Our Future Starts at Home, want a constitutional amendment that will create a “legacy fund” for them. It would be paid for with a sales tax that would start in 2025 and last until 2050.

Their model, as Lori Sturdevant wrote on Sunday, is one that Minnesota voters approved in 2008 to protect clean water sources. That fund began in 2009 and expires in 2034.

I don’t blame affordable housing providers for seeking a new funding source. For decades, they’ve only had the state’s bonding program or tax credits. Both are inefficient.

There is relatively little in the way of direct state money. Only $50 million or so of the $1 billion from the state’s 2024-25 budget cycle is in its ongoing base budget for the 2026-27 period.

“Even in a session where we had this historic surplus and were able to make a huge investment, most of that represented one-time spending,” said Rep. Michael Howard, DFL-Richfield, who chairs the housing committee in the Minnesota House.

However, legislators also last year approved a .25% sales tax increase in the metro area with proceeds aimed at housing.

Eric Anthony Johnson, who leads Aeon, a Minneapolis-based affordable housing provider, in a conversation earlier this month described the bigger picture. “If you are relying solely on government for affordable housing, you’re not going to get the level of production” that the market needs, Johnson told me.

Johnson, a former housing director in Bloomington, returned to the Twin Cities in 2022 after spending two years as economic director for the city of Dallas, where he aligned housing policy with the bigger goal of making the city’s poorest residents wealthier.

He streamlined the building permit process and set up a city-governed nonprofit organization that could collect public money and private donations to fund affordable housing and other projects.

“We actually created a new economic development corporation to give Dallas the ability to compete,” Johnson said. “Everybody in the suburbs around Dallas was killing Dallas because these economic development corporations could move at the speed of the market and do things the city couldn’t.”

Johnson said Minnesota “just needs the ability to turn it up a notch or two in addressing [affordable housing] challenges and moving with a sense of urgency.” Aeon supports the push for a legacy fund via constitutional amendment.

I fear that creating a legacy fund now will let everyone in Minnesota’s affordable-housing fight ease up rather than move urgently. Besides, demand for affordable housing in Minnesota should decline in the future as more people rise up from low incomes.

Howard said he recognized that support for a constitutional amendment, which would benefit housing projects across the state, may take a few years to build. “This is probably the year to build momentum and evaluate where things stand in terms of the investment we just made,” he said.

Removing other obstacles to homebuilding of all kinds should be the more immediate priority for legislators, and Howard said he recognizes that.

“Our $1 billion is needed and is going to help build a lot of [affordable] units,” he said. “We also need to pursue policy reforms that underlie our entire housing market. Take away the barriers to more housing.”

Affordable-housing proponents and developers can come back with the legacy fund proposal in a few years, after showing Minnesotans what they did with the current windfall.