To aid renters, ease up on investors, landlords

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Throughout the middle of the 20th century, local governments, homebuilders and regular citizens in the Twin Cities combined to impose racial covenants and exclusionary zoning to shore up an unjust system of racial and class segregation. Although Minnesota's leaders today hasten to denounce that past, ill-conceived housing policies could entrench it.

A legislative proposal (SF 365/HF 685) would make it illegal for most types of investors to buy an owner-occupied single-family house, duplex or triplex and rent it out.

It's easy to understand the appeal of the idea. But one must think through the ramifications of effectively banning not just investors, but the people they rent to — many of whom could not otherwise live in a single-family neighborhood.

There's no question that prospective home buyers who have been boxed out by cash offers from richer investors feel like the deck is stacked against them. And whether it's true or not, it feels like reserving some houses for buyers would increase homeownership, including among minority purchasers.

But the real effects of policies sometimes diverge from the sympathies behind them. Locking out renters would perpetuate unequal racial patterns.

More than anywhere else in the country, Minnesota's racial lines echo the divide between renting and owning. Star Tribune data editor MaryJo Webster and I traced the links between zoning, housing type, ownership and race in a research paper forthcoming in the scholarly journal Housing Policy Debate. We were disturbed to find that in the Twin Cities metro, "Black-headed households earning around $100,000 per year have a homeownership rate about equal to white-headed households earning around $20,000."

This deplorable homeownership gap is a primary reason integration has been so slow. Suburbs are disproportionately white, we found, because they are heavily zoned for single-family houses, and only 7% of detached single-family houses in the Twin Cities metro are rented. That's less than half the national average.

However, when suburbs zone for multifamily housing — which is usually available for rent — we found that the resulting buildings attract a racially diverse mix of residents.

Allowing for rental housing, therefore, is the primary way that Minnesota suburbs can make progress on racial integration. Unfortunately, zoning and planned development agreements limit multifamily development to a small fraction of suburban land. Individual subdivisions, where virtually all houses are owner-occupied, remain effectively off-limits to the 69% of Black and Hispanic metro-area households who rent.

It would be perverse to allow an investor ban to choke off one of the few avenues for renting families (of any race) to access the neighborhoods of their choice.

An investor ban that effectively freezes single-family rental housing in place would affect prices, too. Without new competition, the owners of existing rentals would be able to raise rent or neglect service without losing customers. Rents at multifamily buildings might rise as renters chase fewer homes.

The investor ban would also put a stop to the already anemic production of duplexes and triplexes enabled by the "Minneapolis 2040" growth plan. Although many owners of such properties occupy one of their two or three units, renting out all units — which puts one in the "investor" category — is about equally common. Few builders will take the risk of creating a type of housing for which half of potential buyers have been banned.

Obviously, full racial integration can only be achieved with equal access to homeownership and not just rentals. Scholars have identified barriers to minority homeownership, including lack of family wealth, discrimination, credit risk, low marriage rates and low income. These can and should be addressed — and doing so will be a long, multidimensional effort.

But there's no contradiction between working toward racial equality in homeownership and, meanwhile, making space for renters. There is, however, a contradiction between serving renters and banning investors.

Although landlords are easy to cast as villains, they are an essential part of a complete housing market.

Minnesota lawmakers would do better to loosen zoning rules so that every neighborhood can offer a mix of housing options and serve Minnesotans of all races, incomes and stages of life.

Salim Furth, a senior research fellow and director of the Urbanity Project at the Mercatus Center at George Mason University, is the co-author of a forthcoming study on housing in the Twin Cities.