New Report from the Housing Affordability Institute Reveals Why The Housing Market Fails Too Many Minnesota Families
A new report titled Priced Out: The True Cost of Minnesota’s Broken Housing Market provides a detailed look at the growing regulatory pressures on new homes, which is having a powerful effect on the entire housing ecosystem of our state. The research demonstrates that up to one-third of the price of a new Twin Cities home is due to local, regional and state housing policies.
According to the report, a new home in Lake Elmo, Minn. costs $47,000 more than the identical home built by the same builder with the same materials and trade partners just minutes away in Hudson, Wisc. Similarly, the research shows that a typical newly built home in the Twin Cities will cost up to $82,000 more than the same home built by the same builder in the southwest Chicago suburbs.
What’s Driving These Costs?
The report identifies an array of factors that are creating the shortage of newly built homes for average Minnesota families. “No one entity or single policy is to blame,” said Nick Erickson, regulatory affairs manager for Housing First Minnesota and chief author of the report. “But the cumulative impact of city park and permit fees, development requirements on builders both inside and outside the development, zoning, water management, land availability, and state regulations prices out too many Minnesotans from the home of their dreams,” said Erickson.
The conclusions of the report have been echoed in several other similar assessments. For example, former Gov. Mark Dayton’s Task Force on Housing concluded after a year of work that the regulatory impacts on housing must be reviewed and that the private sector needs to construct 300,000 new homes by 2030. The Minneapolis Federal Reserve Board Chairman Neel Kashkari has also acknowledged the broken housing market, the impact of regulation and the lack of available land for building. The Metropolitan Council has added its voice in recognizing the affordability crisis in Minnesota, which has reached epic proportions.
Disappearance of Entry-Level Homes
With all of the factors in play identified in the study and confirmed by other thought leaders, Minnesota has a dearth of entry-level and moveup new homes. That’s putting intense pressure on rents, the move-down and move-up market, and creating an unsustainable housing market, explained Erickson.
“This disappearance of affordable new homes is not due to a change in buyer or builder preferences, but to homebuilders simply being unable to build at a price that many buyers can afford,” said David Siegel, executive director of Housing First Minnesota.
Need for Greater Transparency
“The report does not suggest that rules and ordinances are not appropriate. Rather, it shows how costly building regulations, and the choices they represent are,” said reviewing national economist Elliot Eisenberg. “The results are clear and the belief that regulations don’t matter, or that builders and developers absorb regulatory costs is shown to be false.”
To illustrate how each of these policies adds to the cost of a new home, the report introduces a “Housing Affordability Impact Statement” for each home. These statements bring increased transparency to the new-home purchase process by laying out all the factors influencing a home’s price in a clear, easy-to-read manner.
Finding a Solution
To address this crisis, Priced Out calls for the creation of a Legislative Commission on Housing Affordability. This Commission would provide for a bipartisan legislative forum in which affordability would be center stage. Existing local, regional and state housing policies would be reviewed with an eye toward affordability.
Further, the Commission would proctor an innovation challenge that connects homebuilders, land developers, cities and state agencies to use innovation to create affordable housing solutions. And finally, the Commission would put forward a transparency standard so all stakeholders can see what’s driving up the cost of new homes and make well-informed decisions.
“With regulatory costs skyrocketing and no broad awareness of how local, regional and state policies cumulatively affect housing prices, a new direction is needed,” said Siegel. “The legislature is the natural home for this reimagining of housing and the renewed focus on housing affordability.”
The Housing Affordability Institute presented the Priced Out study to the Minnesota Legislature this session in both the State House and Senate Housing Committees. Bipartisan legislation creating the Legislative Commission on Housing Affordability as proposed in the report has been introduced in both the House and Senate.
If you would like to obtain a copy of the Priced Out report, please contact Kate Wigley of Housing First Minnesota at Kate@HousingFirstMN.org