Minneapolis' secret to housing: simply build more.

Minneapolis is addressing its housing challenges by focusing on a simple yet effective solution: increasing the supply of homes. This strategy aims to combat rising housing costs and improve affordability for residents. By prioritizing the construction of new housing, Minneapolis hopes to meet the growing demand and create a more accessible housing market, ultimately enhancing the quality of life for its community.

Finding affordable housing in the United States has become increasingly difficult. Although the average 30-year fixed mortgage rate has dropped by about a percentage point over the past year, the median sale price for existing homes has risen by 3.1%, as reported by the National Association of Realtors.

In response to this crisis, a program in Minnesota may provide a solution, despite some controversy surrounding it. In 2019, Minneapolis became the first major U.S. city to eliminate exclusive single-family zoning, allowing developers to construct multifamily buildings on lots previously occupied by single-family homes. Through the Minneapolis 2040 plan, the city encouraged diverse development projects across neighbourhoods, including affordable housing units.

The plan also introduced reforms like removing parking requirements and prioritizing designs that accommodate public transit, pedestrians, and cyclists. Minneapolis Mayor Jacob Frey emphasized that the goal is to house multiple families, not just one, thus increasing the diversity of housing options.

Housing has emerged as a critical issue in political campaigns, especially given that 70% of inflation is linked to shelter costs. Candidates like former President Donald Trump and Vice President Kamala Harris have promised support for first-time homebuyers, with Harris proposing the construction of 3 million new homes to tackle the affordability crisis. Trump’s campaign has blamed rising housing costs on current administration policies and suggests freeing up federal land for housing development.

Since the adoption of Minneapolis 2040, housing stock in the city has grown by 12% from 2017 to 2022, compared to just 4% statewide, according to a Pew Research report. Hennepin County, home to Minneapolis, ranks as the second-easiest county in which to buy a home among its neighbours, despite being the state's most populous.

Interest in homebuilding is rising, with developers filing construction permits at rates two and a half times the yearly average. Ryan Allen, an urban planning professor, noted this as a positive indicator of confidence in the housing market. The ultimate aim remains to make living in the city more affordable. While various factors affect market rates, early indications suggest that Minneapolis's approach is contributing to lower rents.

In contrast to the national trend, which saw rents rise by 22% over five years, Minneapolis experienced a 4% decrease in rents during the same period. This is noteworthy, especially given the upheavals caused by the pandemic, supply chain issues, and rising interest rates.

However, Mayor Frey acknowledges that the Minneapolis 2040 plan has been controversial. Many residents voiced their concerns, with signs popping up across the city urging developers not to “bulldoze my neighbourhood.” In Northeast Minneapolis, for instance, a sign opposing land development sits near the Solstice Apartments, a new complex with 23 units, a fifth of which are designated as affordable. This development replaced a single-family home, demonstrating a significant increase in housing density.

Developer Cody Fischer stated that such a project would not have been feasible before Minneapolis 2040 due to zoning and parking restrictions. He noted that while there was significant pushback from neighbours, the project ultimately serves the community.

Local resident Jeremy Wieland expressed concerns about the traffic implications of the Solstice Apartments, although he supports other multifamily developments that align better with the neighbourhood’s character. Fischer believes the building integrates well into the community, and parking issues have not arisen as feared.

Environmental advocates have also raised concerns, claiming the city needed to prove that increased housing density would not harm the environment. A lawsuit from several nonprofits claimed Minneapolis violated the Minnesota Environmental Rights Act by not sufficiently demonstrating that the 2040 plan would be environmentally sound. Although a court order initially paused the plan's implementation, the Minnesota Legislature later enacted a law protecting it from such lawsuits, and the Minnesota Supreme Court chose not to review the case, allowing the initiative to proceed.

As the project gains momentum, supporters argue that Minneapolis's approach highlights the necessity of a comprehensive strategy, incorporating regulation, community involvement, and funding to tackle the housing crisis. Allen from the University of Minnesota emphasizes the need for active policies at all government levels to support the housing market effectively.

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Source: CNBC‍