For decades the Twin Cities has boasted one of the highest rates of homeownership in the nation.
But a surge of demand and a lack of building — especially after the housing crash and Great Recession — have created an acute shortage of homes that are affordable for most Minnesotans.
“Demand for lower-priced homes has long exceeded the supply of lower-priced homes and right now I would say we’re at a crisis point,” said Libby Starling, a regional planner at the Federal Reserve Bank of Minneapolis.
The decline in homeownership is significant because owning a home remains the most common way Americans build wealth, while also holding down housing costs for the life of the mortgage.
The shortage of homes on the market for less than $400,000 could exacerbate a longstanding problem in Minnesota: One of the nation’s largest racial gaps in homeownership.
Currently, just a quarter of Black Minnesotans own a home, both a cause and effect of the massive wealth disparity between Blacks and whites: The typical Minnesota Black family has no wealth. The typical white family has more $200,000 in wealth.
Starling said getting enough money for a down payment is often the biggest barrier, as well as the psychological barrier of being the first in a family to buy a home.
Starling said the decline in homeownership has other causes that are less concerning than people being priced out: Empty nesters who don’t want the burden of homeownership, as well Minnesotans who prefer the flexibility of renting, which allows them to seek economic opportunities elsewhere without being tied to a home.
With land in short supply, builders are struggling to build new single family homes and townhomes in Minneapolis and St. Paul and their inner suburbs, and are opting instead to build apartments.
Condos could offer a more affordable option for residents along with the benefits of homeownership. But Starling said developers are still leery of building them because there’s a bigger threat of construction defect lawsuits than with apartments and single family homes since condos have a longer liability period.