Lawmaker looks to drive down housing costs by overriding local zoning laws

By: - August 10, 2021 5:15 am

An aerial view of Cottage Grove circa 1959. Courtesy of the Minnesota Historical Society.

The so-called five L’s of homebuilding — land, lots, lumber, labor and laws — have driven new home construction prices in the Twin Cities far beyond what the typical household can afford: The median price of a new house in the 7-county metro area is $472,000.

Rep. Steve Elkins, DFL-Bloomington, outlined a comprehensive housing affordability plan on Monday that tackles three of the L’s — land, lots and laws — that constrict housing development and reinforce racial and economic segregation. (The economy will have to work out the other two — labor and lumber, both of which are in short supply — on its own, he said).

Elkins, a second-term lawmaker with a resume of working through thorny planning policy issues on the Bloomington City Council and the Metropolitan Council, is sticking his hand in a political and policy hornet’s nest that could have profound implications on how and where Minnesotans live and the makeup of the state’s severely segregated schools.

Elkins described his proposal as a kind of great compromise between cities and housing developers. Cities would be able to charge builders for the cost of new public services for the development — currently prohibited under state law — in exchange for giving up restrictive zoning rules and other regulations that drive up costs.

“I’m bundling them all together into one comprehensive approach, because I think that’s the best way to actually get something passed,” Elkins said. “Each side has to give a little bit in some areas in order to get other things they want really badly.”

Elkins plans to introduce the bill during the September special legislative session — “to generate conversation” — and push for it in earnest next year.

His proposal would override local zoning laws to allow for greater density by permitting duplexes in all residential neighborhoods and capping minimum lot sizes at one-fifth of an acre, which is still about one-and-a-half times as large as the typical city lot in Minneapolis.

Currently, Twin Cities suburbs require minimum lot sizes of a quarter-acre or more, with some mandating as much as two acres for each home in the case of Oak Grove and two-and-a-half acres in Nowthen and Spring Lake Township.

Rep. Steve Elkins, DFL-Bloomington, unveils his comprehensive housing affordability proposal on Aug. 9, 2021. Photo by Max Nesterak/Minnesota Reformer.

Elkins’ proposal also takes aim at other local regulations that drive up construction costs like mandating space for multi-car garages and using “upscale” exterior building materials such as brick and stone facades, an idea previously proposed by Sen. Rich Draheim, R-Madison Lake.

While these proposals are popular with builders, they are unpopular with many cities. Single-family homeowners reliably come out in force to block construction of affordable and multi-family housing, making it politically dangerous for local leaders to champion them.

Housing First Minnesota, a trade group representing homebuilders, praised Elkins’ proposal as a “good starting point.”

The League of Minnesota Cities blasted the proposal for its broad-brush approach that they say in no way guarantees the creation of affordable housing.

“Local decisions should be made by local governments and their residents, and not be driven by state mandated one-size-fits all policies,” said Gary Carlson, League of Minnesota Cities lobbyist, in a statement.

Elkins’ consolation for cities is to allow them to charge home builders the true cost of development. State law currently prohibits cities from charging developers for the cost of new infrastructure such as roads for new housing developments.

This has led to cities making up the costs in other ways, such as exorbitant permitting fees, as well as trail and park fees. Housing First recently filed suit against two suburban cities for charging permitting fees in excess of what it cost them to issue the permits, a violation of state law.

The law against making developers pay also creates incentives for cities to force developments to go through what’s called a “planned unit development” process, which Elkins says is essentially a game of “Let’s Make a Deal.”

“The zoning ordinances go out the window, and the developer and the city can negotiate anything they want,” Elkins said. “I believe that it’s more appropriate to just do it directly (and) put the proper boundaries in state law.”

Trading development impact fees for caps on other fees may not reduce how much a developer pays to city coffers, Elkins acknowledged.

“​​But the risk to the developer will decline,” Elkins said. And with it, the costs of lengthy negotiations and unique development plans that may end up failing to result in new housing.

Reducing development costs will also make state tax dollars go further. Last year, the Legislature approved a record-setting $100 million in housing infrastructure bonds to create more affordable housing throughout the state.

Elkins’ bill would also require cities to conform their zoning rules to their comprehensive plans. Metro area cities must submit comprehensive plans to the Metropolitan Council every decade, and those plans must include areas designated for multi-family housing to qualify for certain grants.

But after receiving the grants, some cities have chosen to revise their comprehensive plans to block unpopular multi-family housing.

The state’s progressive tax code also gives cities a financial incentive to restrict development to high-end construction: Home values over $500,000 are taxed at 1.25 times the rate of home values under $500,000.

In fact, out of all residential construction, only single-family homes worth more than $350,000 provide a positive fiscal impact, according to a 2012 study commissioned by the state’s Department of Revenue.

Even if Elkins’ pitch becomes law, it would mostly impact the outer edges of the Twin Cities metro, which are the only places with much open land for development. And, it’s not clear lower income Minnesotans would want to live in places without easy access to the jobs of the Twin Cities and inner ring suburbs.

On Sunday, the Star Tribune published an investigation into the local zoning laws across the Twin Cities metro area that have reinforced segregation and economic inequality by effectively excluding low-income people from being able to move in.

Following the report, Assistant Minority Leader Rep. Jim Nash, R-Waconia, sent a letter to the leaders of the Legislative Commission on Housing Affordability urging them to read the story and schedule meetings ahead of the 2022 Legislative session, noting the group has only ever met once 18 months ago.

“This article … provides a sobering assessment (of) the adverse impacts to housing affordability and access caused by current housing policies at the local level,” Nash wrote.

Elkins said he hopes to find bipartisan support by including proposals previously called for by Republicans, such as pushing cities to relinquish zoning for single-family homes. He said he hopes Draheim, who chairs the Senate Housing Finance and Policy Committee, will take up his bill in the Senate.

In a statement, Draheim said: “I am very interested in working towards a bipartisan housing affordability solution … We are committed to free-market solutions that prioritize property rights and housing affordability so that every Minnesotan, regardless of background, can achieve the American dream of homeownership.”

But Elkins will likely face resistance from suburban members, who say local leaders should be able to control what kind of housing gets built in their communities.

For example, Republican legislators at a recent bipartisan Habitat for Humanity build event said they don’t think the Legislature should interfere with local land use regulations.

“I truly think that if a community wants to have higher-end houses, and the population can afford it, that’s what they should build there,” said Rep. Donald Raleigh, R-Circle Pines.

*This story was corrected to reflect the correct property tax rate on home values over $500,000.

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Max Nesterak
Max Nesterak

Max Nesterak is the deputy editor of the Reformer and reports on labor and housing. Previously, he was an associate producer for Minnesota Public Radio after a stint at NPR. He also co-founded the Behavioral Scientist and was a Fulbright Scholar to Berlin, Germany.