A recently sold home in St. Paul in June 2021. Photo by Max Nesterak/Minnesota Reformer.
Again this year, home prices have reached new highs while the number of homes for sale has dipped to record lows. Finding an affordable apartment has also rarely been so difficult. The persistent housing crunch across the state is pushing the issue to an even more prominent role at the Legislature.
For the past two years, state lawmakers have authorized borrowing a historic amount to build and preserve affordable housing. This year, Gov. Tim Walz wants to spend more than twice as much.
The housing shortage is also leading local and state lawmakers to look toward drastic policy changes to spur housing development and hold down costs. Voters in both St. Paul and Minneapolis approved rent control ballot initiatives, which state Republicans would like to undo. At the same time, a House Democrat proposes overriding local zoning laws that drive up land prices.
Here are three housing stories to watch this session:
Historic funding for affordable housing
Walz’s $2.7 billion public works proposal includes more than $450 million for affordable housing projects and homeless shelters. Passing a public works bill — what people at the Capitol call the “bonding bill” — is an election-year tradition, but the Republican-controlled Senate is unlikely to go for such a large borrowing package.
Walz’s proposal would be a historic amount for housing, but some House Democrats and affordable housing developers and advocates are pushing for double what Walz is proposing: $1 billion in bonding for developing and maintaining affordable housing. They’re also calling for an additional $1 billion in state spending to provide rental assistance to all low-income Minnesotans who need it.
“Because of income inequality, and now the pandemic, we are still falling behind,” said Rep. Alice Hausman, DFL-Falcon Heights, who chairs the House Housing Finance and Policy Committee. “There are simply so many people out there who don’t earn enough money to be able to afford the housing that’s out there.”
In addition to deciding how much to borrow to fuel affordable housing development, lawmakers will also debate where that money should go. Minnesota began issuing special bonds for housing — called housing infrastructure bonds — about a decade ago, over which time they focused exclusively on affordable rental units. In 2020, lawmakers decided to open up housing infrastructure bonds to fund single family homes.
Sen. Rich Draheim, R-Madison Lake, who chairs the Senate Housing Finance and Policy Committee, said he’s pleased with the shift toward homeownership and would like to see it accelerated.
“If we want to close that equity gap, we have to do better. And that means we have to try something different than what we’ve been doing the last 50 years,” Draheim said. “If we’re going to do housing infrastructure bonds, let’s do single-family homes. Let’s do condos. Let’s do some form of homeownership.”
That shift was not without controversy. Hausman said she wants to see homeownership in the mix but noted it’s more expensive to build single-family homes and there’s still a large need for affordable rental housing.
“Legalizing” affordable housing
Last summer, Rep. Steve Elkins, DFL-Bloomington, released a massive plan aimed at driving down the cost of building new housing by overriding local zoning laws. It would require concessions from both cities and developers, but both would get something in return.
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 like luxury building materials.
This week, Elkins will introduce that proposal in the House for the first time. He’s also made substantial changes to the plan, which he’s rebranded the “Legalizing Affordable Housing Act.”
Under the new bill, cities in the Twin Cities metro would not be allowed to mandate lot sizes larger than an eighth of an acre, about the size of the typical lot in Minneapolis and St. Paul. That’s smaller than the fifth of an acre he originally proposed.
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 cities like Oak Grove and two-and-a-half acres in Nowthen and Spring Lake Township.
The bill would also prohibit cities from mandating minimum square footage for homes or garages and would allow two units on any lot, be it a duplex or accessory dwelling unit like a granny flat.
Some of the proposal is based on bills Draheim has previously introduced like one prohibiting cities from requiring luxury materials to be used on exteriors.
The issue of overriding local zoning, which drives up prices when cities only permit large homes on large lots, may not cut along predictable partisan lines.
Draheim says he’s open to looking at zoning to increase density across the metropolitan area, although he favors a different approach: requiring cities to set aside an area for dense development.
“I’m all for looking at zoning (but) I don’t think opening it up is the answer,” Draheim said.
Hausman, a Democrat, indicated even greater resistance.
“What cities argue is one size doesn’t fit all. And to take away local, and to dictate at the state level, is something that makes cities nervous,” Hausman said.
She also acknowledged her suspicion of Elkins’ proposal because of its connection to the home builders’ trade association Housing First, which has been a vocal proponent of Elkins’ bill. The group advocates for reducing regulations, building codes and fees.
“When you know the origin of a particular bill, it’s always harder to have a comfort level around it,” Hausman said.
Rent control ban
Shortly after Minneapolis city leaders expressed interest in adopting rent control last year, Republicans at the Legislature introduced bills that would block all cities in the state from enacting rent control.
State law already prohibits cities from implementing rent control policies unless approved by a majority of voters in a general election, an exception that Draheim calls a loophole. He authored the bill in the Senate that would ban rent control altogether, as most states in the Midwest have done. The bill passed out of the Senate’s Local Government Policy Committee but didn’t get any further.
Since then, St. Paul voters approved by wide margin one of the most stringent rent control policies in the country that will go into effect in May, and Minneapolis voters approved a ballot initiative that authorizes the city council to develop a rent control policy for voters’ approval.
Rent control advocates say the policy will provide more stability to renters, but its passage has sent shivers through the real estate industry. A number of developers have said they are putting projects in St. Paul on hold after investors pulled out following rent control’s passage. Among them are projects with affordable housing, while some landlords have said they are selling off their properties.
“It’s unfortunate because we’re really trying to help people have more stable housing, and this isn’t helping,” Draheim said.
Draheim says banning rent control will get more discussion this year at the Capitol but is unlikely to be any more successful this year with a DFL-controlled house.
“I don’t think that we’ll be spending any time on rent control,” Hausman said. “Because that’s a local issue.”
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