Minneapolis moves toward affordable housing mandate

Minneapolis is getting close to enacting an ordinance that city officials hope will boost the supply of affordable housing in the city.

“If we had had this ordinance in place over the last number of years, we would have been getting 400 or 500 units per year of affordable housing, just through this tool,” said Lisa Bender, a council member advocating for the adoption of what’s called “inclusionary zoning.”

Under the inclusionary zoning proposal, developers would have to assure some units in most housing projects are within reach of lower-income renters.

But builders complain the city’s draft ordinance is too onerous and could backfire.

Minneapolis has a serious shortage of housing low-income people can afford. Census data shows about half of renters in the city struggle to pay their landlords.

Since 2000, Minneapolis has lost about 15,000 housing units considered affordable for low-income folks. Meanwhile, few inexpensive new apartments have been built. From 2012 to 2017, Metropolitan Council reports show Minneapolis added about 1,600 relatively affordable apartments and about 13,000 higher-priced units.

The city's other efforts on the housing front include everything from tax breaks for landlords who restrain rents to zoning changes permitting higher density development throughout the city, including in neighborhoods historically limited to single-family homes.

Bender doesn't believe the draft proposal asks so much of developers that they'll put the brakes on apartment construction. She said the ordinance, as it stands, strikes a balance and could be tweaked as needed, if problems emerge.

“Part of what took a while was to do an economic analysis and do our best to figure out what's that right sweet spot that is getting us the most affordable units but also not killing projects and making them unviable or impossible to build,” she said.

The ordinance would apply to most projects with 20 or more housing units. Four to 20 percent of the apartments would have to be within reach of lower-income tenants. Some developments could get financial help from the city. Developers wanting to avoid the on-site inclusionary zoning requirement could donate land, pay a fee or build or maintain affordable housing at another site.

Steve Cramer, president of the Minneapolis Downtown Council, said developers are not absolutely opposed to inclusionary zoning but the city's proposal goes too far. And in conjunction with other well-intentioned efforts, Cramer said, it could make the city's housing crunch worse.

“At some point, we need to step back, take a breath and ask: What will the cumulative effect be?” he said. “Over-regulated housing markets are less affordable markets.”

Steve Minn, of Lupe Development Partners, contends the ordinance will reduce housing production and supply, pushing rents up. He suspects that investors will find it more profitable and easier to buy existing affordable housing in the city and take it upscale.

“Investors will turn to the vast supply of vintage housing that we have in Minneapolis, which is the ‘70s, ‘80s and early ‘90s housing that is in place. They will put those properties into play at market rate redevelopment and redeployment and raise those rents,” he said.

Developers could also focus their efforts on suburbs where they face fewer demands about how they put projects together.

“Right now, there's a patchwork of inclusionary zoning,” said Jacob Steen, a zoning and land use attorney who works with developers. “You've got Edina, Bloomington and Minneapolis and other communities as well, with similar policies. It's easy to take your development resources and shift you investment strategy to the suburbs where there is less of a regulatory burden and land costs are even lower.”

Steen said an interim inclusionary zoning measure has had virtually no effect. Developers sought approval for projects before the measure went into effect or found ways to avoid its provisions. But Steen said the proposed permanent measure is much more restrictive and demanding.

Some 900 jurisdictions across the country have inclusionary housing programs, according to the Lincoln Land Institute. Most are in New Jersey, Massachusetts and California.

A survey found that about 370 cities reported the programs created about 175,000 units of affordable housing, while generating $1.7 billion in fees to fund more housing. But that was over several decades. And other types of programs have produced far more housing than inclusionary zoning has, according to Charles McNally of NYU's Furman Center for Real Estate and Urban Policy.

“Just for sense of context, the number of affordable housing units produced by the low-income housing tax credit program is over 3 million, since that was authorized in 1986,” he said. “So, [inclusionary zoning] is a powerful tool. But it's relative place in the affordable housing landscape is still fairly small.”

McNally said inclusionary zoning is most likely to work in markets with strong enough demand for market-rate housing that builders will accept edicts to include affordable units in projects. But if a policy is overly aggressive, he said that can curtail the construction of affordable and other housing.

Experts who've studied inclusionary zoning say municipalities should not forget that someone has to bear the cost of inclusionary zoning rules. The tactic can boost the affordable housing supply but that might be at the expense of not just developers but also people buying or renting housing at market rates.

The Minneapolis City Council will take a final vote on the housing ordinance next month.

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