Unpacking Minneapolis Mayoral Candidate Raymond Dehn’s Housing Platform

Minneapolis mayoral candidate Raymond Dehn recently released a position paper on affordable housing. It’s by far the most detailed housing policy paper any mayoral candidate has released to date. From a high level perspective, here are a few of the key points:

Affordable Housing Trust Fund

Priority #1 for Dehn is increasing funding to the Affordable Housing Trust Fund (AHTF). Currently, this is funded with roughly $10 million annually, and these funds are used to subsidize a small number of affordable housing projects. Adding money to this fund is a slam-dunk as far as priorities go, as it helps finance construction of new affordable housing, which is needed to remedy the ongoing housing shortage.

How is this money used? As an example, an affordable housing development proposed for 510 W. Lake Street would use $3.3 million from the fund, with $500,000 of that in the form of grants and the remaining $2.8 million in the form of a low-interest loan. The total cost of this project is $24 million for 128 units (making this particular housing very inexpensive on a per-unit basis), so the AHTF money helps this project financially possible.

The proposed project at 510 W. Lake Street uses the Affordable Housing Trust Fund for a portion of its financing.

Dehn proposes adding funding to the AHTF in three possible ways: through linkage fees, a “Luxury Housing Tax,” and a municipal bond.

Linkage fees are essentially an additional tax on new development based on total square footage. This would directly increase the costs of new construction, a cost which would ultimately be paid by the tenant in the form of higher rent. This type of tax is an example of a “make new housing pay” philosophy. If you’re someone who believes building more market-rate housing in the region is a positive for affordability, you won’t like this idea. Adding to the cost of construction would result in fewer market-rate projects being proposed, but those that are built would have to chip in to the AHTF above and beyond standard property taxes. High-margin luxury units would likely continue to be built, but less-profitable market-rate housing projects (“workforce housing”) would become more rare.

The “Luxury Housing Tax” would be an additional tax on all housing units valued at over $500,000. Right now, this would primarily impact single-family homes near southwest Minneapolis, and very few condos or apartments. Track 29 City Apartments, which many consider “luxury,” recently sold for less than $270,000 per unit. This is more of a “make wealthy homeowners pay” approach, in contrast to the linkage fees proposed above. (Jacob Frey has proposed something similar, starting at $300,000. Both Frey and Dehn support some kind of value-capture tax, which would set aside some increases in tax revenue resulting from property value increases and dedicate it to affordable housing.)

A municipal housing bond is another option proposed by Dehn to raise a large sum quickly. This “make everyone pay” method of funding, as a municipal bond would spread the responsibility for funding affordable housing across a wider base, including new tax-paying households, the city’s strong commercial tax base and acres of single family homes.

Exclusionary Zoning Reform

Dehn also proposes reforming the exclusionary zoning barriers that are in place across the city. As Dehn puts it, our current zoning code is “rooted in the legacy of discriminatory practices around housing in our city.” Zoning has a long exclusionary history connected with the redlining practices of the 1930’s. Over the years, Minneapolis has continued to tighten the zoning code, such as in the mid-1970’s, when new apartments stopped being allowed in certain neighborhoods.

Redlining was used to keep cities segregated until the passage of the Fair Housing Act. It’s the foundation of “modern” institutionalized zoning.

Regarding zoning, Dehn outlines two major policy proposals. The first is an inclusionary zoning policy, which would require developers of new market-rate housing to set aside a certain percentage of units as affordable. This would lead to better racial and economic integration across the city. The drawback to this requirement is that this would also likely curb new housing construction. For an inclusionary zoning policy to work, it must ensure that new housing continues to be built. Currently, Minneapolis allows (but does not require) up to a 20 percent density bonus if 20 percent of units built are affordable, but that’s rarely taken advantage of. Other policies, such as reducing parking requirements in affordable buildings, or upzoning to allow more units in new buildings, are required so that such a policy does not damage our long-term housing needs.

As part of their new housing policy, Seattle is allowing developers to pay into a fund (similar to our AHTF) if they do not want to include affordable units in new housing projects. The fees are high enough that developers often choose to build the affordable units, but this is another option the city should consider when funding affordable housing.

The second zoning proposal is advocating for allowing mid-size housing in neighborhood interiors via upzoning, as well as allowing duplexes and triplexes in “some” areas that are currently zoned for single-family homes. This could allow some single-family homes to be converted into duplexes, which would put a small additional number of affordable units on the market. Rather than limiting this to “some” areas, I believe it would benefit the city to allow duplex and triplex construction across the city.

Rent Control

Dehn advocates for ending the state’s preemption on rent control, which I assume means that he supports rent control itself. Rent control sounds like a good idea on its face (“Rents are going up, this stops that”), but hasn’t worked very well in practice. Many of the least affordable cities in the United States (New York City, the Bay Area, Washington D.C., etc.) have rent control policies in place, with rent control covering a large share of housing units.

There is very little evidence that rent control is effective in stopping rising rents. We do not want a city where people are “trapped” in a rent-controlled apartment and unable to move, and we need to ensure that housing is affordable to all, not just those in rent-controlled buildings. Rent control is also likely to slow new housing construction, which is the opposite direction the city should be moving in during a housing shortage.

Renter Protections and Funding

There are a number of other items included that pertain to renter protection in Dehn’s platform which are sorely needed. A renter’s commission and just-cause eviction ordinance are both long overdue, and both would strengthen the position of renters to city government and landlords, respectively. A Tenants’ Right of First Refusal would allow tenants to pool resources and purchase a building if it has been sold, which is worth looking at as a method to preserve Naturally Occurring Affordable Housing.

Like several other ideas referenced in the policy document (funding housing cooperatives, funding community land trusts, helping renters erase eviction records), it’s not clear where the resources to fund these proposals is going to come from. For example, a right of first refusal will not have a significant impact unless financial assistance is provided to tenants who wish to purchase a building. What’s clear is that the city needs more money in the overall housing pool, but where that money comes from and how it is spent determines how equitable this city will be.

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22 Responses to Unpacking Minneapolis Mayoral Candidate Raymond Dehn’s Housing Platform

  1. Bill Lindeke
    Bill Lindeke August 24, 2017 at 10:11 am #

    Thanks for writing this Anton!

  2. Adam Miller
    Adam Miller August 24, 2017 at 10:43 am #

    Thanks for the summary. My bottom line take away is that Dehn and his team are at least thinking broadly about what we can do about the housing crisis, which is good.

    As to rent control, my bottom line is that it can help people who are currently renting, but at the expensive of everyone else, and most particularly those who will seek to be rening in the future. I think reasonable people can disagree about that trade off, but it’s a no for me, especially when you start from a position of housing scarcity.

  3. David Greene August 24, 2017 at 1:37 pm #

    All of this sounds very good. I agree that we should allow duplexes and triplexes throughout the city.

    What is generally meant by “mid-sized housing” in terms of form? That’s the thing that’s going to trigger the most backlash, I think, so it’d be helpful to know what it is to correct misinformation.

  4. jeffk August 24, 2017 at 2:23 pm #

    I’m glad he gets exclusionary zoning.

    But I remain baffled by the insistence that we hamstring market rate solutions to housing shortage by letting them get dragged down by linkage fees and inclusionary zoning. Both of those make new development harder… which makes less of it… so less money in linkage fees and inclusionary units (similarly rent maximums make older units harder to maintain).

    Anton correctly points out that these are not solutions, which suggests to me that they are really just playing to the socialist popularity of the moment (and I’m not commenting on the ideology of that so much as anything that doesn’t result in real world solutions is a waste of time).

    If you’re trying to solve a housing problem and fight inequality simultaneously, why not tie the fund to a Rolex tax, or a caviar tax, or more seriously, a tax on new cars? It’s just so weird to get half the problem (exclusionary zoning stifles the ability of the market to provide the market-rate housing that 99% of us live in) and then toss in another burden in a city where some neighborhoods haven’t seen market rate development for fifty years.

    I’m genuinely concerned these opinions make me come off as some kind of market purist. I’m really not; but I’m also really not convinced any of these solutions will work, and I also think markets are better at some things (housing, iPads) than others (health care). The popularity of Dehn in the youngish YIMBY/urbanist crowd seems inconsistent with his policy prescriptions and, I’m forced to assume, more related to the national political climate.

    Ultimately maybe it comes down to the question of the cause of rent increases (which, despite that it’s hard to find a place, have been low relative to the rest of the country). If you really think that MSP is SF and landlords are making off like bandits on speculative increases, then rent controls make since. But if you believe there is a real shortage (and/or want to prevent sprawl because of the environmental consequences), then you should support all policies the result in new housing, in the city, market rate and affordable.

  5. Will Stancil
    Will Stancil August 24, 2017 at 4:03 pm #

    Ctrl+F

    “segregation”

    0 of 0

    Huh, that’s weird.

    • Will Stancil
      Will Stancil August 24, 2017 at 4:04 pm #

      (To be clear, I meant with regards to the proposal, not this writeup.)

    • Will Stancil
      Will Stancil August 24, 2017 at 4:08 pm #

      More seriously, it’s good that he wants to attack exclusionary zoning – but other of proposals here are also likely to worsen the segregation that is the primary consequence of redlining and exclusionary zoning. So it all kind of works at cross purposes and it’s hard to know if the end result would be a city that is less, equally, or more segregated than it is today.

  6. Joseph Musco August 24, 2017 at 7:42 pm #

    More money for affordable housing funds is needed but the restricting factor for adding affordable units is almost always political acceptance, not funding. Allowing luxury developers to pay more or buy out of affordable unit requirements sounds like a smart efficient way to raise funds until you end up with a giant affordable housing fund and no good projects to spend it on.Telling developers ‘No, you can’t buy out because it violates our community’s ideas about equality’ is the answer to building affordable housing, not creating workarounds so that developers can quantify their distaste for the poor in a payoff. Money is only good if you can spend it wisely. Chicago has a giant affordable housing fund and continues to have massive problem with inequality and affordable housing.

    • Russ Adams August 31, 2017 at 1:05 pm #

      Allowing developers to pay an “in lieu of” contribution into an affordable housing fund ignores a pressing problem: the shortage of available land for development purposes. Allowing a developer to “buy out” of their obligation to build for every Minneapolis citizens housing needs means that we lose the opportunity to leverage the private market to produce affordable units on site, in all neighborhoods. The whole point of Inclusionary Zoning or Inclusionary Housing policies is to place affordable units into what would otherwise be an all market rate development. It’s a policy with a long, successful track record of producing additional affordable units, both locally and across the country, and there’s little evidence in the places where it’s been adopted that it has stalled out new development – quite the opposite, because it usually is harnessing the tremendous wave of new development activity in a “hot market,” where development is accelerating at a rapid pace. And density bonuses are designed to not only create more space for affordable units, but also allow the developer to add in more market rate units above and beyond what the zoning or the planning commission would normally allow. Extra market rate units come with no additional land costs, so it benefits the developer. In less than two years, the city of St. Louis Park identified 294 additional affordable units that had been produced by their IH policy – this led them to strengthen their local IH policy (increasing the overall percentages of affordable units; expanding the affordability range of units) this Summer in anticipation of more development proposals that will enter the pipeline in the next few years. Think of what we could have accomplished in the North Loop in Minneapolis if 15 years ago a modest IH policy had been applied, like in Montgomery County, Maryland, for all residential development, regardless of whether there was public subsidy involved?

      • Joseph Musco August 31, 2017 at 7:18 pm #

        Thanks for your informative post. You brought to light a big problem with “in lieu of” affordable housing buyouts for developers. These buyouts assume an infinite supply of available & suitable parcels to develop within a city – which is clearly false.

  7. Tyler Hamilton August 25, 2017 at 2:15 am #

    There is a similar proposal in Portland right now to allow duplexes and triplexes throughout more of the city. It would be great to start setting zoning reform precedents like that here.

  8. Anon August 25, 2017 at 11:42 am #

    Thank you to RD for publishing his views so clearly and to Anton for the analysis and summary.

    Rent control scares me. I’m a small-time landlord and I’ve never had any problems. I can easily exit the market (at a profit) if regulations get too onerous. Fewer good landlords and fewer rental units would just exacerbate the problem. Some rules are just a bit silly, e.g. providing my tenants with voter registration documents, even though many can’t vote in this country. Apparently, now my rental licenses need to be framed and conspicuously posted; my tenants will love that. 🙂

    But eventually, tenants pay for everything. Every rule, every form, every fee, license, and tax –are all paid by the tenant and make housing less affordable. RD’s suggestion #10 of a just-cause eviction ordinance, creates the risk of an un-evict-able bad tenant. Landlords bear that risk, but tenants will pay for it. I’m not advocating any deregulation or even less regulation, but just a cognizance of who actually bears the financial burden of these regulations. It’s not me, it’s my tenants. We need to make it much easier and cheaper to be a good landlord and we need to make it painful and expensive to be a bad landlord. Hennepin County Housing court should be much harsher with bad landlords. The city should be much quicker to revoke rental licenses.

    Market forces should fix the affordable housing shortage; we just need to get out of the way by eliminating artificial supply shortages in the form of exclusionary zoning. The trick is to up-zone without creating a rich-flight to the suburbs. Proposals 7,9 and 10 are bad for renters (and everyone), but I support the rest. A big yes to #11. The legal standard for an eviction expungement is far too high: the case must have been flawed in fact and law at the time it was brought. Instead, a tenant who wins his or her eviction should also get an expungement.

    • Jeffd August 26, 2017 at 8:46 am #

      Anon’s analysis is spot on as I’m a smaller landlord as well. I realize Ray is just throwing out concepts for discussion and sets himself apart from other candidates.

      When did a renter acquire the right to live in my property in perpetuity when they have no financial stake in my property or have to take any risks to put their money in for replacing a roof/boiler or anything else? The can move any time they want but I don’t get the same option?

      • Frank J August 31, 2017 at 2:00 pm #

        I’ve been thinking about your comment for a little while and it brings up a good point:

        Anon notes that all of the costs of renting are eventually passed onto the tenant.

        Does this not extend to the cost of upkeep? or do landlords maintain the property with other funds?

        • Anon September 1, 2017 at 11:36 am #

          I became a landlord to make money by renting property. I chose my properties because the rent they earn is higher than the sum of all of the costs they incur, plus a profit margin. I would sell if that equation changed. Some folks become landlords because they want to speculate on the value of the property. Their plan is to make money by selling the property for much more than they paid and they use the rent to cover most of the costs of keeping the property. I have a theory that this phenomenon actually artificially depressed rents during the housing boom. Some landlords were willing to accept low rents because they were certain they’d cash in on market appreciation. I’d love to hear people’s thoughts on this theory.

          What a landlord must charge is influenced by why they are landlords. Also important is how much they paid for their property and the interest rate of their loan. Small-time landlords who rent properties in their own neighborhood are a good thing. I wish there was a government or non-profit that would help regular people rent regular properties to their neighbors on a small scale by mitigating risk, complexity, and costs.

  9. Andy E August 25, 2017 at 4:47 pm #

    One thing I would like to see discussed more in regards to housing policies would be ways to keep foreclosed properties owned by members of the community instead of purchased at a sheriffs sale by (often out-of-state) rental companies. Back during the housing crises thousands of SFHs in low-income parts of the metro region were foreclosed on by banks and later sold at deep discounts – largely to rental companies that turned around and began renting them out at rental rates to the very people who lost their house. I think one great way to both promote strong neighborhoods and decrease the wealth gap between different communities would be for a fund similar to the AHTF to be created. All this fund would need is initial funding (and probably continued funding for the first couple of years until the investments start paying off), and a “right of first refusal” to buy, at the same price as the winning bid at a foreclosure auction, the foreclosed property. The banks won’t really care, as they get the same amount of money either way. The losers are investors who look to buy foreclosed property and flip it for big bucks, or continue to own it as non-existent slum-lords.

    This fund would become basically self-sustaining over time, as it would be purchasing foreclosed homes at far below market value and then selling them at a similar discount (with fair interest rates) back into the community – preventing owner-occupied housing from becoming rental units.

    For example, Zillow is currently showing multiple homes in foreclosure in North Minneapolis valued in the $100,000 – $150,000 range. The projected auction price of these homes typically range from 20% – 50% of their fair market value. Thus, the fund might by a $120,000 home for $40,000. Assuming some work is needed, $10,000 might be spent to bring it up to code, remove any lead paint, etc… The fund would then put the home back on the market to qualified buyers (e.g., members of the community, low-income individuals, etc…) for $55,000 with a 20-year, fixed (and fair) interest rate. Using a interest rate of 5%, this family would be paying $363 per month in mortgage payments – a sum WELL below almost any rental payment anywhere in the metro area. And, a low-income family would be able to remain in their community while accruing stable, generational wealth.

    I know this is a little off-topic from the standard debate about housing policy – but I dearly wish some politician would step up and propose such a fund.

    • David Greene August 29, 2017 at 1:08 pm #

      I like this idea. That said, if a house needs work it will likely cost much more than $10,000. There’s a reason these properties go for much below estimated market value. Updating a closet-sized bathroom alone costs $10,000 for the cheapest, lowest-quality you can do.

      Also, there’s no reason to prevent these houses to be sold to landlords out of this fund, as long as the landlords are in the community and have a good track record. The goal shouldn’t necessarily be to keep everything owner-occupied.

  10. Patrick Flanagan August 28, 2017 at 2:17 pm #

    Curious to know if anyone has done analysis on the effect of rent control on property tax revenues. Because rent control reduces cash flows to landlords and because the value of a rental property is based (indirectly but ultimately) on estimated future cash flows, it stands to reason that rent control would significantly reduce rental property values, which in turn would reduce property tax revenues. A reduction in tax revenue harms all government programs, including housing programs, which is an probably not the desired result for progressives.

  11. SSP August 31, 2017 at 1:13 pm #

    The post reports spending $24 million on a new 128 unit affordable housing building ($187,500 p/unit) is “very inexpensive on a per-unit basis” although Andy E, reports SFHs are available in Mpls for $100 to $150k

    That confirms a significant disconnect I often see in these conversations – yes we need more rental housing in a growing city to dampen rent increases, but some significant part of the “affordability” crisis is about people wanting to live in high value locations for low rents.
    But the supply problem for decent affordable housing in Mpls is most acute for families – 3+ bedroom units – not 1 bedroom units in Uptown.

    Another reason why the luxury tax as proposed (using a unit price threshold) is counterproductive is because it discourages the construction of larger multi-bedroom units. It can be avoided entirely by building small but extremely expensive on a sq. ft. basis units. A $/square foot tax would be a more interesting idea – it would not discourage larger units and it would encourage construction in parts of the City where land is cheaper.

    A few other ideas that would help this problem:

    1) Better housing code enforcement. Preserving units is cheaper than building them.

    2) Create more walkable nodes so we have more Mpls neighborhoods where a car is not necessary. Investment in transit might be a more efficient investment than paying for affordable housing units.

  12. Chris September 6, 2017 at 2:48 pm #

    I like Dehn’s approach and I’m glad that a candidate has put this much time into the issue. Whether or not he will be able to accomplish these goals with the City Council is another thing, but the effort he put into this makes him the best candidate on this issue. Let’s not let the pursuit of pedantic perfection (we see that a lot on streets.mn) get in the way of a good plan.

    • Anon September 6, 2017 at 3:10 pm #

      I praise my toddler for “effort” –even when her effort makes a mess. Effort can never make a candidate “the best”. We need a candidate with thoughtful policies and the fortitude to resist populist-knee-jerk policies like rent control. I commend Dehn for putting his ideas out there clearly for analysis, I wish the other candidates would follow suit.

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