Starter Homes Are Dead, Long Live Starter Homes

As you may have heard, the Minneapolis draft comprehensive plan includes a proposal to lift the ban on small (2-3 story) multifamily buildings in most of the city, and to allow new fourplexes in all residential areas. Council Members Cam Gordon and Andrew Johnson have said they worry these policies will cause the destruction of starter homes and make life harder for young families. As a member of a young family, I think these concerns are misplaced. Zoning that prohibits multifamily housing doesn’t always protect cheap single-family homes, and zoning that permits multifamily housing doesn’t always endanger cheap single-family homes. Finally, while starter homes were important step for previous generations, they’ve mostly disappeared from the city by now. Single-family homeownership is a far less accessible path to prosperity than it used to be, and we need the additional housing options the draft comp plan would allow.

What even is a starter home?

Small houses from the 1940s in Seward

Starter homes of yore (These homes have each appreciated at least $50,000 over the last five years)

According to legend, starter homes are small, cheap detached dwellings that a young family will buy, maybe put in some “sweat equity,” and sell at a profit to move into a larger, more expensive house. It’s worth pointing out the problematic assumptions contained in the concept: that rental dwellings are not legitimate homes (how could it be a starter home if it weren’t the first?), that nuclear hetero families should be at the center of our housing policy, that we’re all destined for big, expensive houses like they have in the suburbs, and that the constant inflation of home prices is a good or sustainable thing.

Why do we care about starter homes?

Starter homes played an important role for previous generations in securing housing and building wealth, but homes have gotten more expensive, and ownership has become less popular among young households. In 1990, more than half of the owner-occupied homes in Minneapolis cost less than $75,000, (just under $150,000 in today’s dollars), and about 40% of young households (18-34 years old) owned a home. The latest Census estimates show that less than a quarter of owner-occupied homes cost less than $150,000, and less than 30% of young households own a home.

Bar chart showing that homes were cheaper in 1990 than in 2016

One of the reasons starter homes are out of reach for today’s young folks is that they were so successful in building wealth for the previous generation. When home values increase, that is good for people who own the homes and bad for people who want to buy them. It’s also bad for people who rent, because rental and owner-occupied housing prices generally move in the same directions for the same reasons. Daniel Hertz has noted and explored in detail the contradiction between housing as a good investment and housing as an affordable necessity.

Low-density zoning doesn’t protect modest homes

Map showing a lot of teardowns in southwest Minneapolis
Maybe you’ve heard of the recent teardowns in southwest Minneapolis. This map shows new constructions in low-density zoning districts in just the last five years. On each of these parcels, a large, expensive house replaced a smaller, cheaper house. In at least one instance, the large, expensive house replaced two cheaper homes:

It’s perverse that our zoning code makes it illegal to replace this duplex with a new duplex. We’d have more space for everyone who wants to live in the city, and in southwest specifically, if some of these teardowns had been for townhouses and multifamily buildings.

Multifamily zoning doesn’t condemn modest homes

I emailed my council member, Cam Gordon, to express my support for the city’s draft comp plan, and to ask him about his concerns. He replied that he worried that upzoning the city would result in out-of-town investors to tear down the affordable homes in poor neighborhoods and charge high rents. I took a look, and there are almost 700 residential parcels in north Minneapolis that are zoned to allow multifamily and commercial uses. If developers thought there was a profit to be made in buying cheap lots over north and building market-rate apartments, they would be doing it right now. Zoning reform would, however, remove a barrier for affordable housing developers and community land trusts to build small multifamily projects on side streets, though.
Map showing single-family dwellings in multifamily zones in north Minneapolis

Starter homes have vanished from most of the city

Map showing that almost all homes outside of north Minneapolis are more expensive than $150,000
The above map shows the 2017 estimated market value of single-family homes in Minneapolis. Red parcels are more expensive than the average home in 1990 (adjusted for inflation), and blue parcels are less expensive. Starter homes have basically vanished from city, except for north Minneapolis and pockets of Phillips and Powderhorn.
The goal should be affordable housing for the many, not white picket fences for the few
Low-density zoning doesn’t protect cheap homes from being demolished, it just mandates that you can only replace it with low-density housing. Multifamily zoning doesn’t automatically condemn homes in neighborhoods with little development pressure, but it opens up avenues for affordable housing development. Cheap single-family homes have disappeared from most of the city. So what should we do?

4-unit apartment in a single-family zone

Four starter homes stacked together (not in compliance with zoning)

The goal, I hope we all agree, is to achieve decent and affordable housing in a convenient location for everyone who wants to live in the city. To get to that goal, we’ll have to expand our traditional conception of the starter home to include the multifamily housing (owner-occupied and rental) proposed in the draft comprehensive plan.

Scott Shaffer

About Scott Shaffer

Scott Shaffer works for a nonprofit community development corporation in Minneapolis. He has a master's degree in urban and regional planning from the University of Minnesota. He and his wife live in the Powderhorn Park neighborhood with their daughter and two Siamese cats.

63 thoughts on “Starter Homes Are Dead, Long Live Starter Homes

  1. Sean Hayford OlearySean Hayford Oleary

    I mostly agree with this article. I think our focus on single-family homeownership as the only means to build wealth is not sustainable and certainly doesn’t fit all residents’ needs.

    The maps of values also make me wonder how widespread fourplex teardowns would realistically be. With demolition cost, presumably just getting to a vacant parcel in most of the city would be at least $200,000. $50,000 per unit land costs, even at the most dense option of fourplex, seems like a tough pill to swallow.

    Which is good news for Cam Gordon’s concern — no matter how cheap a starter home may be, it’s still a big endeavor to buy one and tear it down. But not great news for creating a substantial amount of more affordable housing.

    1. Adam MillerAdam Miller

      If it wasn’t for the subsidies, “use leverage to buy a single large asset” would be absolutely terrible advice on how to build wealth. Even with the subsidies, it’s simply wrong to assert that it is the only way.

      But I think you’re right how many fourplexes are coming. It’s going to be some, but not necessarily many, and, assuming that wealthy neighborhoods don’t get to opt out, more in fancy neighborhoods than many believe.

      1. Monte Castleman

        Not everyone views their home as an investment. I just wanted a place to live where I don’t have to share a wall, ceiling, or yard with neighbors. So do apparently a lot of other people. I know it’s a first world problem but when the last tax notices came out, the Bloomington Facebook groups lit up with people who had lived in their houses for many decades and won’t leave until they’re carried out by the coroner angry about how much they were assessed at, because they now had to pay taxes on the value.

        It’s also interesting comparing other countries, like China where they have a housing bubble that makes the one we had look microscopic in comparison, and they’ve passed laws limiting the number of housing units people can buy. Or Japan where houses are a a depreciating asset like our trailer homes and if you have a house over a decade or two old it drags down the value of the property because the new owners going to have to pay to demolish it.

        1. Scott ShafferScott Shaffer Post author

          Owners benefit from the increased value of their home even if they don’t sell. They can borrow against the equity to pay medical expenses, student loans, or for retirement.

          I’m trying to think of a way to curb tax hikes for homeowners who commit to sell their property below market value to low-income buyers. Maybe there’s a way to do form a community land trust that would do that? Because it’s easy to say “I don’t view my home as an investment” when it’s increasing in value, and then to say “I’m worried about the value of my home” when someone wants to build apartments down the street.

          1. Monte Castleman

            Sounds like a deal. My house is worth $220,000 now, and will be worth who knows what in 10 years. I’d gladly sign a document saying my estate executor can’t sell it for more than the $150,000 I paid for it if it means I won’t get taxed on anything more than that for the rest of my life.

      2. Rosa

        there are an awful lot of already empty (or mostly empty – just the garage or just the little alley side house) lots around. But even the ones with no full size house on them sell for more than $100k southside. I’ve watched a couple go in the last few years.

    2. Scott ShafferScott Shaffer Post author

      You’re right that single-lot demolitions would probably be concentrated in the blue dots in high-demand neighborhoods (which are uncommon, but do exist). You could also assemble a few parcels and build enough units to justify a higher acquisition cost.

      Conversions to duplex/triplex, however, could happen in lots of places! And the legalization of more than 9000 nonconforming units would be nice.

      1. Sean Hayford OlearySean Hayford Oleary

        Good point about conversion. I guess all I was picturing from the conversation around this was full teardown and starting over.

        Question: would this change essentially negate restrictions around ADUs? Could any ADU just be a duplex instead, and not require owner occupancy?

      2. Bruce

        Conversion of SFH to duplexes or a duplex to a triplex is not as easy as just changing the zoning code. You have to meet today’s building codes which is much harder than a non professional contractor could probably do. It’s not a blank check to just close off a wall and put in a kitchen. I did a conversion of a duplex to triplex and it cost approx. $20,000. You have to meet fire ratings, egress requirements, wall separation requirements, ect ect. Then you have to pay the city fees they lump on like a $3,000 SAC charge for Met Council, building permits -$1,000’s, materials/labor ect.

    1. Heavy Handed

      It was a legitimate point. The article makes it seem to be somewhat negative for a city to put More focus on “Herero” families.

  2. Aaron Berger

    First of all, this is a great article with terrific maps.

    What I would disagree with is the definition of a “starter home” as a home that sells for under $150,000. Adjusting for inflation is a good idea, but one thing that is crucial to adjust for is mortgage interest rates.

    In 1990, the average 30-year fixed rate mortgage carried an interest rate of 10.1%. In 2017 it was 3.99%. For a borrower putting down 5%, a $150,000 house would have come with a $142,500 mortgage which leaves you with $1,261 in monthly principal and interest. At 3.99%, you can get a $1,261 payment comes from a $264,500 mortgage, which is 95% of a nearly $280,000 house. There are many, many houses to choose from in Minneapolis for under $280,000.

    1. Aaron Berger

      By the way, I hope my math is right. I searched for “mortgage calculator” and went with Google’s widget. I know the mortgage interest rates are right because I got them from Freddie Mac:

      Incidentally, the monthly payment on principal, interest, taxes and insurance on the house we live in is barely more than what we were paying in rent for a 2-bedroom apartment in 2015. So starter homes are not a thing of the past.

      1. Scott ShafferScott Shaffer Post author

        Thanks, the different interest rates are a good point. But I think your scenarios miss some of the math: the $264,500 mortgage would require higher PMI and down payment than the $142,500 mortgage, and maybe higher taxes too.

        My broader point is that housing prices are going up, vacancy rates are super low, and a low-density “save the starter homes!” plan would hurt people renting and people looking to buy.

        1. Aaron Berger

          Yeah, I was deliberately trying not to do the math on PMI/taxes/insurance. I’m not even sure if 5% down payments were a thing in 1990. But I think the point that there are houses you can buy – actually plenty of houses you can buy – for the same or lower monthly payment as a 1990 house stands.

          I can’t say I’m totally unsympathetic to “saving the starter homes.” As a starter home owner, it is a good savings vehicle and would be even if it weren’t growing in value (since some of my payment every month goes to principal). And for most people, a mortgage is the only access they will ever have to leveraged investing. That only works if the value of your house goes up, of course.

          1. Aaron Berger

            I feel like I should clarify that my sympathy to saving starter homes only goes so far. I disagree with Cam that this is a good reason to prohibit multifamily development. But I also think the city may have an interest in controlling the pace of that development or helping low-capital developers to compete (for example, as I have floated elsewhere, by capping the number of single family –> multiplex conversions an individual is permitted to own, but that’s a poorly formed idea at this point).

            Unfortunately multifamily homes will just never be the kind of savings vehicles that owner occupied starter homes have been, since they would have to be turned into condominiums. Even then you can’t usually get a mortgage if a condo building is not 51% owner-occupied. Which, in the case of a fourplex, means 3 of the 4 units.

            1. Scott ShafferScott Shaffer Post author

              I think our fundamental disagreement is that you think homes should be savings vehicles, and I think that’s incompatible with treating homes as a necessity that should be provided to as many people as possible for as low a price as possible.

              There’s an important racial distinction, too. White people have made huge capital gains on real estate over the generations, but homeownership was legally and politically prohibited for certain races for a long time. Even today, home values rise faster in segregated white communities than in racially diverse or segregated black and Latino communities. My map above shows the lower home values on the Northside and in Phillips.

              1. Aaron Berger

                Savings and investment are two different parts of the financial calculus. As an “investment,” you are right that home prices rising faster than inflation and/or wage growth is a systemic problem that increasingly prices people out of homeownership. However, the savings vehicle is simply a function of the 30 year amortization schedule:

                If you take out a $250,000, 30-year fixed rate mortgage at 4.3% (and again, you can definitely purchase homes for less than $250,000 in Minneapolis today – although fewer than when I was buying 3 years ago), the very first payment will be $896 of interest and $341 of principal. Yesm there are other costs on top of that, but $341 of your payment is savings. As long as your home *holds* its value (though the last decade shows that is not something to be assumed), that is a contribution to the owner’s net worth.

                1. Aaron Berger

                  I do think there is something lost when families no longer have the option of paying their own mortgage instead of paying a landlord’s mortgage. I absolutely reject the idea that the city’s housing policy should push people into single family homes if they can’t afford them or don’t want them, but it is also important to recognize that there are tradeoffs involved in increasing the competition for low-value homes. Converting a low-value sfh to a new multifamily structure is a major value addition but requires access to much larger amounts of capital than simple ownership. Multifamily condos could be a great way to both deliver the benefits of multifamily housing in terms of a low per-unit cost and shared maintenance costs, while also delivering the savings benefits of homeownership. The city should use whatever policy tools are at its disposal to promote owner-occupied multifamily housing. But the problem with condos is that most banks do not offer financing for units in condominiums where less than 51% of units are owner-occupied. So we’re back to the situation where you need large amounts of capital to wholly own multifamily units, tenants pay the capital owner, and they lose an opportunity to store value in their home.

            2. Rosa

              A duplex at least is an AMAZING starter home for a person equipped to do the work of landlording. Just the tax benefits – getting to take half of all your acquisition costs, property taxes, repairs, etc as a business writeoff – are a big boost. Assuming vacancy rates either stay ridiculously low or improve enough to just be low, there’s also the rental income to diversify a family’s income sources.

              Or for a family (like our next door neighbors for many years) where instead of renting out the other unit different parts of the same family live in the different units, then everyone is saving money without having to all crowd into the same house.

              1. Aaron Berger

                Totally agree! As I alluded to in my piece last week, we actually tried to buy a duplex with my brother and sister-in-law before we wound up in our current house. Due to shared maintenance costs we would have been able to buy a nicer duplex than the house we wound up in, but due in no small part to Minneapolis’s zoning laws we aren’t able to find a suitable duplex on the market while we were looking.

                I specifically mean that multifamily houses might not provide many opportunities for *more than one* family to pay off a mortgage. I could be totally off-base about three- and fourplexes but my understanding is that most banks won’t write mortgages for condos in buildings that aren’t majority owner-occupied. Some friends of mine bought a unit in an Uptown fourplex but were unable to unload it for a long time because, by the time they were ready to sell, two of the units were rented out, so buyers couldn’t get financing to buy their unit.

                So because the larger multifamily houses may effectively not be able to be effectively condos, unless they require owner occupancy, affordable single family houses are likely to be replaced by rental units. I still think it’s a good policy, but I do think the net result will be fewer opportunities for people without access to a lot of cash to pay off their own mortgages.

                1. Rosa

                  You’re probably right for people building equity for owning – aside from how the lending practices and laws treat it, we tried to buy a duplex with friends and the likelihood of having another family (friend, sibling, whatever) in a position to buy at the same time and wanting the same location/property) is pretty hard to line up.

                  But in terms of general wealth building – affordable rents are a tool for wealth building too, and there are plenty of neighborhood and family stories where one set of adults (parents or a sibling) owning a duplex meant wealth building for the entire extended family because of being an affordable place to stay for various people in the family. Stable housing at a low or below-market price is wealth builder regardless of ownership.

                  1. Sean Hayford OlearySean Hayford Oleary

                    But it’s also worth remembering that you don’t have to explicitly have multi-unit development to make this happen. Prior to buying the house, I rented (at very modest rent) from my Grandma in a single-unit dwelling that had a fairly separate half-story upstairs. That was really helpful to help build a better financial state right out of college. My sister, 10 years before me, had a similar arrangement.

                    Several other houses in my neighborhood are large blended households.

                    Don’t get me wrong — I think duplexes and above are great for this. But let’s remember that these arrangements (especially among family) exist in single-family dwellings too.

                    1. Monte Castleman

                      Yes, let’s not overthink this. My sister and I had a similar arrangement with my mother before we bought the house once she remarried and moved in with her new husband. You don’t need a duplex (or an ADU) to have someone else live with you, just a spare bedroom. It’s common to even have a separate bathroom or kitchen downstairs without having a separate entrance so it’s legally a separate unit.

                      How often does the situation come up where you’re close enough to someone that you want them on a different unit on your property, but not close enough to want them to not share any actual living space?

            3. Bruce

              I assume you don’t own a multi family property or haven’t run the financials on them as they are a much better wealth builder than a SFH for an owner occupant and the owner’s cost is typically much lower than if they have a SFH since they have an income stream to offset the cost of buying. There are many people over the past several years that have bought a duplex, lived in one unit, rented the other and essentially live for free. We should be encouraging people to buy duplexes to live in versus SFH!!

              1. Aaron Berger

                So, I’m trying to make an extremely narrow point that I think I’m not making very clear. I love duplexes and I think the comp plan is good. But I do think NEW duplexes and greater are likely to replace many USED low-value single family homes. Because of the nature of new construction I suspect they will be out of reach of most first time buyers, even with the rent stream. I could be wrong. But comparing existing duplexes, which are as you say affordable ways to build equity, and existing low value single family homes, with new construction, the cost of entry will not be the same.

                1. Bruce

                  Actually, duplexes, even new, are an easier entry for home owners than SFH’s. I’ve helped over 20 people “house hack” and buy a duplex to live in and rent the other unit for income stream. Many of them ended up with a net payment on their unit of $0 all things considered. I’d say that’s as affordable as it comes. You are right a new duplex would be a more expensive proposition but may still be an easier equation than a SFH. I know as I’m building a triplex right now and the number work out to live for almost free. Wish Cam would more the needle on understanding that a duplex, triplex, or fourplex is actually a great starter home.

  3. Serafina ScheelSerafina

    Duplexes, on the other hand make awesome starter homes because they can offer an income stream along with the other benefits of ownership.

    1. Heidi SchallbergHeidi Schallberg

      I grew up in a duplex. We didn’t own the other half. Not everyone wants to be landlords. I see this comment a lot about income streams in relation to duplexes, four-plexes, etc. You don’t have to own the entire building.

      1. Janne

        Part of what I really like about 2-4 unit buildings is their flexibility. For me, a 4plex helped me afford to live in my neighborhood. But they can also be condos, or coops.

        1. GlowBoy

          That’s right. Some of these buildings can be condo. I don’t know if the law makes this easy to do here here in Minneapolis, but when I lived in Seattle it was common to see “zero-lot-line” duplexes for sale, which meant you got to own your half of the land, not just your half of the building.

    2. Katie JonesKatie

      Thanks for this analysis Scott, and I’ll second Serafina. My starter home is the triplex that I currently owner-occupy with my husband.

      The diversification of income that comes with owning a 2-4plex is helping us do things that we would have had to wait years to do otherwise:

      – Our heating system is failing, and a new one will cost over $20,000. If we had to pay for that on top of a mortgage all by ourselves, we would really be cutting things close. But with our rental income, we’re not only much better suited to manage this expense, we’re able to change the system from natural gas to all electric (thank you cold climate air source heat pumps!).
      – .put a large solar array on our roof (we’re able to keep tenant electric bills the same and have a return)

      2-4plexes not only have the default smaller carbon footprint that comes with small, dense living, they also present financial opportunities to create greener homes.

      Switching gears a bit, this topic does makes me think – if zoning were opened up to allow for more 2-4plexes, could programs be established to help capable but historically disadvantaged populations purchase 2-4plex starter homes instead of single family dwellings? Obviously, the downpayment is the tricky part, and I’m no housing expert. Surely, there could be a creative solution with a non-profit or government program?

      1. Janne

        Yes, programs could (and in my opinion *should*) be designed to rectify historic lending practices and racially exclusionary practices that prevented many people from homeownership, and I think the model you propose is one of the best opportunities. Not only does it directly address racial disparities in homeownership and income, it is a bulwark against gentrification, and creates community-based ownership. (Not to mention additional homes that our city desperately needs.)

  4. K

    Most homeowners are speculators not investors. Investing requires labor producing value. When homeowners do remodel, their lack of experience eats into any ROI. Minneapolis is better off with people using that money for education, entrepreneurship, and investing in other businesses.

  5. TheoKozel

    This is really an excellent article that intelligently presents and interprets supporting data. Really nice work!

    I’ve been mildly supportive of the city-wide upzone element of the draft supportive plan but I did have a question: would it be possible to either incentivize or regulate up-zoned multi-family housing to follow a condominium (occupants own the units) rather than an apartment (occupants rent) business model? That way you add more ‘starter home’ opportunities for people trying to build wealth: in many situations, you are taking lots containing only one starter home and changing them into lots that contain four starter homes.

    I agree that the concerns about losing starter homes due to the draft plan is misplaced. It is already the case that starter homes are diminishing in number due to the growth in housing values. The fact of the matter is that the demand for homes exceeds the supply and the city is becoming more densely populated. The status quo is that more and more starter homes are no longer ‘starter’ due to their relative scarcity. I don’t know what else can be done other than increasing supply and obviously the city cannot add more land for starter homes so there need to be more of them in the same amount of space. Adding/preserving small, single-home zones will be no more successful here than it would be in San Francisco: we face the same dynamics on a different scale where demand and location are pricing too many people out of the market.

    As a side note, I bought my first ‘starter home’ at the ripe old age of 34 and have now lived there for 15 years. It could be said that I’m a late starter and in addition I’ve been sitting on the Start square for too long since I have yet to do the expected upgrade. That may be changing soon due to needing extra space for my aging mom but the point is (as others have made), the objections to the draft plan may be coming from a place of outmoded ideas of how people will really live out their lives. As such, trying to preserve zoning that facilitates life patterns that are less and less common is doubly foolish. I think smaller, more numerous housing units is really the only way to go.

    1. Daniel Hartigkingledion

      The starter home concept relies heavily on the idea that the home is a wealth-building opportunity, as other commenters have said. If you strip away that concept, then the need for a ‘starter home’ really translates into a need for more space, most likely in your 30s once you start having a family with multiple children (or dependent adults, as in your mom’s case).

      That is the opposite way from what society is trending. There are more and more people never getting married, never having children. Household size is trending steadily downwards. For more and more people, and apartment makes more and more sense.

      I think it is in the best interest of the local economy to _prevent_ houses from becoming wealth building tools. In that case, they simply advantage the people who have more now, at the expense of the people who hope to have more in the future.

      In that case, and in view of the smaller household sizes, I don’t think there is anything wrong with people living in rentals for extended periods of time. If houses don’t appreciate in value that much, then the transaction cost of selling a house will make ‘upgrading’ too costly compared to renting. In my case, I already bought my starter home when I was 30 and flipped it for an upgrade only 4 years later. The transaction costs at up pretty much all of my putative profits, even though the house appreciated by ~$25,000.

      TL;DR: If housing supply is high enough that the rents don’t increase faster than inflation, then the ‘starter house’ concept no longer makes any sense, and the logical financial move is to rent until you buy the house you will die in.

      1. Monte Castleman

        Or just a desire for not having to share a wall or ceiling with a neighbor, having a discrete building to call your own and personalize, your own private yard. I know quite a few people that don’t have kids and don’t really need the space, but live in a detached house for those reasons.

        1. Cobo R

          Yep, I’m in this category….. Sharing walls can be a nightmare if you have inconsiderate neighbors.

          My years in my previous apartment complex of dealing with insanely loud sub woofers on what seemed to be a day to day basis, and the loud thundering of feet above me late a night was awful. No matter of talking, compromise, or reporting to the office, could fix the issue. It nearly broke me, I didn’t get a decent nights sleep for months at a time.

          I bought a single family house, and it was one of the best things I have ever done for my mental health.

          1. Monte Castleman

            Or in turn you can play your subwoofer and tramp around until all hours without getting complaints from your neighbors. My sister lived in apartments for three years while in college, and she had enough of dealing with neighbors that would complain if they so much walked around at night.

        2. Daniel Hartigkingledion

          No offense, but if you can’t get along with your neighbors, why do you want to live in a city? There are plenty of single family homes with private yards in the suburbs. You have to come to an accommodation of some sort with your neighbors if you are to live so close to them. That is just how life is.

          You know, the reason Minneapolis’ population is lower than it was in 1950 is that too many people in the city decided they couldn’t get along with their neighbors…

      2. Rosa

        the extra space and not sharing walls are luxuries, though. Why focus on making those cheaper when we have people who can’t find stable housing they can afford at all?

  6. Daniel Hartigkingledion

    Excellent data-based analysis.

    My biggest takeaway is the point about properties that could be upzoned in North Minneapolis, but haven’t been. Obviously, the potential rental income of a duplex or larger on those properties doesn’t justify the purchase, demolition, and rebuild required of a ~150,000 house.

    The real question is what is the price point where the payoff of building a small apartment exceeds the cost? If the price point is ~$600,000 dollars, then even if they pass the upzoning ordinance, there will be very few duplexes or fourplexes built.

    Lets do some math. Lets say it is a fixed cost of $500,000 dollars to demolish and rebuild a triplex of 3 bed units. Then we can calculate a mortgage payment at 5% interest and compare to the potential rental income to see where we are at. Rental and house costs are from Zillow. For purchases I used the lowest price range of single family houses:

    Community 3-bed rental House Price Mortgage Net Income
    Camden $1500 $225,000 $3,900 $600
    Near North $1500 $175,000 $3,600 $900
    Northeast $1800 $250,000 $4,000 $1,400
    University $2500 $300,000 $4,300 $3,200
    Central $5000 $500,000 $5,400 $9,600
    Calhoun-Isles $2500 $450,000 $5,100 $2,400
    Phillips $1500 $200,000 $3,800 $700
    Powderhorn $2000 $250,000 $4,000 $2,000
    Longfellow Only 2 houses for rent! Sample size too small!
    Nokomis $1800 $225,000 $3,900 $1,500
    Southwest $2500 $500,000 $5,400 $2,100

    What this tells us is that the best place to upgrade a SFH to a triplex is either downtown or near the University, which should be a surprise to no one. It also says that if North Minneapolis and its <$1,000 margin isn't enough to entice investors (and that margin can quickly disappear over time due to cost of operating the rental and long term repairs) then Phillips should also be safe, and the starter home havens of Northeast and Andrew Johnson's Nokomis might not see too much triplex upgrading either. Where you will likely see them is, as Adam Miller suggested, the richer parts of the city like SW and Calhoun-Isles, unless the rich can opt out through excessive lawsuiting.

    1. Katie JonesKatie

      I’m impressed by the amount of work you did on this. Perhaps tare-downs wouldn’t be necessary to make multi-family conversions though. Splitting up an existing SFH to MF could be much less expensive. I’d assume that a good many of the 2-4plexes in Uptown were converted SFHs for that reason. I’m sure we’d be less likely to see SFH to MF conversions in the bungalows (of which Minneapolis has a plethora), but the city has a number of the giant turn-of-the-last-century foursquares that could still be split up.

      Also – those numbers for Central seem a bit wonky. Maybe a small sample size? I can’t imagine a triplex could pull in double the rents of University, Calhoun-Isles, or SW.

      1. Janne

        A lot of the 2-4plexes in Uptown were built that way. Not all of them, but the block I live on is almost all triplexes, and none are converted. I’m very familiar with Lowry Hill, East Isles and the Wedge, and my block is characteristic of all three of those neighborhoods.

        1. Katie JonesKatie

          I’ll say that I’m most familiar with my block in the Wedge and the one north of it. I believe all but one of the the 2-4plexes (and boarding houses) were formally SFHs. When shopping for a 2-4plex in the Wedge, converted properties were what we saw most often. Though, we may also be looking at lower cost 2-4 plexes, which are probably the converted ones, since their wonky floor plans are likely less desirable.

          My bigger point is that are buildings with significant underutilized space. My neighbor for example has 8 bedrooms and only 3 occupants.

      1. Eric AnondsonEric Anondson

        If you have accurate city-wide numbers, please share! Would you care to share them in your own post? I love good data!

    2. Rosa

      I wonder how much the math changes when you’re looking at an already empty lot. The price difference is only maybe $100k, so it might not be enough to spur redevelopment.

  7. Tom Quinn

    This article made me curious about my history with home ownership. The “starter” home I purchased in 1984 is back on the market these 34 years later and it’s illustrative to compare the situations.

    My wife and I paid $60,000 for a bungalow in the Mac-Groveland area of St. Paul in 1984. We borrowed essentially all the money and interest rates were very high during this era. Based on our 12% mortgage for $60,000 the monthly payment was about $600/month, plus another $100/month for property taxes, making our total monthly payment $700.

    According to the inflation calculator on, that $700/month translates to $1700/month in 2018 dollars.

    The same house is now on the market for $250,000. Borrowing $250,000 at the current 4.3% rate results in a $1240 mortgage payment. Adding the expected property tax of $350/month makes the total payment $1590.

    The bottom line is that this same St. Paul bungalow costs about the same to live in as it did 34 years ago.

    I also looked at the rent we were paying. In 2018 dollars we were paying $550/month for our vintage apartment on Fairview when we moved out in 1984. As best as I can determine that same apartment rents for about $800 so renting it now costs $250/month more.

    1. Scott ShafferScott Shaffer Post author

      Thanks! I’m probably spending too much time making charts here, but I compared ownership costs (mortgage, taxes, insurance, and utilities) for young households in 1990 to 2016. Ownership is still cheaper in 1990 than in 2016 (even though it ignores how down payments and closing costs are higher now), but it’s less dramatic than the home price chart above.

      1. Aaron Berger

        Thanks for doing this, Scott. Now I’m really wondering how much of the upper end ($1800/month) has to do with rising income inequality. There are lots of very wealthy younger folks living in certain Minneapolis neighborhoods. No need to answer that one, though 🙂

  8. Norm A. Tive

    “that nuclear hetero families should be at the center of our housing policy”

    Who should be at the center?

  9. Justin

    Wow. This article and the responses are amazing. Well done to all.

    I fully support the 2040 Draft Comp Plan
    We fit the privileged, dual-income, hetero, family stereotype
    I am well aware of decades of institutional racist practices of red-lining, lending prejudice and zoning impacts
    I work for a multi-family architecture firm
    Apologies for the length, I am passionate about housing…


    First, I’d like to offer a case study of what uninformed and hopelessly ignorant people (me and my spouse) considered in buying a “starter house” and whatever we are calling a house purchase after that – I hope to expire on this lot so maybe “forever house.”

    We bought a “starter house” circa 2003 and here was our entire calculus:
    1. What would it cost us each month to rent a 2 Bed to house ourselves, and within 5 years a child (and until then, guests) versus purchasing a 2 Bed SFH?
    2. Could we scrape together the minimum down payment for the house?
    3. Not Applicable (we made no considerations beyond 1 and 2)

    What I am trying to illustrate is that the “American Dream” of single-family home ownership and its merits (financial and cultural) are and were so deeply embedded in the minds of our parents and ourselves that the considerations that smarter people are making above never entered our minds and perhaps most importantly, we didn’t find the rents in decent neighborhoods to offer ANY savings over the SFH monthly costs.

    Depreciation? Hahahahahahahaahahaha!

    If depreciation ever entered our minds, the prospect that we would be able to live in an SFH for 5-10 years, accrue value via payment toward principal and sweat equity and that we would then be able to leverage that value if we desired to move to that “forever house” far outweighed depreciation concerns.

    PMI? It sucks but we had no choice if we wanted an SFH. As it would turn out, we were able to eliminate PMI within 5-6 years of purchase. Of course, $100ish month x 60 months is not insignificant but as I said, we were ignorant and looked at the $100/month as part of the cost of doing business and knew that we *could* eliminate it with some work.

    Circa 2013, we sold our house for roughly $10,000 less than purchase price (depreciation!) despite significant upgrades (windows, doors, insulation, fencing, landscaping, new furnace, hot water heater, washer/dryer, painting top to bottom, upstairs [story and a half] flooring and stair finish.

    The housing market in 2013 was in recovery from the Great Recession so we were able to find a much better house, in a better neighborhood and while our first house had depreciated, the value of the “forever house” was more accessible to us as a result of the same market conditions and under similar mortgage terms was just slightly above what we had been paying. We still had PMI but were able to eliminate it in 2-3 years this time.

    In the original calculus, you get an escrow and insurance estimate included in your mortgage documents so I don’t think it’s fair to look at them as “hidden” costs. Utilities may be but circa 2003 utilities may or may not have been included in rent so it was roughly a wash.

    In retrospect, I highly doubt that we would have been disciplined enough to save the $100/month that we spent on PMI and the payment toward principal that amounted to a massive chunk of value that we could apply to our next house would not have been there in the rental scenario. Part of the down payment surely gets consumed with closing but again, I see almost NO scenario where we would have been disciplined enough to invest our down payment wisely.

    As I mentioned, the “American Dream” was/is deeply embedded and I have to say, in our experience as privileged, dual-income, heteros, nothing has happened to dispel that dream or make me think that we made a bad/risky decision.

    The only risks that I see is in the sunk cost of closing, PMI and the potential for an expensive repair/replacement. Having lived through the worst recession since the Great Depression, and STILL seeing our principal payments and value at the time of appraisal accrue to the point where we could eliminate it gives me no reason to question our decision given the benefits that we now enjoy. Repair/replacement was less risky for us because of my skill set and that of family who could help. Some may say that this is a major advantage but pick your poison – I know nothing about cars and if we had major problems there, we would have paid to fix them.

    I FULLY understand our privilege, realize that the risk above is not for everyone and that the current system is inequitable and requires major changes at all levels that I support.
    Now that we don’t have to be concerned about PMI, I don’t care if our house goes up in value and welcome four-plexes next door/everywhere.

    However, YIMBY’s have to understand that we are pushing back against DEEPLY entrenched values and ideas. I just illustrated that ignorant/naïve people are very willing to buy into the American Dream because there is very strong evidence that it is sound. How do we convince people that have bought into the American Dream that they have no “right” to believe that the system can never change and no expectation that they can expect an appreciating asset when it has been so strongly proven out over decades? Doesn’t it seem perfectly natural that people who have bought into this dream would be worried about anything that threatens a “safe” investment? I am NOT saying that it is right, I’m asking how we talk to NIMBY’s given the entrenched emotional and financial implications? We have to listen even if we disagree and find a way to discuss the reasons why equity is important.

    If you made it through this, thanks for your time.

    1. Rosa

      I guess, having bought in about the same period you did, and with about the same amount of forethought…if living through the housing bust didn’t make home ownership seem risky, I don’t know what did. It’s pure luck neither of us involuntarily lost a job right when we would have taken a huge loss if we had to sell the house. I watched neighbors get foreclosed right and left.

      But as for convincing people we need change…if folks can see (and genuinely feel safe for) homeless people but not think that restrictive zoning to keep housing prices high is a problem, I don’t know that they can be convinced. Math (“put the interest costs in the stock market here is a chart that shows how much richer you’ll get”) certainly doesn’t do it.

  10. Tony Desnick

    Three homes in 34 years. Started with a condo in a fourplex on Stevens across from MCAD (54K at 18% [you read that right] mortgage). Then a Mac Grovleland single family bungalow ($78K at 5%), and now into our empty nest, another condo in a duplex in Highland ($213K @3%). In both the fourplex and duplex, we were (are) connected at the hip with our neighbors but problems are few and far between.

    In many ways all were starter homes even though the last will likely be the last – a finisher home? The notion that the single family is the only starter choice leaves too few choices in any decade.

    1. Tim

      You make a good point that the idea of the SFH being the only acceptable starter home is an odd one. I bought my townhouse in the mid-2000’s, and back then it seemed like it was much more common for people to purchase townhouses/condos as starter homes than it is now. If someone bought a SFH back then as a first home, it probably needed a lot of work.

      I know part of it was that there weren’t many multifamily homesbuilt for a while, but I also think the housing crash contributed to it as well, in that people who couldn’t have afforded a SFH before the crash became able to buy them, and that caused people’s idea of what a starter home should be to shift.

      It’s not that we’re running out of starter homes per se (especially not when considering the metro as a whole), it’s that we’re about out of SFHs in good condition in popular neighborhoods in Minneapolis. Which isn’t exactly a new phenomenon; young people will move into different neighborhoods and cities as the decades go by, which helps those areas grow and revitalize.

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