In 2009, my wife and I were looking for a house. I had just finished law school. I had temporary work as a law clerk and wasn’t sure where (or if?) I’d find a permanent job—the legal job market had cratered along with the rest of the economy. So we looked for a place near transit that could get me quickly to downtown Minneapolis, where the most potential jobs were. The hope was we would avoid the need to own two cars.
Corcoran is fantastic.
We found a cute, small, well maintained, but vacant house in the Corcoran neighborhood, about a 10 minute walk from the Blue Line. For $127,000, we became its new owners. This was after looking at a handful of other properties around South Minneapolis, at about the same price, but in far worse condition. I didn’t think for two seconds how many bedrooms or housing units were in the buildings on my block, or the blocks around me. The place turned out to be right next to a four-—or six-? I never even bothered to find out—unit apartment building, behind a duplex, across from a fourplex, and who knows what else. Virtually every adjacent building, apart from the one directly across the street, was taller by more than one story. None of that ever mattered.
Over the years we borrowed to put another (roughly) $60,000 into it, plus sweat equity. I finished the basement—insulating, sheetrocking, painting, and even digging the hole for the egress window by hand to save money. We redid the failing roof, replaced the failing 1950s plumbing and got new windows. I paid much-needed attention to the landscaping.
Still, the kitchen countertop remained formica (an ~$87 carry-out purchase from Menards), and much of the flooring was still pinch-penny stick-on laminate squares. I didn’t redo the garage roof. The front steps and sidewalk are settling and will eventually need to be addressed. The “master bedroom” is in the basement. I do not think I could be reasonably be accused of over-improving the house.
The scene of the crime
By the time I sold it in 2017—I would have lived there longer but my life changed—my cost basis was about $190,000. I’m not an Evil Developer or a Greedy Flipper; this was my home. It sold for $235,000, and I turned down an offer for something like $260,000 because I wasn’t confident it would appraise for that much. In hindsight, it probably would have.
I was a gentrifying force in the neighborhood. But why was I there, and why did people willing to pay $260,000 come immediately after me? I’m not the one who pushed the house’s value way over $200,000 and, had I accepted the higher offer, rendered the house unaffordable even at 80% AMI. That was the market. The people who want to live where I lived, and the people willing to lend them money. The same market that made other Minneapolis neighborhoods unaffordable (yet with poorer transit because they are less dense) driving me, and then my bidders, to Corcoran in the first place.
The house is still a “starter home,” (another ill-defined term that we seem to toss around as if everyone agrees about what it means) but now a slightly updated, three bedroom one. Some people seem to argue that it would have been more socially beneficial to leave it in the condition I found it, but 8 years older, as a means of preserving its affordability. I can’t understand this. The plumbing and the roof were about to become serious problems, and finishing the basement is as American as apple pie. We want owners to invest in and improve their properties—its the primary reason “owner-occupied” is widely considered to be a virtue.
SPOILER: It was you (if you own a home in a more desirable, less dense neighborhood in Minneapolis and oppose increasing density there).
Homeowners need to recognize and accept that we are being handed massive public subsidies, both while we live in our homes (the mortgage interest tax deduction) and when we sell them (the capital gains tax exclusion), along with other advantages that benefit us at the expense of everyone else (having a disproportionate voice in local government and neighborhood organizations). And, if you’re lucky enough to already be a homeowner, you have a significant conflict of interest: the value of your asset only increases as market-priced housing becomes less affordable. (I can’t emphasize this enough, so here’s a second link to drive that point home: wanting home values to appreciate and wanting housing to remain affordable are conflicting goals.)
This conflict puts houses that are on the bubble of affordability in the crosshairs. Not the targets of Evil Developers or Greedy Flippers, but ordinary homeowners competing in the market to buy a home for themselves from a limited supply.
So make some room in your neighborhood and share a little of it with people who need access to the transportation, jobs, and recreation that you currently enjoy. Maybe then people like me, and the people who bid on my house in Corcoran, can have an alternative to bidding up and buying up the aging affordable housing.
Great article. I think about this often. People and arguements are often focused on new apartments, and yet the affordable housing is disappearing all around us, whether or not new housing is built nearby.
This is the part of the ‘starter home’ discussion that doesn’t fit in a tweet sized soundbyte. Eventually, every starter home will be renovated. Whether that happens piece by piece over a decade, over a few months by a speculator, or replaced entirely doesn’t really matter when the end result is a house that’s no longer affordable. And if none of that happens, the house becomes an unsalvageable ruin and is torn down anyway.
By preserving houses that were affordable decades ago, we hugged them to death and now they’re out of reach to most. And unless they suffer another 20-30 years of use and neglect, they’re not coming back down again.
Inflation accounts for most of the price increase, at least for the price you sold it at.
Except for the $60,000 increase in sweat equity, which is what the author’s point is. If he had moved in and refused to maintain anything for eight years, the house might have been worth $146k (according to the Bureau of Labor Statistics’ inflation calculator), but if a leaking roof or damaged plumbing had destroyed the house, it would be worth less and might have needed to be torn down anyway.
The author isn’t arguing market forces pushed the value of the property up the whole way. Rather that by owning and making routine updates to the property, it stopped being a starter home.
Houses increase in cost faster than inflation due to factors other than inflation, primarily through limited supply, either through anti-growth polices like minimum lot sized zoning or the MUSA line, or that fact that you can’t fit any more of them in desirable locations. So you have a relatively fixed supply compared with a growing number of people that want them.
I’d reckon his house would be with $40,000 more if he did absolutely nothing but sit in it.
This is misleading, at best.
Adjusting for the CPI, in 2018 dollars, my house should be worth $212,694. It sold for 10% more than that. Payment for my labor, I suppose.
But why did someone offer me $260,000 if the entire increase was attributable to inflation? Should we depend on everyone turning down extra money because they want an uncomplicated sale? Disregarding the $260,000 offer entirely is a mistake.
Conversely if you are a renter trying to buy you have a conflict of interest to increase supply to get a lower priced home.
Great article! As someone who just bought a single-family home, I have conflicted feelings about both wanting to improve it over time (2nd bathroom, hello) and also not wanting to make it less affordable than it already was when I bought it.
Thanks. I feel like this is a part of the conversation that gets lost while people go to war over the more visible examples of Developers and Teardowns. Affordability just naturally erodes when property values increase faster than inflation; people who managed to get a seat in the game of musical chairs get rewarded. You or I deciding not to add the second bathroom isn’t going to halt that process. I think at least being aware of the arbitrariness and inequity is a start?
In the end I think this is a problem of widening economic inequality that needs a systemic solution… I’d rather just have people get paid better, than try to solve our economic systems failings on the backend (I feel the same way about education…).
There are a lot of affordable houses in Minneapolis, they just happen to be on the north west section.
I know there are a lot of sensitive issues at play, but ~2000 sqft houses in that quarter of the city currently go for ~150k, and smaller ones go for even less.
I guess I don’t understand the obsession with densifying south minneapolis while simultaneously brushing off the least densely populated part of the city as a lost cause.
What’s your policy proposal to get people who want to live in South Minneapolis to instead live in North Minneapolis?
I’d be interested in hearing specific policy proposals too. Hiring a bunch of new police officers and sending them in to get the crime problem under control isn’t going to happen. Coming up with some catchy slogan for the neighborhood isn’t going to fool anyone anymore than calling BRT the “red line” fools them into thinking it’s LRT. If buying a house for $150,000 under what it would sell for anywhere else in the city won’t lure people in it’s hard to think what would.
I think it would be good to get some voices from North Minneapolis on here with their suggestions. It’s not really my place to say what’s needed.
However, one way the city might be able to do reparations and improve housing stability and affordability in one swoop would be to straight up assume some mortgages for residents who’ve been there for years, and forgive the debts (maybe over time). Or maybe not! Lots of options for investing in a way that’s tailored to the need.
Density in South Minneapolis does not come at the expense of people moving to North Minneapolis. Probably just the opposite: the more that South Minneapolis becomes a desirable place to live, thriving and full of people, the more North Minneapolis looks appealing as well.
Amazing, that Mr.. Moseng fails to consider that he bought his house in 2009 at the depth of the Great Recession and housing, crisis, when the bottom fell out of home prices in Minneapolis and elsewhere. The rise in the vale of the house is more due to the general economic recovery than to his upkeep of the structure. Prices have recovered, often by leaps and bounds, so calculating a 2018 inflation-nuanced price is not enough to explain the rise, post-2008.
Finishing off the basement is an improvement, but the rest of what he says he did to the house–and what he didn’t–is upkeep, Maintenance, not gentrification. What long-time renters fail to understand is that owning a house that you actually live in is not so much an investment as another way of putting out money annually for housing. A kind of rent-paying exercise of constant upkeep.
How much value does a finished basement add? Even if you do it right and have drywall instead of wood paneling, it’s still generally the least desirable living space in the house. Older houses tend to have dampness, low ceilings and no natural light in the basement.
As for paying out money annually, yeah… Insurance and Property Taxes eat the equivalent of a couple of rent payments and you’re always buying paint, tools, garden plants, and miscellaneous stuff at Home Depot. Then sooner or later something expensive is going to happen. Most of my house has been rewired and the furnace, A/C, and roof should last another decade or two, but I know the 50 year old cast iron drain pipes are on borrowed time.
It’s not an investment- I’d still have bought it even if there was some kind of guarantee that it would never, ever appreciate, but a place to live and to paint the color I want, plant what flowers I want where I want them, and not have to put up with sharing a common wall or ceiling with other people.
You’ve missed the point, and suggesting that I’m a “long-time renter” is odd. How many years must one own property before they are no longer a long-time renter?
The point here is that the mere act of maintenance, the ordinary acts of homeownership, nevertheless resulted in gentrification, i.e., less affordable housing. Even if the entire increase is attributable to “general economic recovery,” that economic recovery has been unevenly distributed, putting the price of that home out of reach of more people. If gentrification means anything, that’s exactly what it means.
Your efforts to define away gentrification are telling. Which is also among the reasons I wrote this in the first place. It’s exactly because I wasn’t any of the Ne’er Do Wells generally blamed for gentrification that the story of my house is relevant. Developers, Flippers, and luxury finishing and appliances, aren’t causers of gentrification, they are symptoms.