The Shape of the Minneapolis Inclusionary Zoning Debate

Lisa Bender at inclusionary zoning presentation.

Minneapolis City Council President Lisa Bender

Inclusionary zoning is an umbrella term for a wide range of policies designed to encourage or require the inclusion of affordable units in new housing construction. Here are three example scenarios from yesterday’s presentation to the Minneapolis City Council’s Housing Policy and Development Committee:

  1. Require 15% of a new building’s units be affordable to households making 60% area median income.
  2. Require 10% of a new building’s units be affordable to households at 60% AMI.
  3. Require 5% of a new building’s units be affordable to households at 60% AMI.

The authors of a city-commissioned study on inclusionary zoning, consultants from a group called Grounded Solutions Network, landed on 10% as the sweet spot.

You might be wondering, why not require 30% affordable? Why not 100% affordable? Because, in the opinion of the city’s outside experts, a 15% mandate is “the very outer limit maximum of what we could possibly consider feasible.” Anything higher makes it very difficult for a profit-seeking enterprise to build apartments.

The experts explained why a mandatory, not voluntary, system was the right path for Minneapolis. Offering developers density bonuses or parking reductions in exchange for affordability doesn’t work because the city has already implemented relatively aggressive parking reforms and has virtually no density restrictions downtown (an area that in recent years has added a lot of units — making it the kind of place where inclusionary zoning could make a big impact).

An inclusionary zoning ordinance is something that Council President Lisa Bender has said must be passed alongside the package of zoning reforms contained in the Minneapolis 2040 comprehensive plan. I expect she has the votes to back it up.

If City Council approval of a bold version of Minneapolis 2040 hinges on inclusionary zoning, it’s worth thinking about what that debate looks like.

There are people who will argue for a prohibitively high (25%… 50%… 100%!) inclusionary zoning percentage. These people are:

  • those who think for-profit multifamily housing construction is bad, and that stopping it is good.
  • those who think building an apartment building is wildly more profitable in percentage terms than it actually is.

Then there are skeptics who say inclusionary zoning hasn’t worked in other cities. They see the construction of thousands of new homes as part of the solution (though not the sole solution) to a massive housing shortage and affordability problem. For them, policies that potentially discourage the creation of more homes are counterproductive

The argument from skeptics is that affordable housing is everyone’s burden to shoulder, not just residents of newly constructed apartments and condos. The skeptics say: tax everyone to pay for affordable housing. The owner of a million dollar home in Ward 13 has as much obligation as the renter living in a $1200 Whittier apartment, or the owner of a $500,000 condo.

Someone tweeted at me yesterday that the key to inclusionary zoning’s popularity is that it puts the burden on a small and often disliked constituency: residents of apartment buildings that haven’t yet been built.

Inclusionary zoning supporters on the City Council will probably latch on to something resembling the case made by the group of experts the city hired to study the issue. Those experts are recommending an affordability requirement that gives developers a choice: 1) 10% of units affordable at 60% AMI or 2) a public subsidy to go to 20% of units affordable at 50% AMI. The city’s experts contend that development would remain feasible in most parts of the city under this system.

The experts also say that while the cost of a new inclusionary zoning regime will initially eat into the profits of individual projects — making new home construction less likely — landowners would eventually start to bear those costs: “Over time, developers who all face the same increased cost will all negotiate for a lower land price.” This would take years, however.

A few alternative scenarios specifically not recommended by the experts would involve the “politically fraught” process of drawing lines on a map to designate the parts of town with strong enough housing markets to bear more stringent affordability mandates. You can imagine how this might upset a landowner just barely on the wrong side of one of these lines on a map.

The city-commissioned report on inclusionary zoning is set to be finished in a few weeks. For more detail on yesterday’s presentation to the Housing Policy and Development Committee, see my Twitter thread here.

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20 Responses to The Shape of the Minneapolis Inclusionary Zoning Debate

  1. Marshall August 24, 2018 at 2:09 pm #

    In addition to having requirements for affordable housing, I would really like to see the city include that, in some cases, developers to be required to include some apartments that have at least 3 bedrooms. I believe that the 2040 Comp plan will end up meaning that the city loses some single family house stock to various different types of multifamily housing. I am not saying that is a bad thing, it is just something that the plan allows.

    However, as long as there are at least some 3 bedroom apartments being included that would be realistically big enough for a family to live in, then perhaps there will not be the exodus of families out of the city that some detractors of the plan suggest. As a parent of two young children I understand the need to have a reasonable sized dwelling for my family to reside, and I honestly don’t find it to be a very persuasive argument when young adults who aren’t parents, and in some cases aren’t even living with a partner, tell actual parents that they can “easily just live in a 2 bedroom apartment” with a family of 4. Keeping families in the city is important, and decently sized 3 bedroom apartments would allow that.

    • Matt Brillhart August 24, 2018 at 2:55 pm #

      Marshall,

      A few counterpoints to your suggestion, in no particular order:

      1. More people live alone than at any time in history, and this trend looks likely to continue on both ends of the age spectrum, as young people are delaying marriage/kids and older folks are living longer (which in many cases means alone, post-divorce or the passing of a spouse). Conversely, “families with kids” now make up a smaller percentage of total households than at any time in history, and this trend looks unlikely to reverse. Demographics are destiny, as they say.

      2. A large/3BR apartment in a new building is going to be very expensive – so expensive that most people who can afford that rent would simply buy (or rent) a house. If new development costs around $2.30 per square foot (without subsidy), you’re looking at monthly rent of $2500+ for large units. At that price range, the vast majority of families are going to make the logical decision to buy (or rent) a house with their total mortgage+bills coming in at or below what they’d be paying for the large apartment. If starter home prices in Minneapolis continue upward to the point where there are no homes in nice neighborhoods below $300,000, then we might see more demand for 3BR apartments.

      3. Do you have evidence that developers *aren’t* building these types of units currently? I know certain developers (CPM) gear their product towards singles, and build entire buildings full of studios/1BRs, but I’m fairly certain that some of the tower developments downtown do include some 3BR units. At the very least, I don’t think it’s true that these units aren’t being built at all. If there was a market demand for large/3BR units, wouldn’t developers be building them?

      Lastly, do you truly believe it is in the city’s purview to mandate to private housing developers what types/sizes of units to build? On what legal basis could the city require that? I’m not so sure that would hold up in court.

      • Anon August 24, 2018 at 3:24 pm #

        TLDR; there are very few 3brs downtown for the 99%

        Most downtown units with 3+ bedrooms are penthouse-type units, there are very few of these and they cost over a million dollars. The only ‘regular’ 3 bedroom units that I’m aware of are at The Crossings, which has 16 3br units that are reasonably priced, (350-450k). I’m sure there are some others, but not many.

        Regardless, I agree with Matt. Let the market dictate what is built. And I also live downtown with two children.

      • Marshall August 27, 2018 at 10:15 am #

        In regard to your response Matt – yes, I think that if it is in the city’s purview to mandate that affordable housing be built, then I also think that it can be within the city’s purview to mandate that some units within new apartment complexes are built to accommodate a family. The other bullets you mention are very good questions, I don’t have answers to all of them. But you do point out that 3 bedroom apartment/condos are less profitable to developers per square foot, and therefore the financial to include them in development plans really isn’t present.

        I do think that keeping families in the city is a good thing, it contributes to an active and inviting neighborhood in my entirely subjective opinion. That is NOT a way of me saying I oppose the 2040 Comp plan under the pretense that it would destroy single family homes, I don’t think that and I support it. I think that having realistic family options outside of single family houses is important.

        https://thetyee.ca/News/2016/11/25/Family-Friendly-Housing/

        https://www.citylab.com/solutions/2014/08/how-vancouver-became-one-of-north-americas-most-family-friendly-cities/375617/

        It appears fun for people (not you Matt, but others) to hearken back to a “good old days” mythology where kids were happy to share a one bedroom apartment while mom and dad slept on a twin sized daybed in the living room. I guess I try to be realistic about human nature and assume that if the options are that a family of 4 can either live in a 2 bed 900 square foot apartment/condo in Minneapolis or live in a 4 bed 2500 square foot house in the outer suburbs I unfortunately believe that the vast majority of these families will choose the second option.

    • Brian August 24, 2018 at 10:52 pm #

      Plenty of children of baby boomers grew up with two kids per bedroom. It can be done.

      • Bill Lindeke
        Bill Lindeke August 25, 2018 at 11:39 am #

        Indeed. I know a bunch of people that shared a room growing up in cities.

        • Julie Kosbab August 25, 2018 at 3:00 pm #

          I know a bunch of people who shared a room growing up in suburbs.

          • Adam Miller
            Adam Miller August 25, 2018 at 7:58 pm #

            My brother and I shared a room in the suburbs until I was in fifth grade. But that was all before 1990.

            • Julie Kosbab August 25, 2018 at 8:41 pm #

              Sharing rooms is pretty normal and the current concept that it is weird or bad is, itself, weird and bad.

              • Marshall August 27, 2018 at 10:23 am #

                Well I definitely never said sharing a room is either weird or bad, so please don’t put words in my mouth.

                • Bill Lindeke
                  Bill Lindeke August 27, 2018 at 10:50 am #

                  I think that, even if Marshall did not say it, many people in general social interactions routinely imply that sharing a room is weird and/or bad.

          • Monte Castleman August 25, 2018 at 10:20 pm #

            My experience in the suburbs is I never knew any kids that had to put up with sharing a bedroom, either other kids I knew growing up or other parents I know now.

            • Adam Miller
              Adam Miller August 26, 2018 at 9:20 pm #

              Really? Maybe I’m off in my guess of your age, but for me, growing up in the ’70s, & ’80s in the suburbs I both know that my brother and I shared a room and can’t say for sure whether other kids we knew did or not.

              • Monte Castleman August 27, 2018 at 7:34 am #

                I might be a few years younger than you, but not by much, most of my memories growing up are from the 1980s and very early 1990s; the earliest thing I can really remember is all the flags at half staff due to the Iran hostage crisis.

                I suppose the next door neighbor kids could have shared the bedooms; they had three kids in a three bedroom house. But I was never inside their house so I don’t know that was the case as opposed to having a kid sleep in an improvised room in the basement, which isn’t uncommon. (They were the one family every neighborhood has where your parents don’t want you playing with them and they kind of keep to themselves anyway).

                For the most part people in the neighborhood had 0-2 kids in a 3 bedroom house. The families who’s kids I hung out with 3 kids per family both had 4 bedroom houses. As an adult now I tend to know more people from Eden Prairie and Shakopee, where houses are bigger.

  2. Brian August 24, 2018 at 3:22 pm #

    Developers may simply not build some projects if affordable apartments are required to be included. The sort of people that rent high end luxury apartments often don’t want to associate with low income people.

    Some apartment buildings put in separate entrances for the affordable apartments to appease the market rate renters, but the developer then gets sued for discrimination against low income people.

    • Matt Brillhart August 24, 2018 at 3:48 pm #

      Brian, it is worth noting that renters at 60% AMI are not “low income” by any stretch. 60% AMI is solidly working class / lower middle class (whatever those terms mean). In 2018, the area median income for a household of four is $94,300, so 60% would be $56,580. Note: Met Council only gives AMI for a 4-person household…I have no idea what the AMI is for singles.

      Here are the Met Council’s rental affordability numbers for 2018. This is what rents (for a percentage of units) would be capped at if the inclusionary zoning policy is passed as described in the post.

      # Bedrooms 50% AMI 60% AMI
      Efficiency/studio $826 $991
      1 Bedroom $885 $1,062
      2 Bedrooms $1,061 $1,273
      3 Bedrooms $1,226 $1,471

      Safe to say, I don’t think people paying $1500+ for a 1BR luxury apartment are going to be too put off by a few neighbors paying $1062 (especially if you don’t know which neighbors are paying what)

    • Monte Castleman August 24, 2018 at 6:09 pm #

      There’s no profit in new construction affordable housing. If we pass a law that chops 10% off the profits of every single housing project in Minneapolis, won’t most of the developers decide they’d rather build housing in St. Paul or Edina or Kansas City, where there’s not laws chopping their profits? Or decide they’d rather build office buildings in Minneapolis?

  3. Trent August 24, 2018 at 9:04 pm #

    It’s concerning that even experts that arguably are being brought in to support the concept of inclusionary zoning (given the positive disposition of their hiring client) identify a threshold of 15% as the point where this would render new multifamily housing unfeasible to build. So as our economy has it’s ups and down, does that 15% move? Will todays 10% threshold be the no-go level of 2022? While I know Lisa Bender and the city council love to please the crowds that show up to council meetings with megaphones and demands, this could backfire spectacularly and send their aspirational goals of population growth up in smoke.

    • Bill Lindeke
      Bill Lindeke August 25, 2018 at 11:43 am #

      My guess would be that, if it backfires, it would not be in spectacular fashion but rather in a vague and marginal way, noticed only by real housing wonks or others interested in construction trends.

    • Jeff August 28, 2018 at 12:52 pm #

      It’s worth noting that population growth isn’t part of the city’s “aspirational goals” but rather what the Met Council has said is likely to happen over the next 10-20 years. It’s smart to use data to drive decision-making on housing and this (or at least, building more housing to accommodate the apparent need) is smart policy.

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