Minneapolis Inclusionary Zoning Debate Kicks off at City Hall

The Minneapolis City Planning Commission held a preliminary discussion about inclusionary zoning on Thursday night. Inclusionary zoning is a requirement that new apartment construction include a certain percentage of affordable units.

Until a permanent policy can be adopted, City Council President Lisa Bender wants to implement an interim policy alongside the Minneapolis 2040 Comprehensive Plan. As outlined in a staff report, “The interim inclusionary housing ordinance would apply only to projects that propose a substantial increase in the allowable residential development capacity.”

City staff said the interim policy would be triggered at a 60 percent increase in development capacity, related to “rezoning, variance, density bonus, or other application or combination of applications.” The policy would likely exempt small-scale rezoning that allows for things like triplexes and fourplexes.

Because downtown Minneapolis has few limitations on development capacity right now — meaning it would be hard to propose a “substantial increase” — Commissioner Rockwell suggested there needed to be a downtown trigger in the interim policy.

When asked about setting a threshold on the number of units that would trigger the policy, staff said that wouldn’t be necessary because most projects requesting a 60 percent density increase are already quite large.

The city’s “inclusionary housing” consultant, Grounded Solutions Network, is recommending a policy that gives developers two options to comply with an affordability mandate:

  • Unsubsidized, with 10 percent of units affordable to 60 percent area median income.
  • Subsidized, with 20 percent of units affordable to 50 percent area median income.

A Commissioner Nick Magrino worried (sassily) that mandates for rents at 60 percent of area median income would just be helping the “artists loft” crowd who are “still on their parents cell phone plans.” He expressed concern that the policy wouldn’t end up helping people with the greatest need for affordable housing.

The mechanism for the subsidized option would be what’s called tax increment financing. TIF diverts the additional tax revenue resulting from new development to offset development costs. The advantage to using the subsidy is that it allows the city to require the building to remain affordable for 30 years. State law prevents an affordability term longer than 20 years unless a subsidy is provided.

Commissioner Ryan Kronzer noted that the process of securing a TIF subsidy is long and uncertain: “If you start today, you’ll be building your project in 2020.” City planning staff say they are “exploring the TIF option” to streamline the process and give developers the assurance that the subsidy will actually come through.

Magrino said if there’s a construction slowdown, “It’s gonna be hard to tell if [the policy] is working for a while.” He’s observed that the housing market may already be softening; a few projects have been cancelled and rental incentives for tenants are getting more generous.

In the last few weeks, I’ve talked to experts who worry nobody is checking the math on the consultant’s report. They point out the feasibility study only included buildings of 100 units or more. They also raised questions about whether land costs factored into the study are accurate.

One developer told me that in the uncertainty leading up to the passage of an interim policy, developers have stopped buying sites. They predict a “mad rush” to get projects approved by the end of the year, and that development focus would then shift to the suburbs and St. Paul.

Supporters of the policy, including the city’s consultant, admit there may be a period of a few years where inclusionary zoning discourages new construction. They insist that to the degree the policy makes development more expensive, those costs will eventually be factored into the price of land.

At Thursday’s meeting, Commissioner Magrino predicted a very long final meeting of the year for the Planning Commission. Planning staff expects the interim policy would go into effect on January 1st. It’s possible that a permanent inclusionary zoning policy would be adopted later in 2019.

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9 Responses to Minneapolis Inclusionary Zoning Debate Kicks off at City Hall

  1. Bill Lindeke
    Bill Lindeke October 5, 2018 at 11:04 am #

    Speaking as a Saint Paulite, we would like to welcome new housing.

    • Bill Lindeke
      Bill Lindeke October 5, 2018 at 11:33 am #

      That said, there are discussion of IZ in some circles in Saint Paul. With the market demand so much lower than in Minneapolis, I don’t see how it would work very well here, all least not with a similar proposal.

  2. Josh October 5, 2018 at 11:51 am #

    I get it in principle, but new housing has almost always been out of reach to lower income people. So you live in 30+ year old housing.. I don’t see the problem. 60% AMI is usually far above what I would personally consider attainable and I went to college. 1 bedrooms are renting for almost 1000 a month. Instead you live somewhere older and pay 700.

    If it going to discourage development in the center city, this seems bad. If someone could provide links to this actively encouraging lower middle class (etc) families to secure housing in new buildings that would be awesome. As of now, I agree with Magrino quote as seeming more true.

  3. Alex Schieferdecker
    Alex Schieferdecker October 5, 2018 at 1:48 pm #

    As a method to create affordable housing, IZ is not especially useful. It likely leads to less building overall, and I’m not aware of any municipality anywhere that saw a significant amount of new affordable housing units as a result of an IZ policy. The best case for IZ is probably as an anti-segregation measure.

    But on both counts, I’m not sure how well 60% AMI or even 50% AMI fit the bill. That’s housing ranging from $826 for a studio to $1,367 for a four bedroom. These numbers are not too far south of the existing rents in many parts of the city and first ring suburbs, which suggests to me that legally mandating units at this price range is not especially necessary.

    All of that being said, the sky won’t fall if this policy is passed for three reasons.
    – The first is that this policy seems fairly narrowly tailored, unlike the more famous and problematic effort in Portland.
    – Second, if Minneapolis implements the proposed 2040 zoning as a close companion with the IZ policy, it will open up large parts of the city to multifamily development that is too small to trigger the IZ ordinance but is naturally cheap to build. Developers won’t be out of options, and I almost like the idea of nudging developers into smaller projects.
    – Third, Saint Paul exists. Minneapolis is a small city in terms of land area, and unique among peer cities in having a control variable directly next door. Hypothetically, if Minneapolis were to outright ban all housing construction, the effect would be markedly less dramatic than if a city like Portland or Denver tried the same, since developers have highly eligible alternatives directly next door.

    Anyway, I’m pretty skeptical that IZ is good policy for Minneapolis, but I’m also skeptical that it’s a hill worth dying on. If the policy passes and the 2040 zoning passes, there will be two years of data available before the next elections for this same city council to assess and decide whether policies like the IZ proposal are working.

  4. Trent October 5, 2018 at 5:31 pm #

    The ambivalence of the plan supporters who acknowledge and are Ok that the policy might put the brakes on projects in the city for “a couple years” demonstrates their relative ignorance at an economic level.

    And what does it mean exactly that this additional cost will be factored into the cost of land. If I am a developer with this new mandate, I will want to pay less for the land to keep my costs lower. So if I am the land owner, I would prefer to sell my land in smaller parcels to small stand alone developments unburdened by this requirement, if feasible. Otherwise what they are saying is that land prices will become depressed as these projects become less attractive. But I guess that’s a less politically palatable way of saying it.

    • Andrew Evans October 8, 2018 at 8:30 am #

      I do like how the goalposts seem to be moving in what’s affordable or not. A lot of the housing programs, and some grants (iirc) were capped at 80% median income. Which, (for me being single without kids) was around $45k a year or something. If that’s the case, then the 110 Grant building, for example, could easily have some “affordable” units. Likewise, newer construction as well, could have some units to attract those at 80% and not really be out all that much.

      However, move the goal posts and it’s a different deal.

      This brings to mind the housing projects around Cedar Riverside. Those, I thought, were meant to be this big wonderful utopia with all classes finding housing within it’s walls and buildings. Truth be told, from what I gather, and I could be wrong, it was never that popular. Then, the feds changed the way they did housing funding and mixed income projects didn’t qualify anymore.

      Granted here they want a locked in 20 or 30 year funding goal, but still.

      I’d personally much rather have the city outline areas where they would allow luxury housing, without any limits. Then in other parts extend help or grants (maybe coming from the added tax income from the luxury construction) to help make affordable regular apartments in other parts of town. I’d run out of fingers and toes to count the number of empty 3 to 4 lot plots in the areas of North I’m exposed to. Nothing at all is going to happen to them unless its’ subsidized. If the changes pass as proposed here, nothing at all would happen to them in 5-10 years unless it’s subsidized.

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