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Is It Time To Look Past the Missing Middle?

In the “before-times”, housing advocates in Minneapolis worked with a progressive city council to pass the 2040 Plan. The New York Times proclaimed, “Minneapolis, Tackling Housing Crisis and Inequity, Votes to End Single-Family Zoning”. These were all great achievements, and it is clear that 2040, inclusionary zoning, and other reforms and investments have made real progress on the housing shortage in Minneapolis.

But nine months into the first year under the new rules, one key component of 2040 is not living up to the promise made: there hasn’t been a rush to build new duplexes and triplexes in previously single-family neighborhoods. City Pages broke the story on September 1 that only three triplexes had been built year-to-date, and none of them were new construction.

I wanted to independently verify the numbers, because City Pages did not share documentation of their findings. On behalf of Streets, I filed a data request with the City and received a spreadsheet of all the building permits from January 1 to September 1, 2020. Check out all the data for yourself, and comment below if my reading of the raw data is off in some way.

Here are some facts: For January 1 through September 1, there have been about 7,134 building permits totaling $1.299 billion, including commercial and other non-housing development. A full $713.6 million of that (54.93%) is coded by the city as new builds. These include situations where one dwelling is torn down to build another.

Looking just at those coded as new builds, there have been 50 new single-family dwellings, for a total of 50 units of single-family. For two-family, there were eight new dwellings for 16 total units. For three-family (now allowed with 2040 across the city), there were four new dwellings with 12 total units. There were also three new four-family dwellings with 12 units.

Looking at larger-scale development, there were no new buildings from five to nine units. At 10-99 units, there were 15 buildings with 706 units in total. For buildings above 100 units, there were nine new buildings and 1,715 units in total.

To put that in visual perspective, here are those same numbers with proportional circles.

Source: City of Minneapolis; data visualized by author

Here is a quick stat: 68.30% of new build housing units in Minneapolis were in buildings of 100 units or more.

As to the reasons for this phenomenon, it depends on who you ask: developers, housing advocates or neighborhood groups. One theory is that multi-family development under 10 units is just not profitable, even with historically low interest rates.

One of the most profitable building types right now is the “5+1”, where the first story has a concrete ceiling, and then a five-story wood construction apartment building is built on top. This is very popular for mixed use, where a restaurant, café, or grocery store can be on the first story, and then housing above.

Be sure to check out our interactive map of the data as well!

[googlemaps https://www.google.com/maps/d/u/0/embed?mid=15Vd0QQ2t0rbkHZzOxmIXV5PY5R8Dlf7C&w=640&h=480]

14 thoughts on “Is It Time To Look Past the Missing Middle?

  1. Bill LindekeBill Lindeke

    IMO there are still far too many political and bureaucratic hurdles to small-scale new multifamily construction in place. Until we normalize these kinds of project to the extent that a dozen neighbors angry about traffic and parking cannot derail them for a year, the numbers of these projects will continue to disappoint. You’ll only see them in valuable areas of town.

  2. Bruce BrunnerBruce brunner

    I agree with Bill- the hurdles are many but they still can be done by smaller builders on a financially sound basis- rather than just guess whether “people’s theory” is correct, just ask those that build them what the problem is. I can say zoning limitations on FAR, building heights, lot size ect are what derails adding smaller scale the building projects. I suspect that can be on purpose or unconsciously set in motion because individuals who write the codes and can selectively choose which guidance to follow And bring their bias which is often rooted in the previous decades of zoning that we’re trying to get away from
    I like the article and how it uses real data

  3. Monte Castleman

    I suspect there’s a disconnect between what planners view as an ideal city, and what makes developers money, or the most money. If there was a lot of money to be made building one-off triplexes on random city lots, you would have seen developers really pushing for it, just like they’re now pushing back at things like having to include money-losing ground floor commercial space and pushed back at the affordable housing ordinance. So even though they’re allowed to build triplexes in the city, they’re continuing to build luxury apartments everywhere and stock luxury single family detached houses in the exurbs. If you buy a single family detached house in a relatively expensive area of the city, you’ve spent a lot of money to buy something to tear down and get a bare lot. If you buy a house in the cheap area you’re limited to what revenue the final produce will bring.

    Meanwhile there’s no way a prospective owner-occupant of a triplex is going to get financing to replace a house with a triplex as you can’t get a mortgage on something you want to tear down, so they’d have to pay cash or come up with some different financing for the initial purchase. People that want to have other people share their structure and yard, or are forced to do so by economics and have the wherewithal to put up with the hassles of landlording, there’s a lot of existing duplex, triplexes and whatnot to buy that you can get a mortgage on.

    1. Joseph TottenJoseph Totten

      Completely, but I don’t think these changes were meant to provide hundreds of units. Even if it was a big lift and difficult part of the 2040 plan, I don’t think anyone expected widespread replacement of SFHs with triplexes. As you say, they’re small potatoes and the risk associated will often outweigh the benefits from a straight market perspective. This combined with only getting 3 units per project really make it impossible to ever compete with large projects in terms of housing provided.

      1. Bruce BrunnerBruce Brunner

        I think the main point wasn’t that triplexes would compete with large projects but add a supplement to infill locations where big apartments wouldn’t be going. One solution isn’t going to solve the housing shortage so it will take large scale apartments, duplex and triplexes, ADU’s, SFH’s, townhouses if reg’s allow them more readily to all contribute.

  4. Jared

    I think duplex and triplex growth will be really incremental but significant over a decade or so. As of today, there aren’t tons of houses that are borderline tear downs, there aren’t tons of people looking to move their aging parents onto their property, but now that upzoning has occurred these decisions can and will be made with these possibilities in mind. Maybe no developers are sniffing around for SFHs to tear down to build a triplex, but when households reach a crossroads and they now have this option on the table, I think we’ll see these numbers grow over the years and quite a bit. Also, for households this type of investment typically requires more than a year of planning/saving.

    So I wouldn’t write off the future of duplexes and triplexes based on early data – but I would also recommend that the city offer some small but significant incentives to tip the scales for the first 5 years or so.

    1. Mike Hess

      Actually on Nextdoor there have been reports of developers doing just that – so this is secondhand, but .”…a letter from Simulicity in my mailbox this morning laying out all the BENEFITS of allowing them to turn her existing property into a brand new triplex “for as little as the cost of repainting the exterior – or replacing the windows – of your current home.” This was in the Armatage n’hood.

      Looking at the website for Simulicity unless I missed it, I don’t see anything that relates to single lot small scale development in their portfolio so maybe it’s a new small scale focus.

      I find it hard to believe that the cost per unit of doing teardown-build triplex development on city lots would be cheaper than similar sized units in large scale development – and I’d expect that in general with cost to acquire/demolish factored in the duplex/triplex infill that result would be higher end to generate enough profit margin for the developer. Probably the existing home conversion approach will be more successful in creating affordable duplex/triplex units.

  5. Sheldon Gitis

    I don’t think the lack of tear downs replaced with triplexes is surprising, nor the data showing the preponderance of new housing has been in big box buildings containing more the 100 apartment units.

    It appears this “workman’s cottage” concept has a lot of appeal.

    There’s also a triple-decker style that’s been very successful and stood the test of time.

    So why haven’t we seen more of these sorts of homes? Why instead, are we seeing these hideous, massive apartment building projects sprouting up like mushrooms? Given that the cost per unit in one of the massive apartment buildings is as much or more than the cost per unit of a mass-produced cottage-like home or a modest unit in a triplex, it seems like the market for the relatively low-cost homes would be as great or much greater than the market for the apartments in the big buildings. Could it be there are some very large, very wealthy, real estate developers, construction contractors, property managers and investors making boatloads of money financing, building and managing the apartment building monstrosities that wouldn’t make a dime we if built small cottages and triple-deckers instead?

    1. Ron H

      As there is no/limited greenfield development in Minneapolis, another view is that the 50 SFH, 8 duplexes, and 4 triplexes replace tear downs. That means 12 of 62 (19%) tear downs became multi family for an incremental gain of 16 units (26%) (replacing a tear down with SFH creates 0 incremental, a duplex adds 1 unit, a triplex adds 2 units).

      Just imagine if the 1000 tear downs during the past decade in Edina followed these trends.

      1. Sheldon Gitis

        If the tear downs in Edina followed your same incremental gain of 26% trend, I imagine, if my math is correct, the 1000 tear downs would have resulted in 1260 new units. So what?

        I imagine, in Edina, like in Minneapolis, Roseville, Bloomington and everywhere else in the metro area, the overwhelming majority of new units are in big, expensive apartment buildings built by large corporations utilizing public subsidies, including tax-exempt government bonds, TIF property tax deferments, and in some cases, subsidized rents. And after the very wealthy real estate developers, construction contractors and investors collect their loot, they move on to their next acquisition, development, and construction (ADC Ponzi) scam.

    2. Monte Castleman

      I’d like to see some data that the cost per unit in building 60 units in 20 triplexes scattered all over the city is less per unit than building them all in one building, considering you’d have to buy and pull down 20 single family homes for the triplexes vs maybe a half dozen for the apartments, assuming you couldn’t find a surface parking lot, some vacant land, or an old underused commercial building instead.

      1. Sheldon Gitis

        Obviously, there is no data, because triplexes, for the most part, aren’t what’s being built. There is no comparison between 60 units in 20 triplexes and many 1000s of units in umteen big box monstrosities. It’s apples and oranges.

        Take the hideous 300-unit WaHu monstrosity for example. Let’s assume you could place 20 triplexes, or 20 “workman’s cottages” on the same WaHu lot. Or better yet, imagine how many triplexes and cottages you could pack on the site of the idiotic, nearby, empty most of time even when there’s not a pandemic, Goldy Gopher TCF Bank Football Stadium and surrounding parking lots. I’d bet the cost/unit of the triplexes or small SFHs at the Washington-Huron site or the TCF Bank Football Stadium site would be, or easily could be, no more, and probably less, than the cost/unit in the WaHu monstrosity. In addition, if you’re using the roughly $300,000/unit cost of an apartment unit in the big box buildings as the estimate, I have no doubt you’d get a lot more house in the $900,000 triplex or the $300,000 SFH than you get in a $30M or more apartment building with 100 or more units.

  6. Jared

    As multigenerational households grow as a percentage of overall households, duplexes and triplexes become increasingly attractive. Ironically enough, those who are looking for more space and autonomy will find themselves favoring the city over the suburbs where they couldn’t legally transform a SFH into a duplex and will have to share kitchens and utility bills with their extended families.

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