A couple months back, I wrote about the realities of recent housing production in Minneapolis. Since the Minneapolis 2040 comprehensive plan came into effect through June of this year, 31 duplexes, 13 triplexes and 8 fourplexes have been permitted in the city. That adds up to a total of 133 homes in new small multi-family buildings over a period of two years and five months.
I think there are two ways to look at these numbers. One perspective is that there’s nothing surprising about them. The Twin Cities metropolitan area has a low housing vacancy rate and has logged steady growth for decades, but it does not have the incredible latent demand of some of America’s coastal superstars. None of that has changed in the years since.
Through a different lens, the results so far are genuinely disappointing. The rate of small multi-family projects getting permits has been mostly unaffected by the Minneapolis 2040 policy changes. Even when allowed by code, building small multi-family structures still does not make sense for most developers.
Minneapolis shouldn’t settle for an underwhelming result, even if it was expected. The comprehensive plan legalized triplexes and opened the door for more small multi-family homes because these housing types are significantly underbuilt in the city. They fill an important niche for renters (as a triplex dweller, I have personal experience here) and can be naturally affordable.
Having given the comprehensive plan several years to breathe, Minneapolis should now pursue further steps towards encouraging the production of these building types in the city.
Why Are So Few Small Multi-Family Buildings Being Constructed?
I think there are several reasons why construction of duplexes, triplexes, and other small multi-family buildings is likely still lagging. These reasons are not exclusive to Minneapolis; plexes are genuinely a challenging type of building to develop. The three biggest ones are: additional regulatory barriers, high costs and unfamiliarity.
Additional Regulatory Barriers — When the Minneapolis 2040 plan’s built form rules were being designed, the City Planning Commission and advocacy groups argued that duplexes and triplexes should be allowed to build at greater floor area ratios (FAR) than single family homes. This made a lot of sense as policy, because it would incentivize the construction of multi-family housing relative to single-family homes by increasing their potential leasable square feet. Furthermore, space is at a premium with smaller multi-family buildings, which need to provide certain types of rooms like kitchens and bathrooms in each unit, leaving less space for anything else.
But a greater FAR allowance didn’t make political sense, because the comprehensive plan had been pitched as allowing multi-family housing to be built only to the same size as existing single-family homes. As a result, the City Council walked back the FAR increases for duplexes and triplexes, leaving only a small bonus for buildings with an affordable unit.
High Costs — Many separate costs factor into the production of a unit of housing. While duplexes and triplexes can earn greater revenue for the property owner than a single-family home of the same size, they also cost more to build. As noted above, duplexes and triplexes must duplicate or triplicate some of the most expensive elements of home construction, requiring additional kitchens, bathrooms, appliances and correspondingly complex plumbing, gas, and electrical work. These types of buildings also necessitate costs for design and permitting that are not sufficiently scaled down enough relative to larger developments.
Unfamiliarity — The construction of duplexes, triplexes and other small multi-family housing types has been severely restricted in Minneapolis and other cities across the country for decades. As a result, architects, developers and investors do not have experience designing, developing and financing these types of buildings. Consequently, these projects may be seen as more risky or less beneficial than others.
To compound this issue, the recent legal battles over the Minneapolis 2040 plan have created uncertainty about whether the regulations permitting these types of buildings will even remain in place long enough for a developer to acquire expertise in this market niche.
Of these three issues, the City of Minneapolis can take direct action to mitigate the first. While the City is not going to produce a new draft comprehensive plan until the end of the decade, it can still revise its own regulations in the interim. If these regulations are understood to be inhibiting overarching goals of the plan, that provides a strong justification for changes.
The simplest approach would be to revisit the concept of FAR bonuses for duplexes and triplexes that were watered down and then stripped from the final draft of the built form regulations. Even small changes like increasing the allowable FAR by 0.2 or 0.3 per extra unit, irrespective of affordability, could make a meaningful difference. So too could allowing triplexes to build up to 3 floors in height, instead of the current cap (in the lowest-density zones) of 2.5 floors. These changes would allow for small multi-family buildings to have more leasable square feet and more easily accommodate additional utilities, consequently making them more feasible to develop.
On the latter two issues, the City of Minneapolis cannot act quite as directly. But that does not mean that it is powerless, only that it must get more creative. By directly facilitating the development process, the City could grease the skids for duplex and triplex production. By going even further — leveraging its financial and staff resources — the City could mitigate some of the thorniest remaining barriers in one stroke; reducing soft costs, creating efficiencies for hard costs, easing market entry and firming up regulatory certainty.
A City Program For Small Multi-Family Construction
In order to boost the production of any good, either prices need to increase, or costs and risks need to fall. When it comes to housing, keeping prices stable and low is the explicit goal. So if Minneapolis wants to increase the building of small multi-family housing, the only possible approach is reduce production costs and risks.
A wide array of costs factor into the production of a unit of housing. Some of these could be mitigated by a single entity that was able to achieve economies of scale in the building process. But the risks inherent to investment in a less precedented type of housing might make larger private actors unwilling to play that role. This is where the City of Minneapolis, which has both the size to make a market and the public policy motive for doing so, can step in.
There are two levels of intervention:
Step 1 — The Marketplace
The city could begin by creating a marketplace of pre-approved duplex and triplex designs.
This web portal would allow prospective builders to view and purchase off the shelf architectural designs, along with standardized construction documents, for duplexes and triplexes. These designs would be submitted by architectural firms (or developers who have purchased designs and wish to re-sell them) based on a given Minneapolis lot size and condition. City staff would review these plans once and approve them, after which they would be made available through the marketplace.
The purchaser of a plan would need to attest to the City that their proposed lot is within the parameters of the given Minneapolis lot and contains no exceptional characteristics, like a steep slopes. This could be quickly verified. Permitting costs for projects that use the marketplace would be a low, fixed rate.
This strategy has been successfully tried in other cities. The City of Los Angeles’ Department of Buildings and Safety maintains a marketplace of pre-approved ADU designs. These designs are produced by licensed architects and engineers and vetted by the City’s staff. As described above, a prospective builder must return to the city for a final approval that looks into site-specific factors. But from conception to completion, the process overall should save a significant amount of time and money.
Minneapolis is aware of this idea. Policy #35 of the comprehensive plan, “Innovative Housing Types,” calls upon the City in Action Step D to “develop a set of ADU templates that meet City codes to ease ADU construction.” The City has yet to make good on this step. But whenever it does so, it could easily expand the scope of its pre-approved templates to small multi-family buildings as well.
Step 2 — The Whole Package
One potential downfall of merely setting up this marketplace is that it might not attract enough interest from designers (too few sellers), or that the cost savings might not be enough to entice builders (too few buyers). If this proves to be the case, then the City of Minneapolis could solve these issues by stepping into the process directly and putting money into the program up-front to ensure a steady supply of designs at low cost.
The City would do this by directly commissioning architecture firms to produce duplex and triplex plans. The City would then pre-approve these designs. The City would pay a premium to the architect for the right to license the design to private builders for a fixed number of sales. The City would put these designs up on the marketplace for sale at a significant discount. That discounted price, multiplied by the number of licenses for sale, could be set at equal to the fee paid to the designer, allowing the City to make back its initial investment if the entire inventory is sold.
Control of the designs might also give the City enough scale to leverage cost savings that would not otherwise be achievable to a small developer working on single projects. For instance, modular construction companies could be brought in to work with designers from the start to create designs intended for mass production. This would bake-in potential cost savings in construction.
Modular companies could be enticed to offer discounts per unit in exchange for a guaranteed bulk order. The City could ensure this by making a commitment through the Minneapolis Public Housing Authority to purchase and build licenses that remain unclaimed after a set period of time. Regardless of its ultimate financial commitment, the MPHA would be an excellent agency to consult on or manage this program from the start. The Authority’s recent small scattered site expansion offers a useful test case for many of the program elements described above.
Step 3 — The Public Developer?
If the MPHA were to become involved in backstopping the inventory of small multi-family projects, why shouldn’t it simply take over the program entirely and build these homes itself? This arrangement would simplify the entire program by integrating every step within the city.
Governments can play a powerful role as market actors. A more aggressive MPHA, unshackled from federal Faircloth restrictions, would deliver enormous gains for Minneapolis residents. The City should absolutely look towards a longer-term role in developing this kind of housing. But to build housing at scale in the United States in 2022, there is no alternative other than a starring role for the private sector. This is how Minneapolis could multiply the potential of its small multi-family zoning reforms beyond what it can construct itself.
The main variable at play here is the factor of experience. This is one of the most maddeningly important but intangible factors in any element of city building. Ideas, research and case studies are no substitute for having actually done something. Even in our globalized world, experience remains stubbornly local.
For over a century, Americans knew how to build dense cities with a diverse array of building types. That experience has been lost and we are only now belatedly trying to rediscover the art. Developing small multi-family buildings like duplexes and triplexes is not an easy or obvious process. An entire cohort of interested developers will have to re-learn it.. Minneapolis’ own initiative is enough to start building small multi-family housing, but it needs to let private developers into the process in order for its public policy changes and initial investment to have a meaningful long-term effect.
This scheme is a rough outline for the decisions that a program to support small multi-family construction could require. There are a number of other details that would need to be addressed. I want to briefly discuss some of the bigger ones:
Affordability — Should buyers from the City’s program be required to offer a certain amount of affordability in their new buildings, or at least be restricted from offering rents too high above AMI? Political pressure to avoid “giveaways” to developers will be an inevitable part of the political context of the policy proposed here, but such a requirement would need to be carefully modeled in order to ensure that it does not defeat the program’s overall purpose by making small multi-family housing unprofitable.
Budgeting — What should the City’s initial investment in getting this program off the ground be? What should its ongoing investment be? How many times should a design be allowed to be licensed before it expires and the architect must be re-engaged? How many separate designs should the city offer at once?
Design — What sort of premium should be placed upon aesthetics when designing new buildings? Should there be a limit on the number of times a single design can be used within a certain geographic area, to break up repetitiveness? Designs that are developed through this program will come under scrutiny for aesthetics and no amount of references to brownstone Brooklyn or Haussmannian Paris are likely to fully mollify neighborhood concerns about entire blocks being torn down and replaced by identical buildings.
Extra Requirements — What other requirements should be attached to participation in the program? It’s common that publicly-subsidized housing projects can balloon in cost because governments are unwilling to make any compromises on public policy goals on things like environmental standards, labor standards, and other things. Many of these things are very good, but in general, given that the goal is to reduce costs and risk, the number of extra requirements should be streamlined and integrated into the program as much as possible.
The type of program envisioned here is complex, with many inherent moving parts and others that could tie-in and improve or hamper operation. Building such a program would be best accomplished in close consultation with financial models, and the City should hire a developer with experience in these building forms to run it.
Lessons To Be Learned
Like the Minneapolis 2040 plan itself, the program proposed above is unlikely to remake the face of the city overnight. It would exist as only a single part of a kitchen-sink housing strategy aimed at creating a mix of diverse and flexible housing styles. It would not re-write the rules of economics, only create a new alignment between the interests of architects, builders, developers and tenants with a small part of the city’s public policy. It would not commit the city to a massive amount of public building, but it would give the city useful experience should it decide to undertake such an initiative in the future. This is a program that I believe to be both ambitious but also achievable.
Whether or not the City acts along the lines I’ve described,it is important for the City to act in some way. It’s become clear that the policy changes made through the Minneapolis 2040 comprehensive plan have not moved the needle enough to kickstart as much positive change as was hoped for. Minneapolis changed the rules with great fanfare and at some political risk to promote small multi-family housing types. It still remains to be seen whether it can fully capitalize on that effort.
Through another round of regulatory reform, a more hands-on approach as I’ve discussed above, and preferably both, the City should refuse to let a signature policy achievement sputter out for lack of support.