In the current state legislative session, Democrats control both chambers of the Minnesota Legislature and the governorship. This presents an enormous opportunity to address many legislative priorities, especially after the policymakers reached an impasse and left large amounts of money to lay fallow during the 2022 legislative session. Among these priorities, housing is at the top of the list. As Peter Callaghan recently reported in MinnPost, Minnesota legislators are likely to take advantage of the state’s $17 billion budget surplus and make some substantial investments in housing this year.
Steve Elkins is a DFL representative from the Bloomington area who has served in the Minnesota House of Representatives since 2019. In this upcoming session, he has plans to improve housing policy in Minnesota.
Last session, Elkins introduced a bill to preempt certain kinds of restrictive land use laws, which included changes such as broad legalization of duplexes, limits on minimum lot sizes and banning of aesthetic requirements (see past coverage of the bill). Elkins’ bill aimed to soften the types of restrictions that push housing toward more expensive forms, and raise prices by reducing housing supply in the aggregate.
“[Regulatory reform] has become a national discussion…. This is an issue that’s nationwide, the issue isn’t going away.”
Rep. Steve Elkins, DFL-Bloomington
This year, Elkins is putting the bill forward again with new polish. “You’re going to see a bill that will be recognizably similar to the one that I had last session,” the lawmaker said. Tweaks are in the works based on lessons learned in the last legislative session — for example, putting certain building code provisions into a standalone bill so they can go straight to the Labor and Industry Finance and Policy Committee, and tweaking rules that streamline and clarify the use of impact fees on new development. Overall, the bill will contain many of the same provisions to remove restrictive zoning rules.
Elkins sees reason for optimism about the bill’s prospects this year. “[Regulatory reform] has become a national discussion. Earlier this week, I was participating in a White House call on this topic. And so this is an issue that’s nationwide; the issue isn’t going away. And I think that the bill will be well received in the Housing Committee.”
Elkins also plans to propose a bill that would make it legal for local jurisdictions to implement a land value tax. Such taxes wouldn’t tax the value of improvements, like buildings, as a normal property tax would. Land, unlike other goods, has a fixed supply; when you tax it, producers can’t make less of it. Instead, taxing land helps ensure it is put to good, productive uses.
Elkins gave a familiar local example. “The immediate and easiest scenario to describe the benefits is in places like the Lake Street corridor,” he said. “All of a sudden you’ve got a whole bunch of parcels that have burned to the ground, they’re now vacant land. There might be an incentive for speculators to sweep in and buy up those open lots, and then just sit on them until the values go up. And so in the meantime, you’ve got this speculator sitting on this land, and it’s having a negative impact on the communities. The land value tax approach makes it uneconomic to just sit on land and speculate.”
Particularly interesting is the interplay between regulatory changes, such as upzoning, and a land value tax. As Stephen Hoskins has written, upzoning policies have two weaknesses that land value taxes would address.
First, because upzoning will increase a plot’s potential for development, it can lead to higher land values. Some early research on the Minneapolis 2040 Plan has found that property values increased in neighborhoods that went from single-family-only to triplex zoning. This is essentially unearned wealth that has accrued to landowners, and risks leading to higher prices for renters and homebuyers. But with a land value tax in place, the value created by upzoning would instead become public wealth, taxed and brought into the city’s coffers.
At the same time, upzoning doesn’t guarantee development. A few different sources have documented the fairly weak surge in housing production that came from the Minneapolis 2040 Plan — including a tool from the Minneapolis Federal Reserve and a write-up on this site. As Elkins argues, a land value tax encourages more useful development of land, instead of investor speculation, helping put land to its “highest and best use.” After an upzoning, a land value tax should increase the chance that new housing is actually created as a result.
“The whole caucus is going to be focused on providing additional housing subsidies, which is a great use of one-time money. I just might caution that we don’t focus exclusively on appropriating more money for housing subsidies.”
-Rep. Steve Elkins, DFL-Bloomington
Elkins is also well aware of the need to target resources toward the lowest end of the market. He acknowledged that “the only way to create new housing that’s truly affordable down to the 30% AMI [area median income] level requires enormous subsidies.”
Elkins’ proposals contribute to a broader vision of housing abundance. Like the combination of an upzoning and a land value tax, good housing policies can be complementary. Each can contribute to a policy paradigm with a whole greater than the sum of its parts.
“The whole caucus is going to be focused on providing additional housing subsidies, which is a great use of one-time money,” he explained. “I just might caution that we don’t focus exclusively on appropriating more money for housing subsidies.”
In a few different ways, other housing policies can support the need for continued housing subsidies. For one, removing housing restrictions helps cities grow their housing supply to accommodate newcomers, and those newcomers become part of a growing, healthy tax base. Similarly, land value taxes (LVT) can serve as a substantial revenue source for local governments. A natural use of the funds raised from an LVT would be subsidies to put housing within reach for the most vulnerable populations.
Furthermore, Elkins notes how policies that soften the housing market can put other affordable housing needs more within reach.
“In order to satisfy the existing shortfall in affordable housing right now, we’d have to be appropriating $300 million a year, year in year out, just to tread water,” Elkins says. “The legislature has never provided that level of funding on an ongoing basis. If you can’t put the market into a position where it can provide most of that housing without subsidy, we’re never going to get where we need to be.”
When supply is scarce at all price points, getting sufficient subsidy becomes far more difficult. Meanwhile, if the private market is able to offer more duplexes that could serve as starter homes and more apartments that could accommodate a young single person, our off-market affordability needs will be more achievable.
Nothing is guaranteed. Elkins’ suite of regulatory reforms represent only a first step to increasing local capacity for new housing — they won’t tackle every burdensome regulatory barrier to housing. His land value tax bill would only make such taxes legal, leaving localities to deal with the tricky political economy of taxing land values. And while substantial state housing investments appear likely to go forward in Minnesota, one-time spending does not ensure sufficient funding in years to come.
But this legislative session represents a promising opportunity to take steps toward a Minnesota with abundant housing.