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Why Can’t Young People Afford Houses?

Today’s Minneapolis Star Tribune bemoans the lack of affordable housing for young people in the Twin Cities: “Twin Cities real estate pinchpoint: Few low-priced homes are being built.”

Builders are putting up more houses than they have in a decade, but not the kind in most demand.

About 16 percent of the new houses in the Twin Cities metro this fall were priced less than $250,000, says a new report by Metrostudy, a national housing research firm. The rest were out of reach for the first-time buyers who are expected to drive the housing market in the coming year. A decade ago, 40 percent of new homes in the Twin Cities sold for less than $250,000.

Odd: there is plenty of demand, but not much supply. How can that be? The Strib’s Jim Buchta offers some tentative explanations:

Builders and developers blame high land and labor costs and municipal fees on [sic] their inability to build less-expensive houses, but savvy builders are getting creative. They are rolling out more multi­level floor plans that take up less land, and because there’s a clear correlation between the cost of the land and the price of a house, developers are on the hunt for developable land that’s one or two steps beyond the areas that are more popular right now.

Buchta describes a development in Waconia (!) that may be attractive to first-time home buyers. But it seems that today’s article misses the main story, apart from that passing reference to “municipal fees”. Which is odd, since it was the same Jim Buchta who wrote the story that we commented on here:

It turns out that the Twin Cities is the 16th-most undersupplied housing market in the nation. And a number of government actors bear responsibility for that. The Star Tribune reports that municipal fees for builders here

…are among the highest in the nation, making it difficult to build the less expensive houses that have tight profit margins. Such fees can account for 25 to 30 percent of the cost of the average new house….

That doesn’t include the additional cost of complying with the state’s building and energy codes, which are among the most stringent in the nation.

Since builders can’t afford to build the entry-level houses that middle-class buyers want (priced from $200,000 to $350,000), they are catering to well-heeled folks, “leaving a vast swath of would-be buyers with few options.”

So it is our state and municipal governments that make it way too expensive to build affordable housing, with fees accounting for “25 to 30 percent of the cost of the average new house”–consider that for a moment, it is stunning–and elaborate building and energy codes (fight global warming!) piled on top of that.

I can’t come up with a better conclusion than the one Kathy Kersten wrote in the linked post in September:

Government policies in the Twin Cities are hurting a key element of the population we need most to strengthen our state’s economy—young, hard-working families trying to get their feet on, and climb, the ladder of success. Will enterprising young people want to stay here when they could find the affordable, single-family housing they want in fast-growing metro areas like Atlanta and Houston?

Increasingly, the answer to that question is No.

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