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The Twin Cities’ ‘affordable housing’ shortage was caused by their politicians

You often hear that the Twin Cities have a shortage of ‘affordable housing’. In April, 2017, the Pioneer Press wrote that

Outside coastal states like New York and California, the Twin Cities was No. 1 in housing costs among the nation’s 20 largest metro areas, according to 2014 U.S. Census data. And they have remained at or near the top of other cost-comparison surveys since then. Statewide, Twin Citians pay an average of 26 percent more than neighboring states. That price gap explodes when compared with southern states like Texas.

Seeing this problem, many people then demand that the government ‘do something’ about it. Typically, that ‘something’ involves spending more money or issuing a new raft of regulations. Thus, the $40 million Minneapolis Mayor Jacob Frey has earmarked in his 2019 budget for affordable housing and the $71 million, three-year housing initiative which Saint Paul’s Mayor, Melvin Carter, has announced.

But before rushing in to spend and regulate away the lack of ‘affordable housing’, shouldn’t they take some time to ask how it arose?

When, in 2017, the Pioneer Press surveyed 60 government officials, builders, Realtors, housing and energy lobbyists, and home buyers on the causes of high housing costs in the Twin Cities they found that “…regulations, including energy-saving rules and safety codes, are tougher and costlier than in surrounding states…The cost of metro-area land is elevated by centralized planning, larger mandated lot sizes and a public resistance to development [and] An increasing use of city fees, tucked into the price of a new house, can add tens of thousands of dollars.”

This still seems to be the case. As the Star Tribune reported last week,

…a new report commissioned by a builders group pointed at municipal fees and regulations in the Twin Cities, which it argues are pushing up prices of new homes more sharply here than in other communities, making it nearly impossible to build a single-family house for less than $375,000.

Such fees account for up to one-third the cost of a new house here and are to blame for the area’s affordable housing crisis, according the new report backed by Housing First Minnesota, which represents more than 1,200 builders, remodelers, developers and industry suppliers throughout the state.

The price of a new home “far exceeds what buyers paid years ago, even adjusting for inflation,” David Siegel, the group’s executive director said in a statement. “This disappearance of affordable new homes is not due to a change in buyer or builder preferences, but to homebuilders simply being unable to build at a price that many buyers in the region can afford.”

There are other factors, to be sure, including a labor shortage and the spiraling price of basic materials, including land. But, the Star Tribune continues,

The builders group’s report puts the spotlight on the cost of development fees and regulations levied by municipalities in the seven-county metro area. Those fees are levied before development can start to help pay for roads, streets, curbs, gutters and other infrastructure. They’re paid by builders and developers and passed along to homeowners.

The group worked with four Twin Cities-area builders to determine the cost of building a home in nine suburbs. By studying the cost of local, regional and state fees in those communities, the group determined that by nearly every measure a new home in the Twin Cities costs more than those in every other comparable Midwest market.

For example, it found that an average home in Lake Elmo would cost $47,000 less in Hudson, Wis., and that a new home in the Twin Cities costs as much as $82,000 more than a similar home built by the same builder in the southwestern Chicago suburbs.

In short, the ‘affordable housing’ crisis in the Twin Cities is a creation of state and local government here. Regulations, passed by lawmakers here, have driven costs up. Is it really sensible to try to solve a problem caused by political regulation with another round of political regulation?

John Phelan is an economist at the Center of the American Experiment. 

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