The failure of rent control: Sweden edition
Even though both theory and evidence show that rent control is bad public policy, Minneapolis’ city council continues to pursue it as a solution to the city’s shortage of affordable…
I’ve written before about how affordable housing in the Twin Cities is rare because it’s illegal to build:
After all, high prices are simply a signal that demand, in this case for housing, is high relative to supply. The underlying problem is the shortage of supply of low-cost housing. And just as there is wide agreement that the Twin Cities have an affordable housing problem, there is also wide agreement on its causes: excessive fees and regulations imposed by state and local legislators.
A common response is to ask what regulations I mean, specifically. I’ve given examples before. In a recent op-ed for the Star Tribune, Paul Heuer, a developer and former city engineer, gave examples of:
….regulations and processes that do not deliver value, such as requiring stone on the fronts of starter homes, having five or six wetland experts meet on site to verify that wetland boundaries are correct, navigating through duplicative stormwater reviews from both cities and watershed districts, completing Environmental Assessment Worksheets for modest size neighborhoods, and thousands of other regulations where cost has never been considered.
Some of these other regulations include large lot sizes, garage and storage requirements, and park set-asides, which all add to the price of new houses.
While these regulations might be unpopular with people trying to buy a house, they might be more popular with those already in one. They are also a way for cities to raise the funds to recover the costs of providing new infrastructure. As a result, city governments often prefer to keep them.
As Peter Callaghan reports for Minn Post today:
Right now, cities have broad zoning authority under Minnesota law and can collect the costs of water, sewer and stormwater improvements. Some also impose park dedication fees and have tried, with less success, to charge road improvement fees. Some cities also use an approach called planned unit development, which lets planners and councils waive certain zoning requirements, such as minimum lot sizes, in exchange for developers paying for more infrastructure and even donating land for parks and other public uses.
General development fees — a set cost per housing unit, for example — are currently not allowed under Minnesota law. A 2018 state Supreme Court decision — Harstad v. Woodbury — made it clear that mandatory street fees are not legal.
A bill proposed by State Rep. Steve Elkins (DFL) would change that:
The Elkins bill would give cities the ability to impose both development fees and street maintenance fees. In return, the bill would establish that developing land according to comprehensive plans and zoning would be a right. In addition, cities would give up the power to declare development moratoriums, and would be required to allow at least duplexes in single-family zones.
Cities could also no longer require the planned unit development process, and they would lose the authority to require “upscale” exterior materials or multi-car garages. They would also see their authority to demand large lot sizes limited.
The bill also makes it harder to block or prevent multi-family or low-income housing projects, and would require cities to act on building permits within 60 days. Finally, it would limit energy code changes to those that will pay for themselves over the life of a 30-year mortgage.
On the face of it, this seems promising. The need to provide infrastructure for new developments is a legitimate concern for cities. Making it easier for them to recoup this cost from developers seems like a good idea.
A possible source of concern would be cities trying to use these fees simply to pad general revenues. State law sets rules for what, exactly, building permit fees can be used for. Something similar would help here, although such rules would need to be enforced more stringently than the current rules on building permit fees.
As a step towards solving the affordable housing shortage in the Twin Cities, the Elkins bill is vastly preferable to other proposed measures, such as increased subsidies. They treat the symptom — high prices — and not the underlying malady — a shortage of supply relative to demand. As is typical with government solutions, they seek to solve a problem government itself has created with these regulations. And, by pumping money into a market with supply constricted by government, they increase prices, the very ill they are meant to cure.