Government won’t let ‘free enterprise’ even try to address the Twin Cities’ housing problems

Recently, MPR News reported that “The city of Minneapolis is kicking in $18 million to help fund projects that will preserve or produce about 1,000 units of rental housing.” The story quoted City Council member Cam Gordon as saying

“Free enterprise is not solving the housing crisis and the problems in Minneapolis. And that’s why we’re there, rolling up our sleeves, trying to get this done”

This is how government works. It intervenes to solve a problem, creates a new problem, blames ‘free enterprise’ for that new problem, and proposes new interventions to solve it.

Government created this problem, not ‘free enterprise’

It makes no sense to blame ‘free enterprise’ for a shortage of affordable housing in the Twin Cities when government permits very little in the way of ‘free enterprise’ in the Twin Cities’ housing market. All the research on this subject is very clear; affordable housing is rare because it’s illegal to build. As I wrote recently,

“Twin Cities homes cost more than in any other major metro, outside of coastal cities”

In April 2017, the Pioneer Press wrote

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.

Photo from Pioneer Press

Source: Pioneer Press

“Minnesota’s excessive fees and regulations…add up to 30% to the cost of a house here”

Early this year, according to the Star Tribune,

…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.”

Minnesota’s affordable housing shortage is the result of government imposing excessive fees and regulations. It will not be solved by more fees and regulations, like rent control. It will only be solved by getting rid of a good number of these excessive, unnecessary costs.

The Twin Cities’ ‘affordable housing’ shortage was caused by their politicians and their taxes, fees, and regulations. ‘Free enterprise’ here is a myth thanks to government obstruction. It is optimistic at best to think that another dose of government intervention will solve problems created by previous doses of government intervention.

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