Economy
Written by John Phelan | April 12, 2018

Minnesota needs fewer rules and fees to solve its affordable housing problem, not more government spending

It is no secret that Minnesota, and the Twin Cities specifically, has an affordable housing problem. As the Pioneer Press wrote last April,

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.

So, what do we do about this problem? The first step is to ask what is causing it. A solution that doesn’t deal with the causes is no solution at all.

As we have written before, reporting the Pioneer Press‘ findings, the main driver of these high housing costs are excessive regulation. Last weekend, the Star Tribune carried an article making the same point.

Homeownership across Minnesota has declined in recent years, from nearly 75 percent to approximately 70 percent. Newly employed millennials saddled with college debt are often held back from purchasing a home.

Adding to the challenge here in Minnesota is the fact that the state stands out with substantially higher state and local government regulatory costs. According to media reports, the same home costs some $20,000 more to construct in Minnesota than in Wisconsin, and similar comparisons play out for other neighboring states.

The National Association of Homebuilders has determined that regulatory costs comprise approximately 25 percent of the total price of a new home. These costs are not borne by the builder but instead are passed along to the home buyer. The impact is dramatic. Ten years ago, more than 70 percent of the new-housing market in the Twin Cities consisted of homes costing less than $325,000. Today, only about a third of new homes fall below that price point.
In short, the ‘affordable housing crisis’ in Minnesota is a creation of state and local government. The solution is not to have them intervene more, as Governor Dayton proposes to do with his proposal to spend $100 million on affordable housing statewide, but to have them get out of the way. It is the regulations and fees imposed by these people that have created the problem. Stop imposing them. Get rid of the impositions that there are. Pursue a solution that actually deals with the causes of the problem.

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

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