Walz’s budget does nothing to reduce the cost of housing

When he announced his $65.2 billion two-year “One Minnesota” budget, a 26% increase from the current two-year budget, Gov. Walz claimed that it will “lower costs, cut taxes, and improve lives for Minnesotans.”

A closer look at the budget indicates that it will not do these things. Gov. Walz’s proposals relating to housing are a case in point.

Housing is relatively expensive in Minnesota…

It is true that housing in Minnesota is more expensive than in comparable places. As I’ve written before:

Just recently, the Pioneer Press reported that there are “No St. Paul apartments available for families earning $30,000 or less, report finds.” 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.”

By nearly every measure, a new home in the Twin Cities costs more than those in every other comparable Midwest market. An average home in Lake Elmo, for example, would cost $47,000 less in Hudson, Wis., and 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.

…because excessive taxes, fees, and regulations effectively make it illegal to build affordable housing here

As with our state’s relatively expensive childcare, the question to ask is not “Why is housing expensive in Minnesota?” but “Why is housing more expensive in Minnesota than elsewhere?

If someone tells you it’s the weather, tell them that the weather is the same in Hudson, WI, as it is a few miles away in Lake Elmo, MN. If someone tells you its stricter safety standards, ask them if they think houses in Wisconsin are so much more dangerous than they are here. If they say its because our houses are better equipped to fight climate change, thank them for their candor in admitting that they are willing to sacrifice affordable housing for that goal, and then tell them that they can’t blame the “free market” for the consequences of their policy choices.

If we want to explain the difference between Minnesota and other states, the answer must lie in something we are doing differently than them, something homegrown. And that something is excessive taxes, fees, and regulations that effectively make it illegal to build affordable housing in Minnesota.

As I’ve noted previously:

That April 2017 Pioneer Press report, for example, surveyed 60 government officials, builders, Realtors, housing and energy lobbyists, and home buyers on the causes of expensive housing here. 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.”

In February this year, a report commissioned by a builders group, Housing First Minnesota, found that municipal fees and regulations in the Twin Cities 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.

Examples include:

…Minnesota’s requirement of a passive radon mitigation system to be installed in new homes, adding $1,500 to the cost of foundation excavation and reparation relative to Wisconsin, or its requirement for sealing of air ducts and its balanced ventilation requirement, which adds another $2,060 to the cost of a HVAC system.

Even worse, a new report from the Housing Affordability Institute finds that Minnesota’s cities are soaking homeowners and not complying with state law. A state rule governing building permits says the fees must be “proportionate to the actual cost of the service for which the fee is imposed” but some cities use building permit revenue to pad their general funds. The city of Corcoran, for example, used the extra fees, amounting to more than $3,000 per new house, to finance a city hall renovation. State law also requires cities, counties, and townships collecting more than $5,000 annually in construction-related fees to submit an annual report to the Minnesota Department of Labor and Industry, but local officials routinely ignore that rule. In 2018, after officials encouraged more compliance, no more than 262 of the state’s approximately 700 municipalities filed the legally required report.

Last year, I wrote:

If “regulations” is too vague, Paul Heuer, a developer and former city engineer, offered some examples in the Star Tribune last year: “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, [and] completing Environmental Assessment Worksheets for modest size neighborhoods.”

These regulations offer cities a way to raise the funds to cover the costs of providing new infrastructure. They are used because general development fees — a set cost per housing unit, for example — and mandatory street fees are not allowed under Minnesota law.

In a recent Star Tribune op-ed, Zak Yudhishthu writes:

Across many Minnesota towns and cities, housing restrictions are making housing more difficult and expensive to build. These restrictions come in many forms, such as minimum lot sizes, zoning that blocks multifamily housing, parking requirements on new developments and aesthetic requirements. Each of these rules biases new housing toward more expensive forms, and in the aggregate they reduce the amount of housing.

The cause of our relatively expensive housing — the thing we must address — is these excessive taxes, fees, and regulations.

Walz’ budget treats the symptom, not the problem

Gov. Walz’s budget does not even attempt to treat these problems. Instead, he proposes, not to actually reduce the cost of housing, but simply to pass that cost on to the taxpayer. He proposes spending more than $950 million on housing, including downpayment assistance, homelessness prevention, and preservation of affordable housing. Gov. Walz set aside $10 million over the next two years for rent vouchers, much less than the $3.4 billion proposed by DFL legislators.

These expensive measures treat the symptom — the relatively high price of housing in Minnesota — not the underlying problem — our state’s relatively high burden of taxes, fees, and regulations. Whatever else they do, they do nothing whatsoever to reduce the cost of housing in Minnesota.