Where Minnesota’s $17.5 billion surplus went: $1 billion for ‘affordable’ housing

As the Department of Revenue is getting ready to send those significantly smaller-than-promised $260 rebate checks, at American Experiment we are still uncovering where the rest of the surplus went. Previous blogs on this topic looked at how much of our surplus went to welfare and Higher Ed subsidies. This time around, we talk about housing.

Specifically, in the 2023 legislative session, lawmakers agreed to spend $1 billion to make housing more “affordable”. That money, among other things, includes:

  • $50 million in 2024 for the homeownership assistance fund
  • Another $150 million in 2024 to assist first-generation homebuyers with a down payment
  • $200 million, also in 2024, for housing infrastructure
  • $46 million per biennium for rental assistance
  • $100 million for Local housing needs. The money will go towards numerous housing programs mainly targeted at American Indians, and other people of color, as well as the Rondo Community Trust.
  • $35 million for the Greater Minnesota Workforce housing program
  • $15 million for manufactured home park infrastructure grants
  • $20 million for the Workforce homeownership program
  • $45 million for homelessness prevention

The list goes on and on.

I put “affordable” in air quotes here because there is one big question to be answered about all of this spending. That question is, will this spending actually make housing more affordable?

‘Affordable’ doesn’t fit quite right

It is always interesting hearing lawmakers speak because they often seem to use language differently from the rest of us. Any type of spending, for example, becomes investing when it’s done by politicians. Another one of my favorites is the word “affordable” which is a misnomer of sorts.

Certainly, what is affordable is dependent on one’s budget. A $200,000 house is affordable to a high-income earner but not affordable to a low-income earner. Economically speaking, if something has become more affordable, it means it costs less as a proportion of income. This happens in one of two ways.

  1. The price has gone down, holding all else constant
  2. The price is the same, but the buyer’s income has risen, so as a proportion of income it is cheaper to buy

Programs like Section 8 vouchers, for instance, do limit the proportion of income that renters pay, appearing to make housing more affordable. Other programs like tax credits and other grants to developers seem to reduce the price that the buyer or renter pays at their end, also making housing appear more affordable. There is just one problem with these arrangements.

If something has a price of $100 and the state government pays $50, the thing does not suddenly cost $50. Sure, the individual buyer pays $50, which is less than before. But that is not the total price of the product. The product still costs $100, just that the other $50 is being borne by someone else, in this case, the taxpayer.

Lawmakers tend to describe any good or service that they subsidize as “affordable” giving the impression that the cost of the said product has gone down even when this is not the case.

Government spending is a cost borne by taxpayers. When the government spends to make something affordable, it takes with one hand, while giving with another. Sure, it might give to a different group than the one it’s taking from, but in that case then it is just moving costs around, not making them go down. If this wasn’t the case, the legislature wouldn’t have raised taxes on Minnesotans to pay for their new massive budget.

So, yes the state government will spend $1 billion of the surplus to make housing “affordable”. But that $1 billion is money that could have been given back to taxpaying Minnesotans. For a select few, housing might indeed become cheaper. But in the end, every Minnesotan will pay higher taxes.