Zoning rules, municipal fees, and design guidelines restrict housing supply and keep prices high

We at the Center have written a lot about Minnesota’s relatively expensive housing. A recent article by Jim Buchta and MaryJo Webster for the Star Tribune explained how bad the situation is in the Twin Cities:

Twin Cities area starter houses seem to have never been more expensive. Or elusive.

Last year, sellers listed just 20,000 houses affordable to most first-time buyers and empty nesters. That’s half as many as four years earlier and the fewest in decades, according to a Star Tribune analysis of Minneapolis Area Realtors’ data.

That decline coincides with soaring prices for move-up houses, priced at more than $400,000.

“Every house under $300,000 sells before we can even look at it,” said 35-year-old father of three Robert Briggs. For years, he has socked away cash for a down payment but is struggling to find a house that won’t become a money pit.

Years of record price gains have fueled the demise of the $300,000 starter house. The upward trend has naturally made houses in every price range more expensive.

A family earning the median income ($111,200) would have to spend more than three times that to buy even the median-priced existing home. That ratio has nearly doubled throughout the past decade as the cost of construction in the metro outpaced many other metros. [Emphasis added]

The median price of a new, single-family detached home in the Twin Cities is at a record $538,554: 26% higher than the national median, according to the real estate firm Zonda.

Why, then, has “the cost of construction in the [Twin Cities] metro outpaced many other metros”? Buchta and Webster note that:

…higher construction costs (land, labor and materials) and regulations (zoning rules, municipal fees and design guidelines) have constrained home builders.

(A recent report by the National Association of Home Builders found that “Regulations imposed by all levels of government account for $93,870, or 23.8% of the current average sales price ($397,300) of a new single-family home…Of the $93,870 figure, $41,330 is attributable to regulation during development, and $52,540 is due to regulation during construction.”)

The question, then, is to ask why land, labor, and materials have become more expensive in Minnesota than elsewhere. We should also ask why our zoning rules, municipal fees, and design guidelines are more restrictive than elsewhere.

Buchta and Webster zero in on the essential nature of the problem: “…demand has grown far faster than supply.” This is the illness to be cured, the prices are just the symptom. We need to cure the malady, not the symptom, to help people like Mr. Briggs and his family.