The FWD #203 • 611 Words
Could trends in the Twin Cities point to the benefits of zoning reform?
One of the most active debates in housing policy these days is whether changes to zoning codes result in meaningful increases in housing supply and/or affordability. Minneapolis is often discussed in these debates since it was the first city in the country to eliminate single family zoning in 2018.
In the five years since, Minneapolis hasn’t seen significant new building on sites affected by this zoning change. Some say this is evidence that zoning changes aren’t all that helpful in addressing our supply needs. Others say, give it time. Five years is a nanosecond in real estate.
But late last year, something else happened in Minneapolis that might provide more information. Last year the United States experienced 3.7% inflation, but Minneapolis saw only 2%. (Shoutout to Partnership for Housing Affordability, who invited Richard D. Kahlenberg to speak at their event in January, where this was brought to our attention.)
This makes Minneapolis one of the cities with the lowest inflation rate in the U.S. (tied with Honolulu). Because housing costs are such a large component of inflation (between 30 and 50%), the Minneapolis–St. Paul housing market is the first thing to look at to understand their lower inflation rate. And experts point to a large spike in supply in the Twin Cities—lots of new construction.
Jurisdictions that relaxed zoning are keeping rent growth in check.
The Federal Reserve Bank of Minneapolis and a group of local leaders manage a housing production and affordability dashboard. It shows there were 21,673 new housing units in 2022 which exceeds the dashboard’s production targets by 20%. In fact, the Twin Cities have outperformed this metric for new housing units every year for the last four years. Minneapolis alone built 919 units of 30% – 60% AMI housing in 2022.
“There is no more effective way to rein in inflation than to expand the supply of affordable housing and increase housing affordability.”
Mark Zandi, Chief Economist, Moody’s Analytics.
Since 2017, Minneapolis has seen some of the slowest rent growth in the country. In 2023 Pew Research analyzed four places (Minneapolis, Portland, OR, New Rochelle, NY, and Tysons Corner in Fairfax County) that had recently made zoning reforms, Minneapolis’s being the most robust. Lo and behold, rents in Minneapolis grew just 1%.
| Location | Rent Growth, 2017 – 2023 |
|---|---|
| Minneapolis, MN | 1% |
| New Rochelle, NY | 7% |
| Portland, OR | 2% |
| Tysons Corner, VA | 4% |
| United States overall | 31% |
Zoning doesn’t solve it, but it helps.
Lest you believe zoning reform was the silver bullet, we remind you that in housing, there are no bullets and there is no silver. Pew Research Center notes that the vast majority of the housing built in Minneapolis in recent years has been market rate. And we all could have seen that coming—the zoning changes were about density, not about affordability.
And eliminating single family zoning was only one housing reform passed in 2018. The City updated its Comprehensive Plan and also created new inclusionary zoning, upzoning and height, parking, setback reforms that all eased developer’s abilities to build housing.
Minneapolis also invested more than $320 million in rental assistance and subsidies. And St. Paul enacted rent control a few years back, although the jury is still out on how this affected supply.
Many researchers believe that the increase in supply is significantly related to the change in zoning. But we would all do well to heed the recommendation of the Minneapolis Federal Reserve chair and not take our foot off the gas just yet.