Tag: housing

Listen to Grumpy (con’t)

The biggest losers of rent control are the young, the mobile, the ambitious, immigrants, and people without a lot of cash. If you want to move from Fresno to take a job in San Francisco and move up, and you don’t have millions lying around to buy, you need rentals. Rent control means they are not available. Income inequality, opportunity, equity, all get worse.

In this paragraph, John Cochrane begins to draw lines around groups of people who will lose out under a rent-control, a policy that favors those who have established leases with landlords.

The reader can quickly imagine a young person being squeezed out of houisng by the combination of entry-level pay and bulked-up rent. The surcharge is necessary to balance out the rent-controled units. That’s the persona that comes to mind and it is the one the author intends to convey. But wait. What about the just-out-of-school coders and engineers that are swooped up by the tech companies?

These kids are paid a lot money. They are can choose where to live without much concern as, most often, they have no other attachments. They all live together in some big tech hub, often times leaving their childhood communties behind. They no longer have other points of reference like a brother who took up plumbing, or grandparents on fixed income. Not only do the have the cash flow to spend they are not being reminded that others do not.

One descriptor is not enough to form a group. To say the population of Minnesota has remained constant is light on details. Susan Bower, the state demographer, explains some of the demographic breaks down in Eden Prairie, a SW suburb of the Twin Cities. At the presentation she notes the the state loses 5,000-10,000 people a year but it is made up through international immigration. In other words, the people who leave have no concerns regarding rent control are replaced by a group who are disadvantaged by rent control.

To be efficient, matching people in consideration of their stage in life with their housing needs is best. Policies which keep people in place or discourages them from moving up, moving closer to employment, moving to a stronger school district, moving closer to support systems and so on are detrimental.

Learn from Grumpy

The Grumpy Economist has another great post, this time about rent control. For those of us in real estate, it’s an irritating topic. The errors in the use of price controls are numerous. Using John Cochrane’s article as a road map might be interesting to illustrate this point. Let’s start with this paragraph.

Sure, “sharply rising rents and utility bills wreak havoc on family budgets,” if the families don’t follow the screaming market signal to move. (Which is not painless, for sure. Incentives never are.) But the money comes from somewhere. Rent controls and energy price caps wreak havoc on landlord end electric utility budgets. The money must come from somewhere.

The claim is that rents are rising sharply. The reader pictures a Scrooge-like figure pounding on the door of a cowering family of four, announcing a ‘sharp’ rent increase (extra dollar symbols for emphasis), while behind this embodiment of the typical landlord stands an eviction notice ready to be served. I’d love to see numbers to this effect. I challenge that the ‘sharp’ rent increases are occurring at lease renewals.

Large corporate landlords might have a set policy of annual increases, but they account for only 3-4% of proprietors. Landlords must juggle the cost-benefit of increasing rent. As 80% own and manage the units, they calculate the costs, time, and uncertainty of a new tenant. This is weighed against a 3% increase on $1,100 or $33/mo in additional income. Needless to say, many landlords will forego a rent increase to keep a good tenant.

These subtleties are lost in real estate analysis, where all the numbers are averaged as if there were one typical renter, one typical landlord, and one typical property. This couldn’t be further from the truth. There are whole economies of renter groups. There are students who will have negative income before they join the workforce; there are singles with high-fluting jobs and no other responsibilities; there are single parents; there are couples with kids in a city just for a bit; there are elderly on fixed income with low mobility; there are recently divorcees looking for a glamorous downtown lifestyle.

Are all these groups to receive the same treatment? The same concern for their monthly budgets?Rent controls are initiated at the city level. Every group of renters would receive the benefit of a market-restrained obligation. Is that the intention?

Landlords are also assumed to be a certain type. The persona has tremendous equity in their property, no debt, and other cash they are stashing like squirrels do with acorns in the fall. And certainly some landlords fit this description. But more likely than not, the landlord has a mortgage and obligations against their time. The new entrants to the field, those trying to get ahead by getting a foothold in real estate, are undoubtedly the ones who need to make the cash flow.

When property taxes, utilities, or the cost of hiring labor rise, a landlord has no way to respond until a lease comes up for renewal. Rent control tightens this squeeze, leaving property owners caught between increasing public demands funded through taxation and their limited ability to recover those costs through rent. The first to be pushed out are often the newcomers—the small, aspiring owners who bring fresh energy and ambition to the market, but lack the cushion to absorb sustained losses.

Lesson number one. Averaging is a mistake. Assuming there is only one type of each actor in this economic trade of money for lodging makes for an impossible conversation.

Real Estate Books

There aren’t many. There’s the ‘how to get rich in real estate’ type of literature, which is only vaguely helpful to those with no real estate experience and, in equal measure, misleading. There are books developed to help salespersons pass the required testing to obtain a real estate license. There’s material on all sorts of financial instruments used to finance property. But I’m not talking about that type of thing.

I’m talking about the manner in which real estate features in people’s lives.

Judith Martin, a former professor of geography at the University of Minnesota, wrote Past Choices/Present Landscapes: The Impact of Urban Renewal on the Twin Cities. This project spotlights some of the effects I like to talk about. It focuses on the massive slum-clearing and subsequent redevelopment of large sections of inner-city property. In hind site Martin points out:

Much has been written about the ideas and the implementation of the urban renewal program in the United States during the 1950s and 1960s. Most of this literature views urban renewal as a program that: (1) worked to the disadvantage of people most in need of improved housing -a great deal of substandard housing was removed, but a relatively small amount of low-income housing was constructed;(2) was a boondoggle for developers-they were able to acquire land inexpensively from city authorities, and often made large profits on the projects built on this publicly acquired land; and (3) focused on
economic development issues C’let’s fix up downtown”) at the expense of housing and neighborhood concerns (Anderson 1964; Hartman 1964; Gans 1965).

Viewed in retrospect, much of this criticism is valid, but it does not tell the whole story. Critics have portrayed planners who developed and implemented urban renewal programs as heartless beasts who turned a deaf ear to the real needs of “the people.” But it is hard to see most renewal officials as greedy and profiteering, or as consciously
trying to exercise their power over helpless city residents. There are, for example, no notable cases of renewal officials growing rich working on these programs. If anything, the views of those who implemented urban renewal programs in the Twin Cities and elsewhere can be considered somewhat naive. They assumed that renewal could be
accomplished quickly, that private developers would clamor for the opportunity to build in available areas, and that the renewal process could be carried out with relatively few snags. None of these assumptions proved to be true.

Real estate is a tricky wicket. If people want to follow along, they need to, as Judith indicates, read the whole landscape and not cherry-pick a brief situation in the misty flow of time.

Mobil Homes

There continue to be mobile home parks across the metro offering one of the most affordable form of housing. The structure is considered a vehicle and licensed as such. The home is anchored on a lot in a mobile home park and rent is due every month in a similar fashion to association dues. People like to talk about tiny homes now. Still, manufactured homes can be reasonably constructed in a factory and meet the same quality and amenities as RV’s, another acceptable form of shelter.

:Here are some current listings and recent sales:

Few mobile home parks rise to the level of civic engagement that can be seen in Landfall Terrace, a community on the eastern side of the metro. As with many good things it starts with its history.

James and Mitzi Olson used to own all of the land in Landfall. They moved here in 1953 into a cottage that was hardly better than a log cabin. …The Olsons had lived in a mobile home during World War ll and knew that there was a shortage of affordable housing, so they developed their site into a mobile home park. As it was on the early highway between St. Paul and Hudson, Landfall developed several businesses, including a truck stop, restaurant and nursery, most of which left when Interstate 94 was put through and access became limited.

Often successful things are born out of a basic need of local people. But it is only through nurturing and ongoing maintenance that group projects survive. Especially one a s successful as this.

Landfall is a city in Washington County, Minnesota, United States. The population was 843 at the 2020 census and it is the smallest community in Washington County in terms of area. It lies on the eastern shore of Tanner’s Lake on Interstate 94.

Landfall is an incorporation of a manufactured home community, contributing to its reputation as the most affordable community in the Twin Cities. In 2008 & 2010, the city was named one of the 100 best communities for young people by America’s Promise.

Landfall is one of only two incorporated cities in America that consist primarily of manufactured housing. 

The Cascade Effect: Unlocking Housing Affordability

Housing markets often seem mysterious, but at their core they operate as a cascading system shaped by wealth, supply, and lending rules. A recent model by Abramson and Landvoigt highlights how rising wealth inequality and slow housing supply interact to push prices upward. Their framework divides housing into quality tiers, from luxury to starter units, and shows how households with different levels of wealth compete across these tiers.

A central insight is that prices at the very top do not stay isolated. Luxury buyers are a small share of the market, and in some sense they simply bid against one another for exclusivity. One might argue that they are “fools” for paying such large premiums, while the rest of the market should remain relatively affordable. But in practice the tiers are linked. When supply of luxury units is restricted, affluent households who cannot find space at the top tier shift down into the next-best homes. That displacement triggers a chain reaction: middle-income households face stiffer competition, prices at their tier rise, and the pressure filters all the way down to lower-income renters. Economists call this the filtering or musical chairs effect, and it means that adding supply at the high end can improve affordability across the board.

This cascading dynamic is exactly what makes the market work. New supply at any tier frees up units that can be occupied by someone else, allowing households to sort themselves according to means and preferences. The danger arises when either end of the ladder is blocked. If new high-end supply is not built, the wealthy bid down-market and crowd out others. If older or more affordable stock is neglected, the bottom rungs collapse and low-income households are left without viable options.

At the same time, credit standards shape who can actually buy. A household that cannot afford the payments will not receive a loan, which protects individuals from becoming dangerously over-leveraged. But this underwriting filter does not stop prices from rising overall; it only determines who gets excluded. The clearing price is still set by those wealthier households who can obtain financing. Those priced out of ownership often remain in the rental sector, where demand pressures drive rents upward as well.

Taken together, the picture is less about a simple split between the rich and poor and more about a tightly connected cascade. Housing affordability depends not only on overall supply but also on how well each rung of the ladder is maintained and allowed to expand.

Empty Houses

Some claim a housing crisis is underway, but I’m not so sure. If the pressure for homes were severe, one would expect most properties to be occupied, leaving others stranded without a place to go. Vacancy rates provide us with additional information. An article by LendingTree, 14.9 Million Homes Are Vacant in the US — Here Are the States With the Highest Vacancy Rates, provides a great overview of the topic.

Vacancy rates differ significantly depending on where you look in the country. If you’re looking at Maine, you’ll find the highest vacancy rate in the country — 21.09% (157,467 vacant homes), according to our analysis of the U.S. Census Bureau 2023 American Community Survey (ACS) with five-year estimates. Following Maine at the top is Vermont, with a 20.06% vacancy rate (67,606 vacant homes), and Alaska, with an 18.24% vacancy rate (59,745 vacant homes). 

Together, these three states account for nearly 285,000 vacant homes — out of 14.9 million vacant homes nationwide.

Nationally, the vacancy rate is much lower than that of these three states, with the U.S. average sitting at 10.43% — a figure that translates into nearly 15 million vacant homes. While that may sound like a lot, it may not feel like it if you’re searching for a place to live. That’s because not all of those properties are available to rent or buy. 

In addition to seasonal and vacation homes, others are classified as vacant because they’re in transition — those that are rented but not occupied and sold but not occupied. Homes for migrant workers, which they occupy during crop season, are also classified as vacant.

Minnesota, as is often the case, is just average. There are 236,571 homes vacant, which, in percentage terms, is 9.39%

The article cites a list of reasons why a home could be vacant. It might be a second home or vacation property. It might be in a transition state from either a remodel or a relocation of residents. Sometimes people hang onto properties for emotional reasons, such as a family tie to the land.

But note, in any case, that there is a variation between the states. Real estate is local. National generalizations about the state of housing are often dumbed down and not particularly helpful.

Ownership Preferred

Lists are fun, especially when your team is ranked at the top of the list. In this case, Apartment List pulled data from the Census to show that homeownership is the highest amongst Millennials in our area. Over 50 percent of folks in the 29-44 age range choose to own their homes rather than rent them.

Apartment List

Many will say that this is about price, as residents in San Jose and LA —cities at the bottom of the list —don’t own homes due to the high prices. And that’s a broad stroke, likely to be true, observation. But the list is long, and there are many other cities between the two extremes. So what else makes for a culture of ownership?

I’ve worked with some first-time buyers who don’t end up buying, and this is what seems to play on their minds. They are afraid they will lose the house in foreclosure. Someone close to them, perhaps even more than one, lost a home to creditors, and the negative experience frightens them. Second, they are afraid they will buy a lemon. Homes are complex, comprising many components. It’s easy to feel overwhelmed with the responsibility of keeping it all running smoothly. Lastly, they are afraid of adversarial neighbors.

Here’s a further breakdown of homeownership rates amongst all age groups in Minnesota.

MN Homeownership Report

I speculate that the last group has a homeownership rate of 77% because of the following factors. Low foreclosure rates keep the negative and traumatic experience of losing a home out of people’s lives. Since many residents grew up in owner-occupied households and experienced the ups and downs of repairs throughout their lives. They also have these folks in their lives to turn to for guidance. If the buyer has lived locally for most of their lives, they gravitate toward areas where they find the family and friends.

Minnesota rarely experiences the dramatic price swings that are more frequent in the coastal states. Hence, real estate tends to be a stable and reliable source of equity. People buy for pride of ownership and independence as well as frugality.

More money, better conditions

That’s the conclusion of a recent article by the Minneapolis Federal Reserve research team.

In a recent paper co-written with researchers from the University of Wisconsin-Madison and the University of Illinois-Chicago and initially published by the Minneapolis Fed, we measured the evolution of housing quality for low-income households over the past several decades across the United States. We found broad and generally large increases in housing quality and smaller but still important increases in living space.

So, it’s not surprising that the data show fewer low-income people living in squalor.

I like this part too. It’s a great example of how headlines can suggest misleading information. Although gross rents have increase, they have hit people’s monthly budgets at a much lower increase.

As housing quality and quantity are getting better, how much more are households paying for it? According to the AHS, for below-median-income Twin Cities area residents, real monthly spending on housing increased by 32 percent from 1998 to 2021, from $1,008 to $1,333. Around half of below-median-income Twin Cities households remain housing-cost-burdened (spending 30 percent or more of their income on housing) and a quarter remain severely housing-cost-burdened (spending 50 percent or more of their income on housing). For many families that spend a large fraction of their income on housing, findings about general housing improvements may be tough to appreciate.

However, our analysis indicates that greater housing spending reflects not only higher housing prices but also Twin Cities area residents’ ability to afford housing that is larger and nicer. Overall, the average housing budget share only increased by 4 percentage points from 1998 to 2021, from 36 percent to 40 percent of income, which indicates that most of the growth in spending on housing is driven by higher incomes, better quality, and more spacious homes, as opposed to needing to allocate a greater share of income for the same, unimproved housing.

Some combination of private money, public efforts, and community involvement is improving living standards for those with lower incomes. And it’s not clear at all that the burden is falling on the most vulnerable.

Circuits and Tariffs

At least a couple of decades ago, when I’d help a client purchase a home that happened to be along an open field, I’d remind them that the view may not always stay that way. The Twin City metro was growing and fields just like the one adjoining their new home were being plowed in and repurposed into neighborhoods of single-family homes. They would nod in acknowledgement and yet still feel a loss when a crop of dwellings soldiered up outside their windows.

There are more situations like that– where the surrounding circumstances change and present residents feel like a cost is imposed on them. Take that lightning rod word: gentrification. In certain circles, it is spit out with as much vehemence as the title capitalist. In reality, gentrification implies that a neighborhood is getting cleaned up, crime is being brought down, structures are being fixed up, and truancy is being pushed out. But when you spruce up the place, more people want to live there. This is distressing to longtime residents who don’t want to see rent prices rise in response to higher demand. The situation is changing around them without their consent!

Or consider an elderly couple who own a large, beautifully situated parcel of land on Flathead Lake. In the years they moved to northwestern Montana, it was remote. Desolate even. Over time, others discovered their paradise and passed the word along to still more people who appreciate views of the rugged snow-capped Rockies. As people arrive, more services are necessary which pushes up property taxes. Is it fair for the elderly to endure the increases? They did nothing to give rise to these new obligations, and now the expense may make their living choice beyond their reach.

Tariffs are a response to the same issue. When the pool of labor is opened up to a global market, should the loss of work in the Midwest manufacturing industries fall solely to die-cutters and assemblymen? They did nothing to change the circumstances, yet they bear the burden. Wall Street profits, labor abroad profits, and they are told to adapt.

What is the proper cycle of protection for the renter affected by gentrification? How long would the elderly be eligible for lower property taxes? Is there a natural circuit for these things to enable an easing of the effects of changing circumstances to all involved?

No Housing Crisis

Kevin Drum proposed that in a 2022 article– and I agree entirely.

The real issue here is that America doesn’t have a housing crisis.

I’m not sure why, but I find the new urbanists one of the most annoying groups in the progressive pantheon. It’s not because they’re wrong, precisely, or because they’re meanspirited, or anything like that. There’s just a disconnect from reality that seems to motivate so much of what they say and do.

Take America’s housing crisis. Here it is:

We have as much housing per household as we had in 2001. And just in case you think I’m cheating with this “household” business, here it is per person:

We have more housing per capita than we did in 2001.

Just wait and see as the market softens. Prices in some markets have already ebbed away from a peak, and the number of homes on the market is creeping up. Builders who notoriously hold on to their list prices are marking spec homes down a bit. The tight market was not due to a shortage as much as the normal pressure of people moving to changes in their lives.

But the best part of Drum’s article is how he feels about the people who try to set a national agenda on housing: the urbanists.

But this still doesn’t really explain why I find the urbanists annoying. Here’s my real beef: they are obsessed with big cities. They spend nearly all their time trying to convince us that big, crowded cities should become even bigger and more crowded. Or that suburbs should become big and crowded, just like cities. This is a fantastic waste of time. Residents of big cities don’t want to become more crowded and resident of suburbs don’t want to become more like cities. They will fight you forever on this. Absolutely forever. The game isn’t worth the candle, especially when there are so many other far more useful things we could be devoting our energy to.

So why waste time on this? The urbanists will haul out studies about economic gains, environmental impacts, mass transit, etc., but they massively oversell those benefits and completely ignore the downsides of crowding. Instead, they should be spending approximately 100% of their time promoting policies that would get people out of big cities and into smaller cities that have room to grow.

It is funny how everyone wants to talk about ‘world-class cities.’ Ho-hum cities are where it is at for understanding the baselines of success.

New Realtor Rules- Were they consequential for consumers?

CNN brings readers up to date on the antitrust lawsuit against the National Association of Realtors. The plaintiffs were granted $418 million last summer, not a small amount of cash. Once all the legal bills were paid, the 500 petitioners received an estimated $900.

So, did all that work and expense result in a new way of doing business?

“Paperwork has changed, and I think some really good things have happened in the way most of us discuss commissions upfront with our buyers and sellers,” said Brita Kleingartner, a Realtor in Los Angeles. “But I don’t think that business has changed in any way.”

With mortgage rates hovering around 7% for the last six months and average home prices across the US continuing to rise, the new rules, which took effect in August, had spurred hope that commissions paid to real estate professionals would plunge, making homebuying and selling less expensive for average Americans. Last year, TD Cowen Insights estimated that the new rules could cause fees paid to Realtors to fall by 25% to 50%.

Instead, commissions have remained largely unchanged since August, according to a study released this month by real estate platform Redfin. For relatively lower-priced homes that sold for under $500,000, Redfin found that the average commission has increased since the rules took effect.

As I predicted a year ago, how business is done has not changed. The lawsuit alleged a problem that did and does not exist. How do we know? Watch the consumers and what they do. If they choose not to employ two realtors (one to represent the seller and one to represent the buyer), if they decide to pay them at a different rate, then their pull in the market generates a change. If consumers, despite all the layer’s fees, publicity, and exposure, continue to desire representation by a professional licensed agent, then the market rate is being met in an open and non-coercive environment.

Is all this activism worth it? I wish someone would keep track. A legal battle of this size is expensive. Plus, the plaintiffs who were encouraged to participate spent valuable time on this versus other aspects of their lives. It tapped into some of their family capacity for civic participation. Could other causes within their immediate circles better deserve their efforts? Very possibly.

Many feel a moral superiority by fighting the good fight. But when the fight goes to show that the monsters were but mist off a lake on a cold fall morning, then one must count up the expense of it all and do an analysis.

Housing needs and prices vary

The US Census has a new look. The site has improved tremendously. This might be old news, but it’s news to me. It’s worth checking out if you haven’t been there in a while. I particularly like the profile pages, like this one.

Take note of the breakdown of housing units and households. There are approximately 5.7% more housing units than households in the state. You need some vacancies as there are units under renovation or being held while a family relocates from one living situation to another. Is 5.7% in the comfortable range? It’s hard to know. Still– comparing the spread between households and units is a measure to determine how many extra spaces, if any, there are for families to live.

The county-level profiles are great too and come in several formats. Here are three to compare.

Each county has a different spread between the number of housing units and the number of households. The range is from 7% vacancy in the agricultural area of Blue Earth to a low of 1.8% in the most densely populated Hennepin County to a generous 16% in the northern lakes area of Mille Lacs County. Hennepin County is the only place we can say with certainty that there is a clear need for more housing.

Counties are large. There may be vacant structures in rural Blue Earth county while the demand for places to live is in Mankato, a nice-sized town of forty-five thousand. For that reason, it’s great that the Census even zooms into the city level.

Here’s a snapshot of Perham, a small but humming town about an hour SE of Fargo.

The point here is that housing is local. When people observe that the price of housing did not come down when new units were added, the follow-up question should be, what type of housing and where?

Vacant Land Registries

Vacant properties are not popular with municipalities. Cities create a vacant land registry to keep a running log of properties that do not host residents. Here are directions from the town of Brookhaven New York.

There is no longer a requirement to submit a notarized application or payment through the mail – it is all available online. The cost to register is $360 for the year and can be paid through our secure online platform.

Please be advised, that any owner, or agent of an owner acting on behalf of the owner, who fails to register a vacant building or to pay any fees required to be paid pursuant to the provisions of Chapter 87, within 30 days after they become due, shall constitute a violation punishable upon conviction thereof by a fine in the amount of not less than $1,000 nor more than $15,000 for each failure to register, or for each failure to pay a required vacant building registration fee.

The amount of the fine implies that full buildings are of value to the hamlet. Perhaps, in part, this is due to the services a resident will take up once they walk up their sidewalk every day to their front door. Perhaps having people come and go in the neighborhood keeps everyone more secure. Here are the benefits as expressed by the bureaucrats.

Registrant’s point of contact will be notified by phone and/or email of issues that may arise such as:

  • Property maintenance (tall grass, litter on property, etc.)
  • When the Town is notified by law enforcement of unauthorized occupancy
  • If property becomes unsecure.

When properties are registered, the Town will have contact information and will have the opportunity to notify the owner/property manager to correct any issues before taking action. This will save the property owner money.

The city of Miami goes one step further and requires the owners post a no-tresspassing sign and authorize their police force to enter the property should a need for their services become apparent.

Install No Trespassing Sign

Once you’ve submitted your forms, you’ll need to install a No Trespassing sign on the property (this can be any sign purchased any where).

Although it may never cross your mind, your comings and goings every day in your neighborhood and place of business are a public service.

Transaction action and Institutions

Does affordable housing vary in quality based on location? Or is it simply a category of housing no different than a category of a car or a type of breakfast cereal? If you can use the home to shelter a household whose income falls below an acceptable level, then the property adequately meets its intended value.

A group of black pastors, led by Dr. Alfred Babington-Johnson, thinks location does matter. They are suing Minnesota Housing, an agency responsible for the allocation of public funds to subsidized housing, for exacerbating a household’s access to success by predominantly building in areas serviced by weak institutions.

A prominent voice among Black Twin Cities ministers, Babington-Johnson sued Minnesota Housing and the Metropolitan Council last year, arguing that state and regional efforts to build affordable housing effectively have backfired, increasing racial segregation while concentrating poverty in poor neighborhoods.

“Whether that’s done with proven intentionality, the outcomes clearly indicate none of the disparities go away,” Babington-Johnson said in an interview Wednesday. “The educational gaps don’t close. The economic opportunities don’t materialize.”

In this quote, Babington-Johnson refers to two institutions: schooling and the workplace. Efforts to develop educated people are regarded as the path to improved employment. Yet when people reside in areas where 40-50% of the residents live below the poverty level, it is easy to imagine that the lack of informal networking and time resources available to nurture these institutions is not at hand.

The Minnesota Housing Commissioner counters:

In a letter to the state advisory committee last month, Minnesota Housing Commissioner Jennifer Ho wrote that “in the last several years, 63% of the new rental units in the Twin Cities metro area that have been awarded funds through the Agency’s Consolidated Request for Proposals have been in the suburbs while 37% have been in the central cities of Minneapolis and St. Paul.”

Which seems to contradict what people on the ground are feeling. My question, as a casual follower of the issues, is why are the numbers so hard to come by? Every time I’ve gone down the rabbit hole to try to nail down the numerical facts of these conversations, time has not allowed for a successful outcome. As public information, it seems they should be accessible. Attorneys for the pastor group put out these numbers.

Attorneys for Stairstep noted that in the Twin Cities, more than 23,000 affordable housing units received subsidies that began between 2017 and 2021. Of them, 56% — or 13,000 units — were subsidized by Minnesota Housing, the Met Council or another form of state funding.

Note the difference in verbiage between ‘new’ units versus all subsidized units. Two thirds of the new units may go to the suburbs. However, this clouds the issue, which is that most subsidies, by the structure of aid distribution, flow to neighborhoods of high poverty. The Housing Commissioner proposes work to be done to create the ideal institutions in place.

“For example,” she said, “the only avenue for lower-income parents of color to access well-resourced schools should not be making them move to a white, wealthy community, which may lack other opportunities that they value. Rather, we should invest in disinvested communities and ensure that all schools are well resourced, allowing people to achieve equity in place.”

The implications that folks could be giving up support groups in a move is a valid one. But who would be in the best position to provide voice to whether it is more feasible to relocate or to enhance institutions in high poverty areas? The pastors, or the residents if given the choice to move, or the government who holds monopoly on dictating where the housing units are located? Shouldn’t residents have a choice?

Missing Middle

Philip Schwartz posts a nice example of the missing middle housing. Predictably, someone in the comments doesn’t find the color nice enough.

In 2023 there were 34 of these permitted in the city core. Year to date, another 4. In Hennepin county the total of 3-4 unit multi-family permitted in 2023 came to 78.

It’s not the structure-

Allison Shertzer takes issue with the headline’s cryptic economic message. If there is enough housing, then the price for occupancy should settle to the price each resident can afford. If there are fifty homes in a settlement and fifty households, then those who can pay the most pick first, and down the line, the pricing match shuffles until the last match of the least desirable to the household to those with the least resources. This simplified balance market omits nuances like how two homes are tied up when people transition from one property to another. Or that when major renovations are underway, it is difficult to live on the property, so it is vacant.

The basic premise, however, is that when there are sufficient structures to shelter every household, the price to live in those structures is pushed through the system to reflect consumers’ ability to pay. After all, even at the lowest end of the scale, it would be better for the property owner to receive some income from a less advantaged person than to let the property sit vacant.

Or is it?

It is refreshing to see a study confirming that dwellings are, in the big picture, available in
sufficient numbers. “The numbers showed that from 2010 to 2020, household
formation did exceed the number of homes available. However, there was a large
surplus of housing produced in the previous decade. In fact, from 2000 to 2020,
housing production exceeded the growth of households by 3.3 million units. The
surplus from 2000 to 2010 more than offset the shortages from 2010 to
2020.”

This article tries more than most to zero in on what is concerning. It’s not affordability in general. When ten parties are bidding on a house, that tells us there are plenty of households who find the price within their range of acceptability. When houses are selling, and apartments are rented, then folks have the funds to make those arrangements work.

What is of concern, and has always been of concern, is sheltering those at the very lowest of means. This brings us back to the question: If there are open units to occupy, is there a reason why they would be left vacant instead of settling for some cash flow? Yes, there is a reason. In some cases, the net monthly cash flow is negative. The issue is being talked about as if it concerns the building, but it’s really about the necessity of support services.

It would be even more refreshing if the conversation went in that direction instead of
hammering away about building affordable housing, which is another cryptic
economic fallacy.

Counting new homes

Some numbers are hard to find. The number of permits pulled to build homes, for instance, are shrouded in mystery. For all of you counting building starts, however, I have the link for you! The statistics can be found on the US Department of Housing and Urban Development. You can break it down to the county level.

According to HUD Minnesota’s total for building permits pulled in 2023 was 25,665.

What I like about this paper

A recent paper, Houston, you have a problem: How large cities accommodate more housing, by Anthony W. Orlando and Christian L Redfearn, offers a new reading of real estate data.

Consider the stylized fact that unmet demand is most-inexpensively delivered on low-cost land at the periphery of the commuting shed, known as a “greenfield” site. This type of development uses low-cost, low-density construction methods. However, in productive and desirable urban areas, low-cost land—especially close to jobs and retail—is quickly consumed, pushing single-family home builders farther away from the amenities that make these urban areas attractive. Eventually, this progression reaches a limit in which commuting back to these amenities is too costly. At this point, the greenfield land is effectively “built out,” and developers are forced to look inward to more expensive land closer to the core where spatial amenities are valued by renters and buyers. When this “infill” development becomes a larger share of new housing supply, the marginal cost of supplying a new housing unit will increase, and the elasticity of supply will fall. Thus, even in the absence of different regulatory regimes, an MSA with more population and more density will appear to have a steeper supply curve because large and growing urban markets naturally progress in this direction.

Real estate has a history of being talked about in static numbers. Orlando and Redfearn discover a dynamic in their research. A city grows along the fringe where the developers can build over large parcels of undeveloped land. This is the most consumer-friendly by meeting the desired structure for the lowest cost. But at some point, the authors observe that the commute to a central business district causes infill projects to gain in status. At that point, a city gains new units within the old infrastructure instead of in the greenfield.

Much of what we have learned in the two decades since DiPasquale (1999) first prompted the field to investigate housing supply is aggregate and static in nature. The goal of this empirical work is to document the location of housing stocks within several MSAs over a long time of growth. The results presented in the article are largely descriptive. It is abundantly clear that aggregate analyses miss the compelling dynamics we documented.

Why stop at the trade-off between low cost fringe housing versus commute time? There are many other interesting dynamics to expore.

Jane Jacobs

The first author of neighborhoods points out the need for self-governance.

Let us assume (as is often the case) that city neighbors have nothing more fundamental in common with each other than that they share a fragment of geography. Even so, if they fail at managing that fragment decently, the fragment will fail. There exists no inconceivably energetic and all-wise “They” to take over and substitute for localized self-management. Neighborhoods in cities need not supply for their people an artificial town or village life, and to aim at this is both silly and destructive. But neighborhoods in cities do need to supply some means for civilized self-government. This is the problem.

Chp 6, The uses of city neighborhoods

Coalitions can’t forget about constituents

A coalition of diverse groups, it was reported, were all coming together for a housing bill. That was sixty days ago.

(KNSI) — The Central Minnesota Builders Association is throwing its support behind a piece of legislation aimed at addressing the lack of housing and the high cost of new construction.

A coalition of housing advocates and bipartisan lawmakers joined together at the State Capitol to call for an increase in access and affordability in housing through the Minnesotans for More Homes initiative.

The bill (HF 4009/SF 3964) legalizes missing middle housing and new starter homes across Minnesota.

KNSI Radio

From the builders association to affordable housing advocates, an unlikely melange of interested parties were looking for ways to reduce housing costs. How better to lower expenses then to reduce barriers to building by rolling back the rules. This bill brought authority over what can be built where to statewide control.

Once the implications of un-zoning the neighborhood hit local communities, residents weren’t impressed. Here are some of the changes proposed.

  • Sets a base level for density allowed on any residential lot by right (or without needing to go through a discretionary review processes) regardless of size at 2 units statewide and 4 units in cities of the first class. If certain conditions are met, 8 units are allowed in second-, third-, and fourth-class cities and 10 units may be allowed per lot in cities of the first class.
  • Forces administrative approvals of projects that meet the standards in the bill language and prohibits public input in the approval process.
  • Limits minimum lot size requirements to no greater than 2,500 square feet for first class cities and 4,000 square feet for all other cities except for Greater Minnesota cities with populations of less than 5,000.
  • Requires all cities to accept Accessory Dwelling Units on all residential lots regardless of size and allows property owners to subdivide their lots by right.
  • Prohibits off-street parking from being required close to major transit stops and limits off-street parking minimum requirements to 1 spot per unit in other areas.
  • Allows multifamily buildings to be built up to 150 feet tall on any lot in a commercial zoning district.
  • Broadly prohibits design standards for residential development and eliminates minimum square footage and floor area ratio requirements.
League of Minnesota Cities

The cities organized and alerted their constituents who must have followed thorugh with calls to their state representatives as the bills is no longer progressing through the chambers. I doubt constitutents will agree to handing over local property rights to the state. This seems like a heavy handed, top down approach.

So how does one encourage increased density? Why- the market of course!

How many homes in a Neighborhood?

As we say here at Home Economic, context is important. Recently I heard the figure of twenty homes as a sweeping number with respect to an impact on a neighborhood. In order to evaluate an impact, it is necessary to know how many homes total constitute a typical neighborhood.

A standard city block with a sidewalk out front and an alley to the back generally has twelve to fourteen homes per city block. So if you were to think that your neighborhood was your block and two to the north, two to the east, two to the south, and then two to the west – you would have about 230 homes in total. In this case, twenty homes is about ten percent. If all these homes were in poor repair, for instance, this could be noticeable and have a negative effect on the outward appeal or from the street view.

Neighborhoods are quite a bit bigger than a cluster of two blocks to either side. Here’s a neighborhood map of Minneapolis, for example.

The USPS offers a useful tool for direct marketers which calculates the number of residential mail stops on mail carrier route (it’s called Every Door Direct Mail). We can use it here to help estimate the number of households by neighborhood. The first map is for the Armatage neighborhood. The number of homes comes in at 2620. Since the routes overlap into Fulton, let’s use a number of 2400. In this case twenty homes in the Armatage neighborhood makes up 0.83% of the total.

The Fowell neighborhood on the other side of town is know for having a larger share of corporate owned rental housing. Here, our USPS tool tells us that the neighborhood contains 2182 properties. Again rounding down is appropriate as the one route that runs on the west side of the cemetary is in the Victory neighborhood. Let’s use 2000 homes, in which case twenty porperties is 1% of the total.

It’s hard to see where one percent of a total number can have an effect on quality of life issues.

When a raw number gets tossed into a conversation as if it were a grenade ready to explode, always ask for context.

The power of Zone control

A new bill is being introduced in St. Paul concerning zoning. An eclectic mix of backers from builders to affordable housing advocacy groups, from the National Association of Realtors to progressive politicians, are in support eliminating exclusive zoning of single family homes across the state of Minnesota. Here’s are some of the highlights of the bill as provided by Edina Realty’s president Sheri Schmid- who did a nice job of presenting all sides of the issue at today’s company wide sales meeting.

The first bullet point is interesting. The public is denied the right to speak to their city council. It seems to me that there is an effort to take the NIMBY’s out of the conversation. Yet aren’t many, many city council meetings filled with advocacy groups doing their best to talk the loudest? Are they to be muted as well? This might be a public service.

I am an advocate for missing middle housing. In a 50s built neighborhood, it is common to see nice looking duplexes mixed in with single family homes. They blend in well and come at all levels of housing from a modest one bedroom to significant four bedroom units. They are also the main means of aquiring investment property for those entry entrepreneurs who would like to give rental property a try. I just wonder if these multifamily buildings sync with people today. The buyers in the 50s were still feeling the effects of the depression and thought of a little rental income on the side as comforting. Also families would buy a two unit property for siblings to live side by side, for instance. You just don’t hear those same demands anymore.

Let’s leave the next few points about building heights and parking for another time. Here are the points given that necessitate a shift of control from the very local level of the municipality to the state level.

The first bullet point in valid. There are too many regulations in the building process. But regulating by zoning is only one of the areas in question. Even after this is removed, said building would need to meet a whole host of other building regulations and set backs and still fit on the lot. Furthermore, these plans need to go through a planning approval process. It seems like whenever a change goes into effect on complicated process it takes the bureaucracies years to smooth out their systems.

Last I heard, considering the second bullet point, the production of new housing was on track to meet the Governor’s Task Force recommendation of 300,000 additional dwellings by 2030.

Do we need more affordable housing? Sure- the most disadvantaged in society will always, simply on a comparison scale, need to be accomodated to catch-up to the average. Minnesota has a poverty rate of just under 10 percent and folks in that income bracket have real and pressing needs. But what are the best housing opportunities for these families, and more importantly where are they?

Building more housing brings down the overall cost of housing. But helping people in need of housing as well as all the other components to a good life is a multidemential problem. I don’t think we’ve tackled all of the aspects involved. But I do think cities are at a much better vantage point to connect people to housing than the state.

A routine reminder

Rent control is counter productive. From the Federal Reserve Bank of St. Louis:

Weighing Trade-offs

Economists generally have found that, while rent-control policies do restrict rents at more affordable rates, they can also lead to a reduction of rental stock and maintenance, thereby exacerbating affordable housing shortages. At the same time, the tenants of controlled units can benefit from lower costs and greater neighborhood stability—as long as they don’t move.4

For policymakers considering rent control, economics can help them anticipate possible effects and may even inform policy design for those who decide to pursue such policies. Given the trade-offs, policymakers must balance maintaining affordability for those with rental housing, while possibly shrinking the stock of affordable housing for others, especially when such housing is already in short supply.

What Are the Long-run Trade-offs of Rent-Control Policies?

Targeting a pecuniary benefit to a low-income group seems like an easy solution. The shift of funds from the property owners to a social value, however, promotes undesireable long-term social shortfalls. These include the convesion of rental property to owner occupied housing as the incentives cause landlords to exit the market. Or a deterioration in the quality of rental housing as, again over a longer time frame, long term maintenance becomes more difficult to fund.