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A mixed-use development, with 20% of the housing reserved for lower-income
renters, under construction on a 122-acre site where a Ford Motor Co. assembly
plant once stood along the Mississippi River in St. Paul, Minnesota, part of the
Twin Cities metropolitan area
Photographer: Ben Brewer/Bloomberg
EconomicsCitylab
FIRST AMERICAN CITY TO TAME INFLATION OWES ITS SUCCESS TO AFFORDABLE HOUSING
The Minneapolis area has seen an increase in rental units, thanks to a regional
effort that included new zoning rules.
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By Mark Niquette and Augusta Saraiva
August 9, 2023 at 11:30 AM GMT+2
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6:41
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No place in the US has put inflation in the rearview mirror quite as fast as
Minneapolis.
In May, the Twin Cities became the first major metropolitan area to see annual
inflation fall below the Federal Reserve’s target of 2%. Its 1.8% pace of price
increases was the lowest of any region that month.
That’s largely due to a region-wide push to address one of the most intractable
issues for both the Fed and American consumers: rising housing costs. Well
before pandemic-related supply-chain snarls and labor shortages roiled the
economy, the city of Minneapolis eliminated zoning that allowed only
single-family homes and since 2018 has invested $320 million for rental
assistance and subsidies.
Expand
Minneapolis Mayor Jacob FreyPhotographer: Ben Brewer/Bloomberg
That helped unleash a boom in construction of apartments and condos in the
region that proved to be a powerful antidote against inflation, given that the
cost of shelter accounts for more than a third of the overall US consumer-price
index. Minneapolis shelter prices were up at half the nation’s annual pace in
May.
“I can’t tell you how many people were like, ‘Oh, look at all this supply, look
at all these just brand new buildings,’ and kind of scoffing at it like this was
going to lead to gentrification or rents skyrocketing,” said Minneapolis Mayor
Jacob Frey, a two-term Democrat, in an interview. “The exact opposite has
happened.”
The housing initiatives — including the Itasca Project, an alliance of the
business, philanthropic and public sectors in the region pushing for at least
18,000 new housing units per year through 2030 — have picked up where the Fed’s
monetary tightening leaves off, demonstrating the role state and local policies
can play in curbing inflation.
They also show how a regional economy can get a boost when politicians are able
to temper opposition to new building, sometimes part of the “not in my
backyard,” or NIMBY movement. Local backlash has squashed projects from
California to New York, where an ambitious plan by Governor Kathy Hochul to add
about 800,000 units of housing over the next decade fell apart in April after
resistance from suburban areas.
Rent growth in Minneapolis since 2017 is just 1%, compared with 31% in the US
overall, according to the Pew Charitable Trusts. Its share of affordable rental
units and ratio of rent to income are better than most comparable US metro
areas.
“There is no more effective way to rein in inflation than to expand the supply
of affordable housing and increase housing affordability,” said Moody’s
Analytics chief economist Mark Zandi.
The mayor’s approach to housing has drawn opposition, including legal action
based on environmental concerns and complaints about multifamily rental units
next to single-family homes. And in the city that was shaken by the 2020 police
killing of George Floyd, inequality remains entrenched, with residents of color
remaining nearly twice as likely to be living in households burdened by shelter
costs as White residents.
In the Twin Cities of Minneapolis and St. Paul, “it just keeps coming back to
this housing story,” said Peter Frosch, the chief executive officer of the
Minneapolis Saint Paul Regional Economic Development Partnership. “To the extent
that we’re interested in continuing this performance around managing costs, we
have to stay focused on housing.”
Government data due Thursday will provide further insights into the trajectory
of inflation across the US. The CPI report is projected to show annual inflation
re-accelerated to 3.3% nationwide in July as some price pressures prove sticky.
Currie Commons is a 187-unit complex under construction in the Harrison
neighborhood of north Minneapolis, where the poverty rate exceeds 30%. A quarter
of the apartments will be reserved for those making less than 30% of area median
income — or $35,500 for a family of four. The four-story property will include a
rooftop deck with a view of the city skyline and a large community area.
David Wellington, its developer, said such projects have more complicated
financing and take longer to build than apartments with market-rate rent.
But “we feel pretty strongly that the demand for these units is there and needs
to be served,” said Wellington, co-owner of Wellington Management Inc.
Expand
Currie Commons is a 187-unit complex under construction in the Harrison
neighborhood of north MinneapolisPhotographer: Ben Brewer/Bloomberg
Across the Mississippi River in St. Paul, on a 122-acre site where a Ford Motor
Co. assembly plant once stood, a mixed-use development is going up with 20% of
the housing reserved for lower-income renters.
These are the kinds of projects that are typical of the area’s recent surge in
multifamily housing.
The Minneapolis region got authorization to build about 14,600 multifamily
buildings last year, ranking 11th out of 51 peer metro areas in permits per
capita in that category in 2022, according to Bloomberg calculations using
Census Bureau data.
Expand
Currie Commons developer David WellingtonPhotographer: Ben Brewer
Having more units available that lower-income residents can afford helps the
people who have been most impacted by inflation, said Cathy Capone Bennett,
executive director of the Twin Cities Housing Alliance.
The growth has also created more options for residents like Gina Kowalczyk, an
elementary school teacher who moved to the region in June and didn’t think she’d
be able to afford a one-bedroom apartment in the suburb of Minnetonka.
“The location, the amenities, the building, the fact that it’s brand new, I was
very surprised that it was so affordable for me,” Kowalczyk, 51, said in an
interview at her apartment in Wellington’s new Townline complex.
Expand
Gina KowalczykPhotographer: Ben Brewer
The housing initiatives have not all worked the way policy makers intended.
Critics say a stringent rent-control policy implemented in St. Paul in 2021 has
chilled development of some projects because the financing no longer worked when
the rents would be capped for years to come.
The push also has not erased some persistent housing problems. When comparing
Black households and White households, the Twin Cities had the highest
difference in homeownership rates and housing cost burden of any similar-sized
metro in 2021.
Expand
A quarter of the Currie Commons apartments will be reserved for those making
less than 30% of area median income — or $35,500 for a family of
four.Photographer: Ben Brewer/Bloomberg
That disparity is “the stain on this region,” said Adam Duininck, director of
government affairs at North Central States Regional Council of Carpenters.
At the same time, high costs for groceries and other goods can make it hard for
Minneapolis residents to notice the favorable conditions in the housing market.
Food prices in the metro area rose 6.8% in May over the year, federal data show.
Still, Minneapolis had one of the lowest “misery” rates, a Bloomberg calculation
using inflation plus unemployment data from the US Bureau of Labor Statistics,
of 21 metro areas in May and June. A major drop in utility prices since last
year has contributed to its improving inflation picture.
The Twin Cities benefit from some unique characteristics: The area has a high
concentration of Fortune 500 companies, including Target Corp. and US Bancorp.
While peer metro areas including Dallas, Phoenix and Jacksonville saw a mass
influx of residents in recent years that sparked demand shocks in the local
housing markets, the Twin Cities population has remained close to 3.7 million
people.
Expand
The four-story Currie Commons property will include a rooftop deck with a view
of the city skyline and a large community area.Photographer: Ben
Brewer/Bloomberg
“The Twin Cities has historically been an affordable housing market relative to
the nation,” said Ron Feldman, vice president at the Minneapolis Fed and
co-chair of the Itasca Project. “We’re trying to make sure we keep it that way.”
— With Alexandre Tanzi
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