What's the secret to housing reform in Minneapolis? Build more

It’s hard to find an affordable home in the United States these days. Although the average 30-year fixed-rate mortgage has fallen by about a full percentage point over the past year, the average sale price of an existing home has risen 3.1 percent, according to the National Association of Realtors.

But a program in Minnesota may hold the key to fixing the problem, though it has faced a fair amount of controversy.

In 2019, Minneapolis became the first major U.S. city to end exclusive single-family zoning, opening the door for developers to build multifamily buildings on lots that previously held single-family homes. Through a plan known as Minneapolis 2040, the city called for developers to mix project types across neighborhoods, including units designated for affordable housing.

The plan included other reforms, such as eliminating parking requirements and prioritizing designs that favor public transit users, pedestrians and cyclists.

“If we’re going to provide affordable housing, we don’t want to provide just single-family housing,” said Minneapolis Mayor Jacob Frey, who oversaw Minneapolis 2040. “We want to provide housing for five, six, eight, 25 families. We allow for a greater diversity of housing options.”

Housing has become a major campaign issue. The economy is a top priority for voters, but with housing costs accounting for 70 percent of rising inflation, the debate about slowing price growth is shifting by proxy to a debate about how to slow housing costs.

Former President Donald Trump and Vice President Kamala Harris have broadly promised some relief for first-time homebuyers, with the Harris campaign offering more details. Harris and her running mate, Minnesota Gov. Tim Walz, want to build 3 million new homes to address the housing affordability crisis.

Carolyn Levitt, the Trump campaign’s national press secretary, blamed the rising housing costs on the current administration’s policies, as well as an “unsustainable invasion of illegal aliens.” The campaign said broadly that Trump’s housing plan includes freeing up federal land for housing and cutting regulations.

It's been five years since the Minneapolis 2040 plan was passed, and “the results speak for themselves,” Frey said.

A Pew Research Center report notes that between 2017 and 2022, which covers the beginnings of Minneapolis’s 2040 plan, housing stock grew 12% in the city, compared with about 4% statewide. And NBC News’ measure of homebuying difficulty shows that Hennepin County, where Minneapolis is located, is the second-easiest county to buy a home of the seven surrounding counties — even though Hennepin is the state’s most populous county.

The city appears poised for more housing construction. Ryan Allen, an urban planning professor at the University of Minnesota, analyzed 50 years of permit applications in Minneapolis and found that developers have been applying for permits in the city at rates two-and-a-half times the annual average over the past five years.

“It's a clear signal of interest and belief in the housing market here on the part of developers,” Allen said.

The ultimate goal is still to make the city more affordable. And while a number of factors determine market prices for homes (such as amenities, the local economy, cultural factors, and immigration patterns), early signs suggest that Minneapolis’ housing plan is aligning with lower rents.

In the roughly five years since the Minneapolis 2040 plan was approved, rents nationwide have risen 22%, according to Apartment List estimates. The housing market has endured a series of unprecedented shocks in that time. A global pandemic dramatically reshaped where Americans choose to live, followed by a supply chain nightmare and rising interest rates that have constrained new housing supply and locked many homebuyers into their existing homes.

By contrast, rents in Minneapolis fell 4 percent over the same five-year period. Only San Francisco and Oakland, neighboring the Bay Area, have seen rents decline, according to Apartment List estimates.

“When you increase supply to meet that demand, that’s like supply-side progressivism as a political philosophy. You’re able to prevent large rent increases,” Frey said.

But Frey, a Democrat, admits the plan has been highly controversial. Signs have gone up around town urging developers not to “tear down my neighborhood.”

In northeast Minneapolis, a sign in the yard of a single-family home reads “Stop Land Grabbing in the Northeast,” referring to the northeast part of the city. The sign now stands across the street from the Solstice Apartments, a new complex that opened this spring. The building has 23 units, five of them certified affordable, on the same lot where there used to be only one single-family home. The building has rented all but one unit, meaning there are at least 22 families sharing an address where only one family had previously lived.

Cody Fisher is the developer behind the project and says the project couldn't have been done before Minneapolis 2040.

“Absolutely not. It was a combination of zoning and parking requirements. It just couldn’t happen,” Fisher said. He added that it would be an understatement to say the plan was a bit controversial. “The residents of the area really didn’t want this apartment building here.”

Jeremy Weiland, who lives a block away, is one of those people. Weiland worries that the Solstice Apartments, which do not have off-street parking, will add to traffic in the area.

Wieland said the Solstice project didn’t do enough to listen to neighbors. But he said he supports other multifamily buildings in the neighborhood that better fit the “spirit of 2040” — such as buildings with more two-bedroom units than one-bedroom units where single tenants are more likely to move in.

“The building over there is in my backyard and I love it, and the building over there (Solstice Apartments) is in my backyard and I don’t love it. So it’s always going to be about the specific example,” Wieland said.

Fisher, the developer, said he designed the building to be part of the community, adding that neighbors' “worst nightmares” about parking had not come true.

Environmental groups have also filed complaints against Minneapolis, arguing that the city needs to do more to prove that increased density won’t be harmful. A lawsuit filed by a group of nonprofits alleged that the city violated Minnesota’s Environmental Bill of Rights Act by failing to prove that the 2040 plan wouldn’t harm the environment. In 2022, a court blocked implementation of the Minneapolis 2040 plan.

The Minnesota Legislature later passed legislation protecting the plan from lawsuits. Walz, who Frey said is “committed to the mission” of affordable housing, signed the measure into law in May. Last month, the Minnesota Supreme Court decided not to review the lawsuit, giving the plan the green light to move forward.

As the project gains momentum and housing comes under intense national scrutiny, proponents say the Minneapolis experience illustrates the need for a multi-pronged approach — where regulations and community engagement are as important as financing and tax breaks.

“We need market intervention,” said Allen of the University of Minnesota. “But I would argue that that is not enough either. We also need more active policies at the state, local and federal levels that seek to support the housing market.”