Tice: Is Minneapolis' 2040 Plan Making Housing Affordable?

The Housing Policy Debate in Minneapolis

Minneapolis has become a battleground for the ongoing debate between NIMBY (Not In My Backyard) and YIMBY (Yes In My Backyard) ideologies. This struggle has played out in unique ways, making the city a focal point for discussions on housing policies. Recently, economists have entered the conversation with a new study that highlights the complexities of making housing more affordable.

As the city approaches a mayoral election, where one candidate is running under a "socialist" label, the economic philosophies at play are more relevant than ever. A recent study titled “Zoning Reforms and Housing Affordability: Evidence from the Minneapolis 2040 Plan” by Helena Gu and David Munro of Middlebury College offers insights into the outcomes of the city's 2040 Plan, which aimed to transform housing availability through zoning reforms.

In 2018, as the Minneapolis City Council considered progressive policies, there was a push to eliminate single-family-only zoning rules. This proposal allowed for duplexes, triplexes, and even fourplexes in most residential neighborhoods. At the time, the idea was seen as a return to an older, more flexible approach to housing development.

The 2040 Plan introduced several key changes, including the abolition of single-family-only zoning, removal of minimum parking requirements, and promotion of higher density development in downtown areas and along major transit corridors. These changes were considered a bold policy experiment, more comprehensive than any other American city had undertaken.

However, five years after implementation, the results are mixed. The study by Gu and Munro used a synthetic control approach, comparing Minneapolis with a hypothetical city built from data of similar cities without zoning reforms. Their findings suggest that while home and rental prices did rise, they did so at a much slower rate in Minneapolis compared to the synthetic city.

From 2020 to 2025, rents in the synthetic city increased by 5.6% annually, while in Minneapolis, the increase was only 1.8%. Similarly, median home prices rose by 47% in the synthetic city but only 15.5% in Minneapolis. The effects were most pronounced in smaller, modestly priced homes.

Gu and Munro describe this outcome as a "substantial effect of zoning reform in suppressing home and rental price growth." However, they also note that their findings deviate from other studies, which showed more modest and mixed results.

One key factor in the price moderation in Minneapolis is not increased construction, as expected, but a softening of housing demand. The researchers found that housing construction has been sluggish since 2020, with even slower growth in real-world Minneapolis compared to the synthetic city.

This shift in demand could be attributed to a change in expectations. Buyers and investors may be anticipating future increases in housing supply due to the zoning reforms, leading them to delay purchases or bid less aggressively. Another possible explanation is concerns over increased density, congestion, or neighborhood changes under the new zoning regime.

Other factors, such as taxes, safety, schools, and infrastructure, could also be influencing the housing market. While the study acknowledges these issues, it finds no statistical evidence linking them directly to the housing market trends.

Overall, the study underscores the complexity of housing policies and the need for caution. While some innovations can succeed, others may backfire. The situation in Minneapolis serves as a reminder that the effects of policy changes are often multifaceted and require careful evaluation.

Mayor Jacob Frey has taken a nuanced stance on various issues, generally resisting rigid rent control measures that could potentially harm housing affordability. His approach reflects a balance between addressing housing needs and maintaining the city’s appeal.

In conclusion, the Minneapolis experience highlights the intricate nature of housing policy and the importance of considering both intended and unintended consequences. As the city continues to navigate these challenges, the lessons learned from the 2040 Plan will be crucial for future decisions.