According to Minnesota Compass, 48.4 percent of Minneapolis households are overburdened by housing costs. To explain, these households pay more than 30% of their gross income towards housing. Just for reference, a house in Minneapolis is averaging around $200,000 which for a first time home buyer with 10 percent down payment amounts to a monthly mortgage around $1,400 including an estimates for coverages and taxes.
There are many factors affecting this overburdened number. According to a Minneapolis City Council housing report, the city’s current population [approx. 412,000] has not been this high since the 1970’s which is still lower than the peak seen in 1950 [reported 521,718]. Further exacerbating the issue is the fact that there are about the same amount of units today as in 1950 in conjunction with a decrease in average household size. In 1950, it was roughly 3.3 persons per household compared to today’s 2.3 persons per household.
The most recent residential housing report from the University of St. Thomas and the 2017 Housing Market Comprehensive Analysis by HUD, give evidence that the cost burden is a result of the simple economic principle of supply and demand. The influx of demand for housing within Minneapolis has increased the risk of displacement. Housing prices are up year over year and there remains record low vacancy levels of 4 percent. Talks with a political liaison, Mark Stenglein, and local developer and founder Bob Lux of Atalus, LLC, reinforced the challenges to affordable housing from both a public services and private venture perspective due to the strength of the real estate market. We were told that during and right after the recession, homes and land prices in conjunction with construction costs allowed for both new construction and redevelopment projects to maintain affordability without gap financing. Mr. Lux and his team started and maintain an affordable housing initiative, My Home Source which has brought to the market over 500 affordable homes to date. From 2000 to 2006, Minneapolis averaged housing unit increases of 1,200 units per year. As of 2015, the Minnesota Compass reports there are 168 thousand occupied units in Minneapolis. Despite the lower population of the city, occupied units outnumber the units occupied in the 1950 Census by 13 thousand.
These statistics suggest a changing in consumer housing preferences. The city of Minneapolis recognizes the need for housing and the need to minimize housing disparities. There are multiple programs which are aimed at creating home ownership and other affordable options for at risk residents. Further, the city has proposed plans which would approve higher density buildings to be built which would aim at increasing supply and providing more affordable options. A conversation with a Minneapolis CPED Finance officer told us that there are 15 proposed projects approved for funding which will could add up to 1,271 units of affordable housing.
However even with the funding, market conditions are putting pressure on these programs’ ability to bridge the gap for affordability. The average project takes 2-3 years to get funding assembled before construction starts. Our correspondence with CPED stated in reference to recent reductions in federal funding for affordable housing programs, “There is not enough resources in multifamily or single family housing programs to fully address the need.”
The pressure put on Minneapolis from increases in population is not isolated. Many other cities around the nation are facing similar issues. Unfortunately, due to housing’s capital intensive nature it is not as adaptable to market changes as the flavor of candy bars.
The Shenehon Center for Real Estate of the University of St. Thomas is dedicated to advancing public and private interest in real estate issues as a resource and platform to the commercial, residential and corporate real estate segments. To learn more, please visit the Shenehon Center site at www.stthomas.edu/centers/shenehon or email us at email@example.com
Sources and Notes:
Mortgage Payments calculated using online calculator
5% loan, 0.5% PMI, $3,000 Annual tax, and $1,500 on insurance.
Demographic & Income data: Minnesota Compass
Minneapolis City Council
1950 Minneapolis Housing Census