Writer: Joshua Andino
3 min read August 2023 — Minneapolis beat inflation. Here’s how the city did it.
Over the last two years, Minneapolis rental prices have remained virtually flat unlike other parts of the country that have seen drastic rental rate increases. Markets such as Miami, Charlotte, Northern New Jersey, and Nashville have been recognized continuously over the last three years by their heightened demand and rising costs. Similarly, California home prices remain in a league of their own, and new markets – Boise, Idaho for example, quickly outpaced locals’ salaries as deep-pocketed out-of-towners relocated and settled into new or secondary markets. But while rents and home prices alike were rising, the shift was barely a blip on Minneapolis’s radar.
“Minneapolis is leading the nation when it comes to our historic affordable housing investments and increased production through the 2040 plan,” said Minneapolis Mayor Jacob Frey in a statement to Invest:. “Because of our work, our city has one of the lowest inflation rates in the country, with rents staying at a 1% increase over the past five years. The data speaks for itself: we’re doing this right, and it’s paying off,” he added.
Per Rentcafe data, the average rental cost of the usual, 775-square-foot apartment in Minneapolis has held steady at about $1,680 since 2019.
Minneapolis has differed in that the city has made it easier for developers to build housing. While for many, zoning presents a complex and difficult-to-navigate approval system, Minneapolis eliminated exclusionary single-family zoning outright with the adoption of the Minneapolis 2040 plan. The elimination of parking minimums a year later in 2021, presented another opportunity for developers to reduce their costs – generally speaking, a single unit of structured parking adds approximately $50,000 in per-unit costs, according to a Brookings Institute report.
In a February interview with Invest:, Mayor Frey noted, “In terms of affordable housing, we are producing it at record levels. Multifamily housing unit permits for new construction are up 92% year over year in Minneapolis. When I first took office, we invested between three to four times the previous record of funding, resulting in about five times the previous annual production of affordable housing.”
Mayor Frey has continued to emphasize the importance of a data-driven approach to affordable housing, noting in his address at the Invest: Minneapolis 2022-2023 leadership summit that prior zoning had in the past been used to segregate businesses, land use and residents. “We need to be doing right by our city for the long haul…We passed a comprehensive plan that allows for diversity of use, it allows for a diversity of housing and therefore a diversity of people in every single neighborhood.”
While opponents of real estate development often cite rent controls as a potential solution to the ongoing cost-of-living crisis across the country, Frey noted at the time that “It’s a bad idea. [Economists] will tell you that it doesn’t work…We’re not going to institute something that would reduce investment, reduce supply thus increasing rents, reduce the habitability of the conditions of the particular home, and not have a dramatic impact on rents but for the people that are presently living in a rent controlled apartment,” he said.
Minneapolis has instead charged in the opposite direction, managing to keep rents generally affordable as a result of additional development and increased density. In contrast, neighboring Saint Paul passed what many considered to be one of the most severe rental controls in the country, capping rents to 3% and making a number of existing and upcoming projects financially unviable. Multifamily building permits collapsed by 82% in the three months following the rules passage. Building permits per year tell a similar story, and according to Department of Housing and Development data, Saint Paul ended 2021 with 1,683 permits for multifamily buildings with greater than five units. In 2022, the number dropped to 1,062. Today, that number has rebounded as a result of revisions that allow an 8% increase in rental rates after a tenant vacates in addition to the current inflation rate, and stands at 1,020 for the year so far. Minneapolis ended each 2021 with 3,066, 2022 with 3,563, and so far hovers at 824 for 2023.
Saint Paul Mayor Melvin Carter, who also spoke at the June event, noted that despite some challenges, “Saint Paul right now is entering our most prolific period of economic expansion in our city’s history.”
Although the housing situation in the Twin Cities may differ on certain specifics, the overall metropolitan area remains more affordable than much of the country, with the Bureau of Labor Statistics reporting that for the overall region, the Consumer Price Index hovers at only 1%. The data suggests that housing cost’s generally flat trend aided in allowing residents to devote their dollars to other costs while remaining secure in their homes.
While the relief is no doubt welcome across the Twin Cities, Minneapolis’ approach to housing, which has streamlined and simplified aspects of zoning while reducing costs to develop new construction, provides a model for the rest of the country. Ongoing shifts in the market may suggest that rental rates are cooling – as a result of prices plateauing, instead of new construction underway.
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