Dear Council Members and Mayor Frey,
There have been recent reports in the press about investors buying up swaths of housing on the North Side of Mpls for speculative investment. This is nothing new. After the last real estate bubble, Minneapolis and surrounding areas became more visible on speculators’ radar as a great place to buy well built homes for reasonable prices that could later be flipped and/or turned into rentals.
From November 2016
From September 2013
In the meantime, Collier’s International did an in-depth profile/analysis of the Twin Cities real estate market. The report argued why speculators experiencing “yield fatigue” in cities like Seattle and San Francisco should take another look at the potential investment yields here and the increased number of transactions over the past few years. And this isn’t just in underserved parts of the Twin Cities. And this is before the massive proposed up-zoning in 2040.
Another selling point is the relative affordability ratio of wages to home prices in Minneapolis— leaving plenty of room for investors to buy and flip properties and still get a good rate of return while making current residents pay housing prices closer to those of Denver or Seattle.
So what does this speculative exuberance do for the affordability of Minneapolis housing?
Because Minneapolis is seen as a desirable area, local and out-of-state speculators are doing the math and figuring out what kind of housing prices they can command in all parts of Minneapolis. And, as a profit making enterprise, their goal will NEVER be to build housing that will give them a lower rate of return. Their goal will be to build just enough higher yield (ie: more expensive) housing to keep returns on their investments at an acceptable level.
If and when the prices start to come down due to oversupply, they will simply stop building here and start the same pattern over somewhere else. That his how speculative markets work. There won’t be “trickle down” to affordable or low income housing. It didn’t happen under Reaganomics and it won’t happen here.
It seems that rather than deregulating zoning rules and “leaving it to the market“, as proposed by 2040 to allegedly solve affordable housing problems, the construction of affordable housing should be managed and at least partially funded by responsible government policymakers. Instead, if 2040 is approved the City will actually allow speculators to have, for practical purposes, a type of Cartel on the Minneapolis housing supply.
Think of the oil producers in the Middle East who worked to provide just enough oil to keep energy users relatively satisfied but the cost per barrel at an acceptable profit level, as defined by them.
Why should speculators be allowed to drive the type of housing, the scale of housing, and the cost of housing for Minneapolis residents when reasonable zoning rules, implemented consistently by the city, could temper these speculative forces and send the message that interested parties can expect a reasonable rate of return by investing in a great city like Minneapolis? A clear message should be sent by the City and Met Council that no one should expect a speculative windfall if that can work to displace current residents and create ecological impacts that hurt the quality of existing habitat, green space, and ultimately the health of Minneapolis residents.
This article was recently forwarded to me and I think it provides an excellent framework for looking at the political alliances and PR campaigns supporting speculative development patterns in cities like San Francisco, and what we should be looking for in a socially just and truly equitable 2040 plan.
“Developers want to maximize profits as much as possible; that means building market-rate housing, which is worth far more to a developer than affordable housing. Yet as the aforementioned study found, building four market rate condominium units results in a demand for an entire lower income household, and possibly more than that. In other words, building market-rate housing actually makes the housing crisis worse for working-class people.“
We don’t need a planning department, or even a plan, for developers looking for the highest profit to want to tear down existing relatively affordable housing and instead build to the maximum height and density granted by the City in desirable but ecologically sensitive areas of the city–including near parkland, the city lakes and other water bodies all over the city. This includes areas within the Shoreland Overlay District– areas around lakes and protected water bodies that are considered critical habitat for migratory birds and also regional amenities for all to enjoy now and into the future.
The water quality is already suffering In our City Lakes. Thanks to increased traffic, idling cars, and lack of upgrades to our transit system, the air-quality is impacted around the chain of lakes and neighborhoods all over the city where infrastructure hasn’t kept up with significant increases in density. This ecological degradation in turn impacts the enjoyable and healthy use of public amenities and natural features/habitat that belong not only to all of us but to future generations.
Many people I know in the areas around Uptown and the Chain of Lakes are getting unsolicited offers to buy their homes–at prices much higher than the market value. These are not starter homes or undervalued properties. Some are already duplexes and triplexes. But the speculators seem to be getting the message that they can get a good rate of return on their investment.
But who pays this rate of return? We are already seeing long term renters with professional jobs getting pushed out as their buildings are sold and resold, even without teardowns. And this is prior to any of the proposed up-zoning that makes land more valuable and therefore more expensive.
So here then is the bigger question. Who is this plan for? Is it for people needing affordable housing? Is it for developers/speculators looking for an acceptable rate of return on their investment, as defined by them? Is it to help all parts of Minneapolis to become more economically and ecologically sustainable, and healthy communities? Is it to preserve existing and well built naturally occurring affordable housing while encouraging appropriately scaled new development on vacant lots in all parts of the city already permitted by the city? Is it to make sure that new neighbors can coexist with existing neighbors and the existing natural environment that makes Minneapolis such a wonderful place to live, work and play?
There are values embedded in any comprehensive plan. Those values and goals should not be at the mercy of some version of free market/trickle down economic theories that happen to come along with speculative real estate investments. Any recommendations for implementation action steps in the 2040 plan should address these goals directly and explicitly.
The proposed upzoning in this plan way overshoots what the Met Council is requiring from the city in terms of necessary incremental increases in density. To continue to be the success that Minneapolis has been for many years and to concurrently help underserved and under-invested parts of our city become ecologically and economically sustainable for the long term— we need targeted and well planned investments in strategic parts of our city that will serve the needs of all Minneapolitan residents. That is the promise of good urban planning.
To curb the impacts of a speculative real estate market on existing and future affordable housing, what we do not need is a giant FOR SALE sign over the entire city saying:
MAKE AN OFFER
Please rethink the 2040 Plan. We don’t need this radical level of upzoning. We need to preserve well-built, existing, relatively affordable housing. Not encourage more teardowns.
Thanks for your consideration.
~~Lara Norkus-Crampton
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