This browser does not support the Video element.
Minneapolis 2040 Plan: Effort to build more housing hits snags
Mortgage rates are rising, and a Minneapolis plan to give residents more options is running into its own challenges. FOX 9's Corin Hoggard dives into the details.
MINNEAPOLIS (FOX 9) - Minneapolis has made some housing affordability progress under its 2040 plan, but new data shows that progress may be getting harder to keep.
Minneapolis affordability gains start shrinking
The city implemented its 2040 plan seven years ago, and the Federal Reserve Bank of Minneapolis has measured progress ever since. The latest analysis shows Minneapolis has seen some success, but the gap between Minneapolis and similar cities has started to narrow.
Local perspective:
"So the idea of the plan was that build new housing and rents would fall. But we've seen rents falling and not a sustained flow of new housing to help keep the rents low," said Libby Starling, a senior advisor at the Federal Reserve Bank of Minneapolis.
Analysis by economists at the Federal Reserve Bank of Minneapolis shows rent has gone up about $150 less in Minneapolis than in similar cities across the country. But the analysis also found that the edge has started to shrink recently.
The backstory:
Minneapolis has also kept a higher percentage of homes affordable to people with low incomes since implementing the 2040 Plan, according to the Federal Reserve Bank of Minneapolis. Still, that share is only about 13% of homes.
"So it's slightly better on a very dismal picture," said Starling.
Development costs squeeze new projects
Under the 2040 plan, the city allowed duplexes, triplexes and fourplexes where only single-family homes had been permitted. But the Fed found only 106 of those multifamily homes went up from 2020 to 2025, and only 47 of those took advantage of the change.
Why you should care:
Permits for multifamily homes have dropped by more than 90% since 2022, according to the Fed. Developers mostly told the Fed they appreciated the certainty of the 2040 plan, even as the economics of new projects got worse.
"There's the cost of development and then there's the income associated with it," Starling said. "And in many parts of the city, it doesn't pencil out to build duplexes and triplexes on that land."
What's next:
Added costs for taxes, insurance, labor, construction materials and higher interest rates mean developers are paying 30% more than they did four years ago to build the same building.
"We're at a point where developers feel like the minute that they start accepting occupants to a building, the building is worth much less than it costs them to build it. And at that point, they're not going to do that. They're not going to lose money in order to build new housing that the city needs," said Starling.
Economists say the city cannot control many of the factors driving up the cost of building. But they say the city could cut some red tape or offer incentives to encourage development. For now, the data shows low rents and new housing builds may be conflicting goals.
The Source: FOX 9's Corin Hoggard talked to economists at the Federal Reserve Bank of Minneapolis.