Rising home prices, rents weigh on Minnesota lawmakers

Minnesota lawmakers broadly agree that they'll need to help renters and homeowners with rising housing costs, but they're divided over the size and scope of how to spend.

Home prices in the Twin Cities Metro increased 7.9 percent in February from a year earlier. The housing market heated up in summer 2020 and hasn't cooled off.  While rising interest rates could cool demand this year, there's still a shortage of available homes -- and rising rates make a new mortgage loan more expensive. 

Democrats who control the House have proposed spending $230 million within one year and $415 million over the next three years to encourage homeownership, while the Republican Senate has offered $50 million in new spending. 

"This is a generational opportunity to make significant investments in order to make meaningful progress, something we’ll need to do for years to come in order to get out of the hole that we’re in," Minnesota Housing Commissioner Jennifer Ho said at a Senate hearing this week.

Housing officials estimate that Minnesota is at least 40,000 units short, a product of underbuilding for years following the 2007-2009 housing crash. The problem is especially severe in the starter home segment and with affordable rental units, they have said.

State lawmakers have a $9.3 billion projected budget surplus to work with. What's available for housing depends on how much lawmakers decide to use for rebates and tax cuts. GOP senators have proposed using most of the surplus on two income tax cuts.

House Democrats have included $180 million over three years for a program to preserve and rehabilitate affordable homes. Another $50 million would be available for grants to first-time homebuyers, who would be eligible for up to $30,000 if they meet income limits and their parents did not own a home.

"The down payment assistance that we’ve included in the bill will prioritize disadvantaged groups and help them through the process to achieve their dream of home ownership," said state Rep. Esther Agbaje, DFL-Minneapolis, the author of the first-time homebuyer provision.

The two parties have also offered competing visions for kickstarting homebuilding, with the Senate seeking to loosen regulations and the House seeking to finance construction through state borrowing.

GOP senators have proposed to undo rent control ordinances passed by Minneapolis and St. Paul voters last fall. In St. Paul, where voters passed a 3 percent annual cap on rent increases that takes effect May 1, developers have halted new projects.

Republicans are also seeking new limits on requirements that cities impose on developers, such as ornamental facades and minimum lot sizes, which they say drive up home prices.

"I have directed the resources mainly at the creation of new units, especially single family, owner-occupied units," said Senate Housing Chairman Rich Draheim, R-Madison Lake. "We can’t fund everything, but we do try to pick in this bill the best bang for the buck."

Democrats argue the proposals strip control from people in local communities. 

Meanwhile, the DFL is seeking $500 million in state borrowing to finance construction, though Republicans have raised concerns about the debt it would create. The DFL has also proposed $25 million in additional rental assistance after the end of the RentHelpMN program in late January.

Tax proposals are also part of potential housing relief. Senate Republicans' top priority is cutting the state's lowest income tax bracket -- which all tax filers pay on at least a portion of their income -- nearly in half. It would save at least $1,000 for married couples who make at least $75,000 a year, though the savings are significantly reduced for lower-income people.

House Democrats favor an expansion of tax credits for homeowners and renters. The renter's credit would become a refundable income tax credit, which will make it easier to apply for, DFL lawmakers have said.