Industry Study of Metro Home Building Costs Released

The report on housing development costs in metro area could lead to legislative action.
(Published Feb 11, 2019)

The Housing Affordability Institute released a report on Feb. 4 blaming local fees and regulations as the largest reason for high housing costs.

The Housing Affordability Institute is a nonprofit organization formed by the Housing First (formerly Builders Association-Twin Cities) Minnesota Legal Defense Fund and is directed by a steering committee comprised of appointed individuals working in the housing industry. The group is seeking to “examine and propose solutions to the burdens government places on housing affordability and the housing industry.”

The study, Priced Out: The True Cost of Minnesota’s Broken Housing Market, focused on new single-family homes built in nine cities in the Minneapolis-St. Paul market by four home builders. The report compared the Twin Cities market to Hudson, Wisconsin, and Southwest Chicago suburbs (no specific cities near Chicago were identified in the report).

The study was based on the experience of four Twin Cities homebuilders. The researchers looked at building permits, development agreements, accounting from builders and developers, and information provided by cities and the state.

—Access the Priced Out study

Concerns about the study

The League has several concerns about the report’s data and conclusions, including:

  • Cost variables. The report addressed only local regulations, local and regional water management, land support challenges, and state regulations as the cost variables, leaving out as part of the review issues such as labor and materials, which in the report accounts for approximately 50 percent of the total price of a home.
  • Cost comparisons. The report compared cities with city water and sewer infrastructure to cities without the same utilities, and corresponding differences in development costs.
  • Metro emphasis. While the report only focuses on the Twin Cities area, housing development throughout the state is needed to address housing needs statewide.
  • Average price of homes studied. While the report emphasized the desire to have more affordable housing, it used homes with an average price of $394,726.

Builders’ recommendations

Housing First recommends the Legislature create a legislative commission on housing affordability focusing on:

  • An affordability-centric review of existing housing policies.
  • Review of new housing regulations and policies.
  • Investigation and recommendation of policies to improve the homeownership equity gap.
  • Support for innovative approaches to affordable new housing.
  • Common language and transparency.

Many of these recommendations were advanced in previous years before Housing First issued this report. Housing First will likely introduce legislation consistent with this report’s recommendations.

Legislative next steps

The House Housing Finance and Policy Division (chaired by Rep. Alice Hausman, DFL-St. Paul) will have a hearing on residential development codes, fees, and considerations on Feb. 13 at 8 a.m. The League, the Department of Labor and Industry, and Housing First Minnesota will be testifying at this hearing.

Also on Feb. 13 at 3 p.m., the Senate Agriculture, Rural Development, and Housing Finance Committee (chaired by Sen. Torrey Westrom, R-Elbow Lake) will have a hearing on the Priced Out study. The League will also testify at this hearing.

In addition, the League will continue to work with all partners to identify and advance housing solutions that also allow cities to meet their communities’ health, safety, and welfare standards.

League housing and development resources

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