Growing coalition calls for legislature to address zoning reform

As the housing inventory and affordability crisis continues to worsen in Minnesota, a broad coalition is pressing the legislature to take action. The coalition, which includes the Minnesota Realtors®, Housing First Minnesota, the Minnesota Multi-Housing Association, Minnesota Chamber of Commerce and others, is urging the legislature to adopt Senate File 3259, which has emerged as the leading effort to lift regulatory roadblocks by amending the state’s zoning, permitting and regulatory code rules and laws.

Sen. Rich Draheim (R-Madison Lake) and Tony Weiner testifying
Sen. Rich Draheim and Tony Weiner of Cardinal Homebuilders testify on Senate File 3259 in front of the Senate’s Housing Committee

The provision is authored by Sen. Rich Draheim (R-Madison Lake). “We are all working toward the same end goal, having a better housing environment for the State of Minnesota,” Draheim stated. The bill’s companion is authored by Rep. Steve Elkins (DFL-Bloomington). The House version has had hearings but has not proceeded out of its first committee. However, the Senate version has been advancing in the committee process.

Draheim’s bill has drawn broad support from multiple testifiers, all of whom cited the roadblocks in the current system which are limiting homeowner choice and preventing a healthy housing market from providing options at all price points. John Phelan from the Center for the American Experiment testified that “affordable housing is rare here because state and local governments effectively make it illegal to build it. This bill offers a way forward.”

Data supporting the bill’s primary goal of opening the housing market in Minnesota was presented to illustrate both the depth of the challenge and a potential roadmap to a stronger housing market. “The creation of new, ‘missing middle’ housing options offers opportunities to ease these challenges and unlock homeownership for more Minnesota residents,” said Zillow’s Luke Bell. “According to our research, reforming residential zoning rules—even modestly—to allow for more housing construction and density, would be the most effective way to increase housing supply.” Bell continued, “Over the last decade-plus, homebuilders simply are not building as many new housing units as they used to. If building permits had been issued at historic rates between 2008 and 2020, there would have been over 40,000 additional new housing units constructed in the Minneapolis-St. Paul region.”

Housing policy is well-known for its complexities, and the measure includes amendments to the rules governing Planned Unit Developments (PUDs), which are used at an alarmingly high rate in many growing Minnesota cities. Development through the PUD process was envisioned by the legislature as a rare occurrence, necessary only for unique land situations and unusual layouts. It has instead become the standard, which is problematic in that it requires developers to sit with a city, which has all the ultimate authority, and “negotiate” to achieve the desired development.

“Mounting evidence suggests that the institutions of development in suburban Minnesota are broken. An increasing number of suburbs are abandoning traditional zoning in favor of PUDs. PUDS are appropriate for unique or innovative projects, but they are an invitation to opaque policymaking and favoritism,” said Salim Furth of Mercatus Center at George Mason University.

Developers have long stated that the PUD process provides cities the opportunity to make unreasonable and costly demands, which are ultimately passed along to the future homebuyers in that new community. Modernizing the PUD process is a priority for housing industry experts, who note that the proliferation of PUD usage is one of the biggest factors creating exclusionary housing policy.

“If there was one thing that I could fix today, it would be to adopt the proposal by Sen. Draheim that would eliminate the ability of cities to mandate the use of Planned Unit Developments on developers seeking new housing projects. Because it puts an unfair advantage on the local unit of government, which is the regulator,” said Peter Coyle of Larkin Hoffman law firm. “All of those added costs that are part of that PUD ‘negotiation’ are passed on to the consumers,” Coyle continued. “All of these things add to the costs of a house.”

The committee also heard testimony from homebuilders, who gave a real-world perspective about the strong demand for starter homes that simply cannot be met in the current housing approval process. “On a weekly basis, I hear from customers who are interested in learning more about building a new home. However, their budgets are nowhere close to what we can build for them—even at the basic, entry-level home plan,” said Tony Wiener of Cardinal Homes. “Today, our requirements, our zoning rules, our land costs, lot sizes, our park fees, our engineering requirements—they don’t allow for the simplicity we used to take for granted; that allowed our state to grow and flourish,” Wiener said.

While much of the housing policy focus is on the high-growth regions in Minnesota, the housing inventory and affordability crisis is impacting all of Minnesota. “This lack of housing is a barrier to attracting workforce talent in Minnesota. This lack of housing is especially acute in parts of Greater Minnesota,” stated Beth Kadoun of the Minnesota Chamber of Commerce.

The technical provisions of the bill drew opposition from city staff members, as well as representatives from local government special interest groups. The committee also heard from groups concerned with language in the bill requiring a five-year payback on any new energy code provisions. The bill passed out of its first Senate committee and will receive further review as it moves forward. Complex and controversial legislation is always a challenge at the Capitol, but the tenor of the discussion and long-term ramifications of inaction were highlighted by bill supporters.

“The question before us today is how will the next generation and the generations after that achieve homeownership?” said David Siegel, executive director of Housing First Minnesota.