As the newly elected Minnesota Legislature begins its two-year session in January, a host of housing market challenges lie before them.
Uncertain economic conditions and the ongoing ripple effects of the past three years have exacerbated the persistent supply and affordability challenges impacting the housing market. Without enough homes to meet demand, pressure is dispersed across the housing spectrum driving housing affordability challenges to new heights.
According to U.S. Census data, Minnesota will likely finish 2022 more than 60,000 housing units short of the necessary inventory of homes.
Adding to the affordability challenge has been a major surge in mortgage rates. With 30-year mortgage rates creeping over 7% in 2022, homebuying cycles have slowed considerably. This moderation was met with prudence from the homebuilding industry, which saw permit activity drop throughout the back half of the year.
This dynamic leaves the Minnesota housing market in a challenging spot. With an undersupplied market and high mortgage rates, affordability and homeownership access have suffered and the urgency to act has increased.
Housing industry leaders are prioritizing housing supply as the top issue for the Legislature to tackle.
“Housing has to be a top-tier priority in 2023, both from the subsidy and policy perspective,” said James Vagle, CEO of Housing First Minnesota. “As we look at prioritizing policy work, addressing our market’s inability to produce market-rate starter homes at scale must be in the top tier.”
Housing policy changes have been a challenge in Minnesota, where major housing policy reform on the state’s zoning laws hasn’t occurred in over 30 years. Some legislative leaders have indicated a willingness to address the current regulatory structure.
Housing finance discussions will center upon a debate about how much of the $9 billion surplus should be spent on housing, as well as structural budget commitments to support housing initiatives.
In a recent statement announcing his new chairmanship of the Housing Policy and Finance Committee, Rep. Mike Howard (DFL-Richfield) stated, “There’s no place like home, yet this basic necessity is unattainable for hundreds of thousands of Minnesotans and our housing crisis is only getting worse. The good news? Together, we have the power to change course. Through a bold vision that challenges the status quo and one that centers the voices of Minnesotans, we can create a future where a safe, affordable home is attainable for everyone.”
On the policy front, housing groups have previously focused on zoning modernization, permitting efficiencies and streamlining approval processes in an effort to encourage the creation of affordably built starter homes.
With 2023 as a full budget session, it is expected that this debate will stretch into May as leaders search for a balance of funding and policy with Gov. Walz, who was elected to his second term.
“There is an urgency in housing that we haven’t seen in decades,” said Vagle, citing the importance of action in 2023. “We are counting on the legislature to engage on this and help preserve homeownership opportunities for the next generation of Minnesotans.”