Analysis shows proposed legislative framework would be major step in addressing the housing shortage

The question of how to address Minnesota’s housing shortage has been front of mind for lawmakers for years, and a major study by the Washington D.C.-based think tank American Enterprise Institute (AEI) shows three land use reforms would go a long way in tackling the state’s two most pressing issues: the high cost of housing and the barriers to building new housing.

Tobias Peter, co-director of AEI’s Housing Center, was in St. Cloud, Minnesota, in December to highlight the findings for the St. Cloud area and the state as a whole. Strong Foundations: A Playbook for Housing and Economic Growth examines how three concepts—allowing starter homes in new subdivisions, creating more home options in established communities, and allowing homes near jobs—can increase housing production in specific geographies. In total, the Strong Foundations series provides data at more than 6,600 areas, including state-level reports, county- and metro area-level reports, and a master report for the United States.

Regional Data
The Strong Foundations data shows that in the Twin Cities, making smaller-lot starter homes a permitted use in new subdivisions in all residential areas could create up to 4,500 new homes annually. In Rochester and St. Cloud, this concept could allow up to 300 and 400 new homes annually, respectively. Allowing so-called “light touch density” in established communities would help create 7,800 new homes in the Twin Cities annually.
Establishment of housing near jobs as a permitted use would increase housing options in St. Cloud and Rochester as well, with the Twin Cities seeing the greatest impact. This impact would be felt mostly in Hennepin and Ramsey Counties, with roughly 12,600 new housing units built annually in the metro area. Allowing homes near jobs would also help boost housing production in Kandiyohi, Lyon, and St. Louis counties.

Executive Director of the Central Minnesota Builders Association Wanda Schroeder said, “We need to see local action and not just continued discussions. Light-touch density allowing smaller minimum lot sizes makes good sense, but our local leaders need to start enacting these ideas so we can build needed housing more affordably.”

Minnesota
In total, AEI estimates housing production in Minnesota could increase by 143% with these reforms, with most housing production concentrated in the St. Cloud, Rochester, and greater Twin Cities areas. By allowing starter homes across the state, 5,700 new homeownership opportunities could be created. This boost in housing is needed, according to a recent report from Housing Affordability Institute showing housing permitting has declined 35% statewide since 2021, with production insufficient to address the state’s exploding housing shortage.

“Starter homes are the foundation of homeownership, yet in too many Minnesota communities they’re effectively illegal to build,” said James Vagle, CEO of Housing First Minnesota. “This study confirms what builders and families have long known: without clear, statewide action to modernize land use rules, we will continue to price first-time buyers out of the market. Minnesota needs a consistent framework that allows starter homes to be built in every community if we’re serious about solving our housing shortage.”

Common Framework
The report from AEI examines a concept that has been mirrored in proposals that have been seen across the nation. Arizona, Montana, California, Florida, Oregon, and Texas have all enacted some or all of these proposals. Many other states, including Minnesota, are examining this approach.

 “The conclusion is ‘If you legalize it, they will build it,’” said Peter. “Government needs to get out of the way.”