What is Minneapolis’ secret to fixing housing? Build more.

MINNEAPOLIS — It’s hard to find an affordable home these days in the U.S. Even though the average 30-year fixed mortgage has fallen by about a full percentage point over the past year, the median sales price of an existing home has risen 3.1%, according to the National Association of Realtors.

But a program in Minnesota could prove to be the key to solving the problem, even though it is fraught with controversy.

In 2019, Minneapolis became the first major U.S. city to end single-family zoning, opening the door for developers to build multifamily buildings on land that once held single-family homes. Through a plan known as Minneapolis 2040, the city invited developers to mix project types in different neighborhoods, including units specifically for affordable housing.

The plan also included other reforms, such as removing parking requirements and prioritizing projects that favor public transport users, pedestrians and cyclists.

“If we’re going to build affordable housing, we don’t want to house just one family. We want to house five, six, eight, 25 families,” said Minneapolis Mayor Jacob Frey, who oversaw the Minneapolis 2040 plan. “We’re allowing for a greater variety of housing options.”

Housing has become a priority issue during the election campaign. The economy as a whole is a priority for voters, but with 70% of the increase in inflation attributed to housing costs, the debate on how to slow price increases is, indirectly, a debate on how to slow housing costs.

Former President Donald Trump and Vice President Kamala Harris have both promised broadly that they would provide some support for first-time homebuyers, and Harris’ campaign has offered more specifics. Harris and her vice presidential candidate, Minnesota Gov. Tim Walz, want to build 3 million new homes to address the housing affordability crisis.

Trump campaign press secretary Karoline Leavitt blamed the current administration for higher housing costs as well as the “unsustainable invasion of illegal immigrants.” The campaign has broadly stated that Trump’s housing plan includes freeing up federal land for housing development and cutting regulations.

Supply meets demand

It’s been five years since the Minneapolis 2040 strategy was enacted, and Frey said “the results speak for themselves.”

A Pew Research report noted that between 2017 and 2022, the early days of the Minneapolis 2040 plan, the housing stock grew by 12% in the city, compared with 4% statewide. NBC News’ measure of the difficulty of buying a home shows that Hennepin County, where Minneapolis is located, is the second-easiest county to buy a home in, compared to its seven neighboring counties — even though Hennepin is the state’s most populous county.

The pump seems ready for more housing construction. Ryan Allen, a professor of urban planning at the University of Minnesota, analyzed 50 years of permitting in Minneapolis and found that over the past five years, developers have filed permits in the city at a rate two and a half times higher than the annual average.

“It’s a clear signal of the interest and confidence developers have in the real estate market here,” Allen said.

The ultimate goal is still to make city living more affordable. And while there are many factors that determine market rates for a home (such as amenities, local economy, cultural factors, migration patterns), early signs show that Minneapolis’ housing plan is aligned with lower rents.

In the roughly five years since Minneapolis 2040 was approved, rents nationwide have jumped 22%, according to Apartment List. The housing market has experienced a series of unprecedented shocks during that time. The global pandemic drastically changed where Americans live, followed by a supply chain nightmare and high interest rates that have limited the supply of new housing and kept many homebuyers stuck in their current homes.

By contrast, rents in Minneapolis fell 4% over the same five-year period. Its Bay Area neighbors and Oakland, California, are the only larger cities where rents also fell, according to Apartment List estimates.

“When you increase supply to meet demand, it’s like supply-side progressivism as a political philosophy. You can prevent large rent increases,” Frey said.

A fight in the yard

But Frey, a Democrat, acknowledges the plan has been incredibly controversial. Signs have popped up around town pleading with developers to “not bulldoze my neighborhood.”

In northeast Minneapolis, a sign in the yard of a single-family home reads “Stop the NE Land Grab,” referring to the city’s northeast section. The sign now sits across the street from the Solstice Apartments, a new development that opened this spring. The building has 23 units, a fifth of which are certified affordable housing units, on the same site where only one single-family home once stood. The building rents out all but one of the units, meaning at least 22 households now share an address where only one family once lived.

Cody Fischer, the developer behind the project, says it would not be feasible before 2040 in Minneapolis.

“Absolutely not. It was a combination of zoning and parking requirements. It just wouldn’t have been possible,” Fischer said. He added that it would be an “understatement” to say the plan was somewhat controversial. “The people on the block really didn’t want this apartment building here.”

Jeremy Wieland, who lives a block away from the development, is one such person. Wieland worries that the Solstice Apartments, which have no off-street parking, will worsen traffic in the area.

Wieland said the Solstice project hasn’t done enough to listen to neighbors. But he said he supports other multifamily buildings in the area that better fit the “spirit of 2040” — such as buildings with more two-bedroom units instead of one-bedroom units, which are more likely to house single tenants.

“That building is in my backyard and I like it, and down there (Solstice Apartments) is in my backyard and I don’t like it. So it’s always going to be a case-by-case thing,” Wieland said.

Fischer, the developer, said he designed the building to be part of the community, adding that neighbors’ “worst nightmares” about parking did not come true.

Environmental groups have also filed complaints against Minneapolis, arguing that the city needs to do more to prove that increased population density won’t be harmful. A lawsuit filed by a nonprofit group accused the city of violating the Minnesota Environmental Rights Act by failing to prove that the 2040 plan wouldn’t harm the environment. In 2022, a court issued an injunction halting implementation of Minneapolis 2040.

The Minnesota Legislature later passed a law that essentially shielded the plan from lawsuits. Walz, who Frey said was “committed to the mission” for public housing, signed the bill into law in May. Last month, the Minnesota Supreme Court decided not to hear the lawsuit, giving the plan the green light to move forward.

As the project gains momentum and housing comes under intense scrutiny nationally, advocates say the Minneapolis experiment shows the need for a multi-pronged approach in which regulations and community involvement are as important as financing and tax breaks.

“We need the market to step up,” said Allen of the University of Minnesota. “But I would also argue that it’s not enough. We also need more active policies by state, local and federal governments to support the housing market.”