If you’ve built a new home in the past, you know how expensive the process can be. And if you're looking to buy your first home or you're a senior looking to move into an apartment or more maintenance free housing, you've probably struggled to find available units that you can afford. We are facing an affordable housing crisis throughout the state.
Not long ago I was named to the Affordable Housing Commission, which I appreciated since I’ve long been interested in housing policy as an economic driver for our communities. I’ve also championed housing legislation, such as the Housing Trust Funds bill, so I am eager to dig in with other colleagues on this bipartisan issue. We need to see what we can do to improve the rate of new, affordable housing and apartment construction throughout our region in order to meet the demand for families and seniors.
The first report our commission reviewed was the recently released study by the Housing Affordability Institute which highlighted a problem with building permit fees and potential overcharging by cities.
It found that nearly $80 million in excess permitting revenue was collected from citizens by Minnesota municipalities from 2014-18 – and that dollar figure is with only a fraction of the municipalities in our state reporting.
State law mandates that building permit fees established by municipalities must be by "legal means as a fee for service and must be fair, reasonable, and proportionate to the actual cost of the service for which the fee is imposed."
The report by the Housing Affordability Institute found far too many instances where building permit income far exceeded the municipalities' cost for service.
From 2014 to 2017, no more than 108 municipalities filed the statutorily mandated annual report. A review of data that was filed with the Minnesota Department of Labor and Industry over the past five years, 2014-2018, shows municipalities in Minnesota reported at least $78 million in net building permit revenue. This figure only accounts for the cities that have reported, meaning many others are avoiding state law that requires municipalities to submit annual reports on construction and development finances.
Based on the data supplied by Minnesota municipalities, building permitting and inspection may be a significant source of revenue for select growing cities, which appears to run counter to state law. For example, the city of Corcoran has earmarked its excess building permit revenue as the primary funding source for its City Hall capital improvement project. In other words, instead of making homes more affordable, it appears some cities are knowingly making the problem worse in order to pad their coffers.
Considering that more and more Minnesota families are being priced out of the housing market, the findings in this report are a deep concern for our state. I am now reaching out to city administrators throughout our district to understand what local practices are in place. It’s worth noting that no cities in our district were identified in this report as over-charging.
Yet this excess permitting revenue is only one layer that is contributing to the affordable housing problem.
Red Wing shortage
Let’s analyze the situation facing Red Wing as an example. Each day, 10,000 people drive into Red Wing to work. Yet the City’s population growth over the past five years has averaged 8 people a year, despite the fact that its economy is booming. Why? A lack of affordable housing.
Statistics show that by the year 2025 Red Wing will have a housing shortage of 700 units. The cost to build a 1,200 square foot new home in the City: $300,000. The end result is a lack of supply of new construction with developers and interested new home owners being priced out of the market. A similar situation can be found throughout rural Minnesota in all corners of the state.
So while this excess permitting issue – which I consider to be an illegal $78 million tax on housing – will rightfully be investigated by our legislative committees, it’s my hope that this is only our first step towards solving the significant affordable housing issue. Other regulations, fees, and government-required mandates also force new housing costs to skyrocket, and this is something we have to address in order to meet the needs of our families.