Minneapolis 'missing middle' housing developers suspended in legal limbo

Developers with projects trapped in limbo because of legal wrangling over Minneapolis' 2040 comprehensive plan will have to keep their plans on hold after a Hennepin County judge declined this week to reinstate the plan while a legal challenge to it proceeds.

The move didn't come as much of a surprise to local developers, given that the judge had already issued two injunctions ordering the city to ditch the plan and revert to the less-controversial 2030 Plan.

But they said they worry that the prolonged delay is putting growing stress on small-scale developers — and delaying much-needed housing for Minneapolis residents.

"The people who are working at this missing-middle neighborhood-scale infill are largely independent operators who are taking risks that may have financial impacts for their family in a material way," said developer Cody Fischer.

As long as the court case drags on, Fischer said, "you're just not going to see more people like me coming out of the woodwork and building housing that the city needs."

Five years ago, Minneapolis made national news for becoming the first American city to end single-family zoning with the passage of the 2040 Plan. Spurred by the city's unequivocal call for denser housing — such as townhomes and small multiplexes — in neighborhoods where it was historically banned, developers jumped in with plans centered on walkability and sustainable design.

But multiple courts have since found that the city should have first conducted an environmental study to explore the potential harm of increased density to natural resources and wildlife. As a result, the 2040 Plan has been suspended since November, and developers who failed to push through the city's permitting process in time are out of luck.

The Van Buren apartment is now under construction. But Fischer's next project, an energy efficient 32-unit building at 3561 Minnehaha Av. welcomed by neighbors, isn't getting built. The same day it got Planning Commission approval, Judge Joseph Klein issued his decision ordering the city to revert to its old zoning code within 60 days, and there was no way Fischer could pull the construction permits in time. He has $75,000 in design fees sunk in, but no telling when, or if, he'll ever get to build it.

Fischer is part of a small cohort of "missing-middle" developers who are trying to make sense of the Byzantine paths forward for the not-quite-dead 2040 Plan.

Oral arguments at the Court of Appeals are scheduled for Feb. 21. But the city has been fighting an uphill legal battle since the Minnesota Supreme Court ruled against it in 2021.

When the Legislature reconvenes, Minneapolis will resume lobbying to exempt cities from environmental reviews on comprehensive plans. That proposition has gotten pushback from environmental activists who aren't keen on eroding Minnesotans' pollution protections for any reason. If its lobbying efforts fail, the city still has the option of complying with court orders and conducting the environmental review to satisfy Smart Growth Minneapolis and Minnesota Citizens for the Protection of Migratory Birds, the groups suing.

"We're going to keep fighting on this one," said Mayor Jacob Frey. "We're going to be utilizing a number of different strategies, from judicial to legislative."

Developer Thomas Hertzog of Good Neighbor Homes saw the Metropolitan Council's transit expansion and passage of Minneapolis' 2040 Plan as a storm of opportunity to build along high-frequency corridors. He's done six projects in six years, with three in progress.

One is fully stopped: 3707 Fremont Av. N., where Hertzog intends to build a fourplex on the D Line bus rapid transit corridor. But without 2040, it's just another vacant, city-owned lot.

"Sharing walls and sharing heating elements and all the things that you can share when you live in a place that is of moderate density are really important," said Hertzog. "We certainly need to get the point across that it is really important that we build more housing ... that allows us to live in car-light lifestyles."

Business partners Jay Rajaratnam and Adam Bradley, who met at their kids' day care, say they're the definition of small-scale developers who used 2040 as a launch pad. Their goal: to build diverse housing types for people in different income brackets at different life stages. Bradley works double full-time hours as an architect and Rajaratnam's wife supports their family — he hasn't made an income since 2020, he said.

Luckily for them, their current project at 2718 Grand Av. S. did not face significant community opposition or delays, got its permits in time and is under construction. But the loss of 2040, coupled with high interest rates and construction costs, has limited opportunities for projects based on their company's new urbanist principles.

Rajaratnam hopes to be in Minneapolis for the long haul, building solar-powered, all-electric, neighborhood-scale homes that will stand the test of time.