Tice: Has Minneapolis’ 2040 Plan made housing more affordable?

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Nowhere in America has the struggle over housing policies between the forces of NIMBY (not in my backyard) and YIMBY (yes in my backyard) played out more interestingly than in Minneapolis. As a result, Minneapolitans now have economists in their backyard. And the number-crunchers are out with a new study.

The latest findings spotlight the inexhaustible complexities involved in making housing more affordable. The law of supply and demand remains in force. But so does the law of unintended consequences.

Approaching a mayoral election featuring a major contender brandishing a “socialist” label — making it a campaign with economic philosophy very much on the ballot — Minneapolis voters might do well to consider “Zoning Reforms and Housing Affordability: Evidence from the Minneapolis 2040 Plan” by Helena Gu and David Munro of Middlebury College.

Back in 2018, as an ever more progressive Minneapolis City Council pondered its transformative policy agenda, I wrote sympathetically in this space about one contentious housing idea on the list — a proposal to eliminate single-family-only zoning rules and to permit duplexes, triplexes and even fourplexes in most or all of the city’s residential neighborhoods.

In the process I waxed nostalgic about my childhood in the 1950s and ’60s, watching my parents operate a miniature empire of small-scale rental properties, and about my own stint as the live-in landlord of a south Minneapolis duplex. The point was that, in not so ancient times, investment in moderate-density, modestly priced rental housing was an organic process in Minneapolis. It faded away when, after decades of “downzoning” by city officials in the name of quality of life, “approximately 70% of the city’s residential land was restricted to single-family homes,” according to Gu and Munro.

Deeming what followed a “landmark reform,” Gu and Munro describe how the Minneapolis 2040 Plan “abolished single-family-only zoning citywide … removed minimum parking requirements and promoted higher density development in downtown areas and along major transit corridors.” They call this broad deregulation a “bold policy experiment” more comprehensive than the zoning reform undertaken by any other American city.

But … has it worked? Five years after the plan’s implementation, the answer depends on the goal one has in mind.

Gu and Munro study the outcomes (so far) of the 2040 Plan using a “synthetic control” approach, meaning they compare housing trends in Minneapolis with those in a “synthetic Minneapolis.” It’s a hypothetical city built with data from districts in 83 other real-world cities where the housing market is similar to that of Minneapolis — except that no zoning reform took effect in 2020.

The researchers conclude that the Minneapolis zoning reform produced “a pronounced decrease in home and rental prices.” To be precise, home prices and rents rose in Minneapolis since 2020, but significantly less than they rose in “synthetic Minneapolis.”

Gu and Munro find that from 2020 to 2025, rents in “synthetic Minneapolis” rose 5.6% per year. But they climbed only 1.8% in real-world Minneapolis, where reform had been enacted. Meanwhile, median home prices jumped 47% over the period in synthetic Minneapolis but only 15.5% in the actual city. And “overall, the effects appear to be concentrated in the segment the reform targeted: smaller, modestly priced homes.”

The situation “warrants caution,” Gu and Munro allow.

An even more important reason to postpone victory celebrations is what Gu and Munro report about why housing prices moderated in Minneapolis. They write: “[T]he reform did not trigger a construction boom … . Instead, the observed price reductions appear to stem from a softening of housing demand.”

That wasn’t exactly the plan. The conventional theory behind allowing higher-density development across the city and lowering its cost by eliminating parking requirements, etc., was that more housing would be built, and the larger supply would make housing more affordable despite rising demand.

But the Middlebury researchers find that housing construction has been sluggish since 2020, and much more sluggish in real-world Minneapolis than in synthetic Minneapolis. “Increased housing supply,” they conclude, is not what’s causing “improvements in housing affordability.”

So what is? Gu and Munro find numerous signs of weakening demand for Minneapolis housing — fewer sales, more inventory, longer times on the market, etc. — especially compared with the synthetic city.

A “less favorable interpretation is also plausible,” the scholars admit. Potential buyers and investors may share “concerns over increased density, congestion, or neighborhood change” under the new zoning regime that “have reduced the city’s attractiveness.”

Others might note different threats of late to the attractiveness of Minneapolis. The basics come to mind — taxes, safety, schools, streets — and the amount of energy City Hall invests focusing on Gaza and global warming instead. Gu and Munro acknowledge crime and public order as a concern but find no statistical evidence of its effect on the housing market. Your analysis may deviate.

If nothing else, this study is a reminder that city housing policies matter, that their workings are complex and varied, and that while some innovations can succeed, others may backfire.

Embattled incumbent Mayor Jacob Frey has taken, shall we say, complex and varied positions on many issues. But he’s generally resisted rigid rent control and other militant policies that could risk further improving housing affordability by making Minneapolis less attractive.

The situation warrants caution.