The real reasons Minneapolis housing has slowed: high interest rates and inflation

A recent commentary in Community Voices, “The failure of the Minneapolis 2040 plan to boost housing,” included misleading statements, and it’s important to correct the record.

First, the decrease in housing permitted from 2022-2025 has two major factors: the cost of interest on loans and the cost of building materials. 

For interest costs, the benchmark 30-year, fixed-rate mortgage interest rate increased from a low of 2.65% in July 2021 to 6.87% today. That’s an increase in interest costs of nearly three times. This is entirely due to the Federal Reserve action to combat inflation. For building materials, because of market disruptions, the cost of building materials spiked nearly 40% in 2021 and now is at over 15% higher than in January 2021.

This might come as news to some people, but just because it’s legal to build an apartment building doesn’t mean it’s going to happen if interest rates are at over 20-year highs.

Second, Minneapolis voters did not pass rent control.

There is no specific proposal being introduced by the mayor or any council member right now. What Minneapolis voters did do is allow the mayor and city council to pass a future policy, but it was neither required nor specified. The commentary’s discussion of specific rent control proposals isn’t based on any policy discussions by the mayor or City Council. It’s just not happening, and it’s odd to blame a theoretical future policy on homebuilder decisions right now.

The truth is that even with interest rates at over 20-year highs and some of the most affordable rents of any major metro area in the country, Minneapolis homebuilders are still building (as of 2023) more homes than they did in 2015, and far more than they did during the financial crisis of 2008 and the years after.

Simply put, Minneapolis in 2020 effectively legalized housing by passing the Minneapolis 2040 plan. But interest rates and inflation always play a significant role in any financial decision, whether buying groceries or building a new home for a young family. The goal of actual policy makers at City Hall and the Capitol should be to cut the red tape to building homes in Minneapolis and communities across Minnesota. The author seems to acknowledge that there is a history of systemic racial and generational discrimination in housing, and we are still living in the world created by redlining and racial covenants.

At the end of the day, we have to start with a common set of facts. And it is a fact that legalizing housing does not cause there to be less housing built.

Conrad Lange Zbikowski, of Minneapolis, is chair of the Minneapolis DFL Party.