Twin Cities Housing: Meeting the Challenge of Supply and Affordability
There are growing challenges facing our region’s rental market. With construction slowing dramatically and demand remaining strong, but when supply fails to meet the needs, the result is rents rise, competition intensifies, and affordability slips further out of reach. These trends should serve as a wake-up call for action.
The Twin Cities Housing Alliance (TCHA) sees this as an opportunity to shift from challenges to solutions. By addressing underproduction and implementing forward-thinking policies, we can ensure the region’s housing market remains accessible and equitable.
The State of Housing in the Twin Cities
Despite progress from 2019 to 2022, the Twin Cities remains the 13th most undersupplied housing market in the nation. The Regional Housing Indicators Dashboard shows the region needs 18,000 new housing units annually to meet demand. However, in 2023, that number fell short by approximately 2,500 units, and 2024 projections suggest an even greater shortfall.
This decline reflects a sharp reduction in new permits and limited development pipelines. Without action, the undersupply will worsen, putting more pressure on the market driving increases in rents.
Challenges to New Development
Rising construction costs, averaging $350,000 per unit, far exceed financing thresholds generally capped at $250,000 per unit. This mismatch makes it difficult for housing providers to secure the capital necessary to finance projects.
Local and state policies matter. Rent control, while aiming to stabilize rents, discourages private investment and results in increases in rents as seen in St. Paul where rents rose more than Minneapolis and permits fell to an all-time low. Permitting delays, zoning restrictions, and regulatory costs further inhibit housing production and deters private investment interest. And the result of that lack of investment is passed along to taxpayers as reflective in St. Paul’s proposed sharp increase in taxes creating disruption to many of the residents we hope to protect from rising costs.
The Role of Private Housing Providers
Private housing providers are responsible for 90% of the region’s housing and are critical to addressing the supply gap. While nonprofit providers are vital in building lower income housing, they cannot meet the region’s needs alone. A thriving private sector is essential for creating market-rate and affordable housing, alleviating pressure on income-restricted units.
Many housing providers are multi-generational, locally rooted businesses deeply invested in the community. However, bureaucratic costly policy climate risks driving them to other markets, taking jobs and investments elsewhere.
Why Supply Matters
Vacancy rates are already below the healthy 5% target in many parts of the region. This imbalance risks sharper rent increases, especially as competition for existing units intensifies. The proven way to mitigate rising rents is to increase supply across the spectrum—from deeply affordable and supportive units to market-rate housing.
Market-rate housing is vital because it relieves pressure on lower income housing by offering alternatives to higher-income renters. Without more new units, competition will spill over into affordable housing, making it even harder for lower-income families to find stability.
A Proactive Path Forward
TCHA recommends a comprehensive approach to boost housing production while maintaining affordability and preserving existing housing stock:
Streamline Development Processes: Simplify permitting and zoning to accelerate timelines. Expedited approvals for projects meeting affordability goals can encourage new development without delays.
Expand Incentives for Housing Providers: Leverage tax incentives, density bonuses, and housing trust funds to bridge the gap between rising costs and financing limits, making the region more attractive to private capital.
Preserve Existing Housing: Support the rehabilitation of naturally occurring affordable housing (NOAH) through targeted funding and strategic policy interventions such as the 4D tax program. Preserving these units ensures long-term affordability and minimizes displacement.
Foster Public-Private Collaboration: Policymakers and housing providers must align market needs with regulations. Adding policies without private input can have unintended consequences that hurt those they aim to help. Collaborative efforts can unlock innovative solutions to add more housing.
TCHA is committed to advocating for policies that support a balanced housing ecosystem. Collaboration among private and nonprofit housing providers, and policymakers is key to resolving these issues. By removing barriers and implementing smart, pro-housing policies, we can stabilize rents, meet demand, and ensure the Twin Cities remains vibrant and equitable for generations to come.