Minneapolis housing push pays off and should be a lesson for NYC

The line for the Bureau of Labor Statistics’ Minneapolis-St. Paul-Bloomington area’s Consumer Price Index graph over the last three years looks much like it does for metro areas around the country: it climbs to a sharp uptick culminating in a rate of almost 9% year-over-year in May 2022, higher even than the almost 7% experienced in our New York-Newark-Jersey City area around June and July of that year.

Yet, around August 2022, the two graphs begin diverging significantly. While the New York metro area plateaus for a few months before meandering down and sticking at around 3% as of last month, the Minneapolis line plunges down to just 1%. It was the first metro area to go below 2% year-over-year inflation since it began peaking nationwide last year, and the drop has continued. What makes Minneapolis so special?

As a Bloomberg News story pointed out recently, one of the likeliest differentiators is Minneapolis’ efforts to cut down on housing costs, which comprise the bulk of consumer spending for a huge segment of the population. While average rents have been skyrocketing in NYC, with Manhattan seeing as much as 30% rent growth since February 2020, Minneapolis has had about 1% rent growth since 2017. Beyond just tamping down on inflation, that type of stability in housing costs leads to long-term economic benefits like increased savings and the ability to plan for families. It all didn’t happen by accident; it was a deliberate choice.

We understand that crafting public policy is a dicey proposition where intent does not always produce outcome and there are endless complicating factors. Yet at base here is an extraordinarily simple principle, one that would be probably too cursory even for an Economics 101 class: as the supply of an in-demand good increases, its price decreases.

Yes, there’s the Veblen exception for ultra-luxury goods and all sorts of other asterisks and expansions to that rule, but it fundamentally holds pretty well. It’s unfortunate that the provision of housing, a good that everyone needs to live a dignified life, is subject to the same market forces as everything else, but that being the case requires active efforts to shift incentives towards increased production and availability.

Minneapolis moved in 2018 to end single-family zoning throughout most of the city, and then plowed hundreds of millions of dollars into providing financial incentives for affordable housing construction, while the state of Minnesota put up more than a billion in addition (out of a budget that’s about a sixth the size of New York’s) to preserve affordability and assist first-time home buyers. New York, meanwhile, retains restrictive zoning and regulatory rules that disincentivize construction (we were doing just fine before the floor area ratio cap), not to mention construction costs and tax structures that make most housing development an uphill battle.

Yes, the city and state still put plenty of money into subsidizing and building affordable housing, but we’re certainly not getting a lot of bang for the buck when we have so many other obstacles in place, and even imperfect systems like the 421(a) tax break have collapsed. Skittish suburban and overzealous progressive legislators killed Gov. Hochul’s housing plan, which could have broken the ossified status quo. Now we’re reaping what we sowed.