Housing Industry News Vol. 3 Issue 1 - March 2019 by Housing First Minnesota

M I N N E S O T A

HOUSING INDUSTRY NEWS

INSIDE Housing’s Day At The Capitol Draws Hundreds [PG. 10] Household Formation Is Up, Home Sizes Are Down [PG. 12]

NEWS AND INFORMATION FOR HOME BUILDERS AND REMODELERS BY HOUSING FIRST MINNESOTA • HOUSINGFIRSTMN.ORG

VOL. 3 ISSUE 1, MAR. 2019

Homeowners Priced Out New Report from the Housing Affordability Institute Reveals Why The Housing Market Fails Too Many Minnesota Families A new report titled Priced Out: The True Cost of Minnesota’s Broken Housing Market provides a detailed look at the growing regulatory pressures on new homes, which is having a powerful effect on the entire housing ecosystem of our state. The research demonstrates that up to one-third of the price of a newTwin Cities home is due

to local, regional and state housing policies. According to the report, a new home in Lake Elmo, Minn. costs $47,000 more than the identical home built by the same builder with the same materials and trade partners just minutes away in Hudson, Wisc. Similarly, the research shows that a typical newly built

home in the Twin Cities will cost up to $82,000 more than the same home built by the same builder in the southwest Chicago suburbs. What’s Driving These Costs? The report identifies an array of factors that are creating the shortage of newly built homes for average Minnesota families. “No one entity

or single policy is to blame,” said Nick Erickson, regulatory affairs manager for Housing First Minnesota and chief author of the report. “But the cumulative impact of city park and permit fees, development requirements on builders both inside and outside the development, zoning, water management, land availability, and state regulations

prices out too many Minnesotans from the home of their dreams.” The conclusions of the report have been echoed in several other similar assessments. For example, former Gov. Mark Dayton’s Task Force on Housing concluded after a year of work that the regulatory impacts on housing must be reviewed CONTINUED >> PAGE 3

Legislature Weighs Housing Affordability With growing pressure to address the burgeoning housing affordabili2960 Centre Pointe Drive Roseville, MN 55113 HousingFirstMN.org

HOUSING INDUSTRY NEWS

ing several initiatives, ranging from housing subsidies to the creation of a commission on housing affordability. Leading the housing policy discussion, HF 1208 (Carlson, A.,

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M I N N E S O T A

PRSRT STD U.S. POSTAGE PAID PERMIT # 93652 TWIN CITIES, MN SIGN UP TO BE A PART OF THE HOUSING MOVEMENT • HOUSINGFIRSTMN.ORG

ty crisis, the legislature is consider-

DFL-Bloomington)/SF 1294 (Draheim, R-Madison Lake) would create a legislative commission to review regulatory costs, housing innovations and homeownership access issues across the housing spectrum. Modeled after existing legislative

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Consensus on the Affordability Crisis By JOHN RASK Housing First Minnesota jrask@mihomes.com

John Rask, 2019 president, Housing First Minnesota

2019 is off to a steady start for the first few months of home construction activity. Given our adventures with the weather, steady may be acceptable for now, though we know we need to be building more homes. This isn’t just the homebuilder wanting to build more homes, a growing consensus of public and private institutions have come to

this same conclusion: our housing market is broken and we need a surge in new, affordably priced homes. The Housing Affordability Institute provided a remarkable look at one of the reasons our housing market is suffering, our homes are simply too expensive for many Minnesotans. In Priced Out: The True Cost of Minnesota’s Broken Housing Market, we get to see what impacts the cost of new homes and the challenges this presents for many Minnesota families. One of the most interesting elements of the study was the conclusion that construction materials, business overhead and profit were largely comparable across the states studied. However, the regulatory costs in the Minnesota market were as much as double those of comparable homes built in Wisconsin and Illinois. A comprehensive look at the factors contributing to the cost of new homes is necessary as we begin a deeper discussion about affordability. Thankfully,

a growing consensus of stakeholders have come to similar conclusions. The Metropolitan Council, the Minneapolis Federal Reserve Bank and the Governor’s Task Force on Housing have issued public findings that stress the urgency of our housing supply and addressing our affordability crisis. In terms of housing supply, these groups have concluded that we need to build more homes at all price points. Consensus on identifying the problem is a critical step, but we need to keep moving. Housing First Minnesota has proposed the creation of a Commission on Housing Affordability. We believe that the complexities require a broad-based, holistic approach with oversight from a bipartisan group of legislators. The legislation to create the Commission on Housing Affordability is currently under consideration. I hope you will join the growing movement to fix our housing market.

WHY CAN’T WE BUILD AFFORDABLE HOMES?

L E A R N M O R E AT

HousingAffordabilityInstitute.org

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Priced Out Study Inspires Legislative Action commissions covering complex policy issues like pensions and data privacy, the measure would seat eight legislators, two from each caucus, to review and make housing policy recommendations. The legislation moved through two Senate committees, meeting the legislature’s established deadlines for policy bills and setting the stage for a final discussion of the measure later in the session. “Housing is complex, there is no quick fix,” said James Vagle, Housing First Minnesota’s advocacy director. “We’re pleased that the legislature is taking a serious look at how to get our arms around the problem in a productive way.” With no debate about the existence of a housing affordability crisis, the discussions now center on

what fixes can be deployed to address it. The Senate is focusing on broad study of cost drivers impacting home prices, while the House and governor have contributed housing subsidy proposals in their early initiatives. Beyond those approaches, multiple bills to increase the oversight of costs associated with housing regulations have also emerged. The need for oversight by stakeholders or the legislature has gained support as the growing regulatory footprint and its costs have created an affordability impediment. As the legislature reaches its halfway point, it’s not clear what will pass into law. But the interest by all four caucuses and Gov. Walz foreshadows that housing will be in the mix at the end of session.

02/06/19

as introduced

S.F. No. 1294

(SENATE AUTHORS: DRAHEIM, Weber, Frentz, Jasinski and Housley) DATE D-PG OFFICIAL STATUS 02/14/2019 397 Introduction and first reading Referred to State Government Finance and Policy and Elections 02/18/2019 442 Author added Housley 03/04/2019 606 Comm report: To pass and re-referred to Agriculture, Rural Development, and Housing Policy 03/11/2019 Comm report: To pass as amended and re-refer to Rules and Administration

L to R: Chris Galler, REALTORS; Sen. Rich Draheim, District 20, Madison Lake; David Siegel, Housing First Minnesota

1.1

A bill for an act

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relating to state government; establishing a Legislative Commission on Housing Affordability; proposing coding for new law in Minnesota Statutes, chapter 3.

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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: Section 1. [3.8845] LEGISLATIVE COMMISSION ON HOUSING AFFORDABILITY. Subdivision 1. Established. The Legislative Commission on Housing Affordability is

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created to study issues relating to housing affordability, existing and future government

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regulations impacting housing affordability, and access to homeownership. Subd. 2. Membership. The commission consists of four senators appointed by the senate

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Subcommittee on Committees of the Committee on Rules and Administration, and four

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members of the house of representatives appointed by the speaker. Two members from each

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chamber must be from the majority party in that chamber and two members from each

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chamber must be from the minority party in that chamber. Each appointing authority must

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make appointments as soon as possible after the beginning of the regular legislative session

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in the odd-numbered year. The ranking senator from the majority party appointed to the

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commission must convene the first meeting of a biennium by February 15 in the

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odd-numbered year. The commission may elect up to four former legislators who have

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demonstrated an interest in, or have a history of working in, the areas of housing affordability

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to serve as nonvoting members of the commission. The former legislators must not be

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registered lobbyists and shall be compensated as provided under section 15.0575, subdivision

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Section 1.

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19-3227

STATE OF MINNESOTA NINETY-FIRST SESSION

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SGS/MP

SENATE

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Housing industry testifies before legislature on need for regulatory reform. L to R: Nick Erickson, Housing First Minnesota; Mike Paradise, Bigelow Homes & Rochester Area Builders; Steve Noble, Noble Custom Homes, president of Builders Association of Minnesota

REVISOR

Senate file 1294; House file 1208 creating the commission

CONTINUED FROM PAGE 1

Homeowners Priced Out and that the private sector needs to construct 300,000 new homes by 2030. The Minneapolis Federal Reserve President Neel Kashkari has also acknowledged the broken housing market, the impact of regulation and the lack of available land for building. The Metropolitan Council has added its voice in recognizing the affordability crisis in Minnesota, which has reached epic proportions. Disappearance of Entry-Level Homes With all of the factors in play identified in the study and confirmed by other thought leaders, Minnesota has a dearth of entry-level and moveup new homes. That’s putting intense pressure on rents, the move-down and move-up market, and creating an unsustainable housing market, explained Erickson. “This disappearance of affordable new homes is not due to a change in buyer or builder preferences, but to homebuilders simply being unable to build at a price that many buyers can afford,” said David Siegel, executive director of Housing First Minnesota. Need for Greater Transparency “The report does not suggest that rules and ordinances are not appropriate. Rather, it shows how costly building regulations, and the choices they represent are,” said reviewing national

economist Elliot Eisenberg. “The results are clear and the belief that regulations don’t matter, or that builders and developers absorb regulatory costs is shown to be false.” To illustrate how each of these policies adds to the cost of a new home, the report introduces a “Housing Affordability Impact Statement” for each home. These statements bring increased transparency to the new-home purchase process by laying out all the factors influencing a home’s price in a clear, easy-to-read manner. Finding a Solution To address this crisis, Priced Out calls for the creation of a Legislative Commission on Housing Affordability. This Commission would provide for a bipartisan legislative forum in which affordability would be center stage. Existing local, regional and state housing policies would be reviewed with an eye toward affordability. Further, the Commission would proctor an innovation challenge that connects homebuilders, land developers, cities and state agencies to use innovation to create affordable housing solutions. And finally, the Commission would put forward a transparency standard so all stakeholders can see what’s driving up the cost of new homes and make well-informed decisions. “With regulatory costs skyrocketing and

no broad awareness of how local, regional and state policies cumulatively affect housing prices, a new direction is needed,” said Siegel. “The legislature is the natural home for this reimagining of housing and the renewed focus on housing affordability.” The Housing Affordability Institute presented the Priced Out study to the Minnesota Legislature this session in both the State House and Senate Housing Committees. Bipartisan legislation creating the Legislative Commission on Housing Affordability as proposed in the report has been introduced in both the House and Senate. If you would like to obtain a copy of the Priced Out report, please contact Kate Wigley of Housing First Minnesota at Kate@HousingFirstMN.org

READ THE FULL REPORT AT HousingAﬀordabilityInstitute.org

BY THE NUMBERS

UP TO 33% OF HOME COSTS COME FROM HOUSING POLICIES

UP TO +$47,000

TWIN CITIES NEW HOME VS. HUDSON, WISC.

UP TO +$82,000 TWIN CITIES NEW HOME VS. SUBURBAN CHICAGO

UT: EDMO PRIC innesota’s of st Co ue The Tr ket using Mar Broken Ho

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“This disappearance of affordable new homes is not due to a change in buyer or builder preferences, but to homebuilders simply being unable to build at a price that many buyers can afford.”

3.8-12.8X LAND RATIONING AND SUPPLY ISSUES AFFECT LAND PRICES

David Siegel, HOUSING FIRST MINNESOTA EXECUTIVE DIRECTOR FEBRUA

RY 2019

Minneapolis to Require Energy Testing on All Home Sales The city of Minneapolis voted to approve a requirement of energy testing on all home sales. The measure, known as the Truth in Sale of Housing (TISH) program, will require a home energy inspection by a licensed professional within three days after a home is listed for sale. The tests will require insulation inspections in attics, heating systems and windows. Additionally, the TISH program authorizes holes to be drilled into walls of pre-1980 built homes to assess insulation quality. A provision to require blower tests in each home was removed from the final version of the ordinance. The TISH energy testing requirements go into effect in 2020. Beginning in 2021, landlords will be required to disclose energy costs on a square footage basis to prospective renters.

TRACK THE CONVERSATION ON TWITTER: @HousingFirstMN #MNHomeownership

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Housing at theAFFAIRS Capitol REGULATORY

Regulatory Update Minnesota Agencies Address Dishwater Air Gap, Building and Energy Codes, Lead Paint and Construction Waste Plumbing Code The Minnesota Board of Plumbing’s AdHoc Rulemaking Committee, which operates under the Minnesota Department of Labor and Industry (DLI), is in the final phase of reviewing the state’s plumbing code. The Committee has recommended making the dishwasher air gap optional, with an added option of allowing the discharge line to be run as high as possible under the cabinet. In December 2018, Housing First Minnesota submitted a proposal to the DLI to remove the air gap requirement. At the Committee’s Jan. 14 meeting, Committee members agreed and recommended making the change. While significant, the recommendation remains a proposal, and meetings of the Ad-Hoc Rulemaking Committee are slated to continue through April, with the first draft of the code available later this year. Building Code and Energy Code Proposed changes to Minnesota’s building code are expected to be made available later this year by DLI. Housing First Minnesota made several recommendations with regard to

HOUSING INDUSTRY NEWS

the building code, with a focus on the challenge of affordability. A decision on adopting a new energy code is also expected later this year, but hinges on an evaluation by the U.S. Department of Energy. Again, Housing First Minnesota was engaged in the process, urging steadiness as appropriate given the affordability crisis. Minnesota’s new building code and energy code are expected to go into effect in March of 2020. RRP/Lead Paint After more than a year of work, the Minnesota Department of Health (MDH) is now in the final stages of taking custody of the RRP/Lead Paint Rule. This important regulation regarding homes constructed prior to 1978 presently is in the hands of the U.S. Environmental Protection Agency (EPA) out of Chicago. But within the past few months, EPA and MDH have agreed on a framework to make rule enforcement local. Housing First Minnesota has been deeply engaged in the process, providing input and suggestions. The initial draft of the Minnesota

RRP Rule was released in mid-2017. Shortly thereafter, representatives of Housing First Minnesota met with senior EPA officials to share concerns over the direction taken by MDH. A primary concern was the dramatic increase in remodeling costs the proposal would have generated, with no increase in protection. MDH held a large stakeholder meeting in August 2017. Prior to that meeting, Housing First Minnesota presented two alternative drafts of the rules based on what other states have done. The last publicly available draft of the Minnesota RRP Rule was published in late December 2017. Housing First Minnesota has continued to share its insights and concerns with MDH throughout the process.

Construction site waste includes materials such as concrete, bricks, wood and lumber, roofing, drywall, landscape and other wastes. It is not yet clear how the construction and demolition waste considerations or the reuse and recycling program will affect industry practitioners. But Nick Erickson, regulatory affairs manager at Housing First Minnesota, said the association will continue to be vigilant to ensure that whatever is proposed is done with the goal of affordability in mind. More information is available at https://www.pca.state.mn.us/waste/ construction-and-demolition-waste.

Construction and Demolition Refuse The Minnesota Pollution Control Agency (MPCA) is considering new regulations for construction and demolition waste. Following an initial meeting in January the agency is now preparing a report on groundwater quality near construction and demolition landfills. The outcome of this report, scheduled for spring 2019, will guide any formal rulemaking by MPCA. The agency’s concern is the possibility that groundwater near construction demolition landfills is becoming contaminated. In addition to any formal action taken through rulemaking and regulations, the MPCA is also looking to develop construction and demolition reuse and recycling programs.

Have a story idea for this publication? Let us know! Send your story to info@housingﬁrstmn.org

Kick-Starting Housing Innovation Housing Innovation Project Seeks to Build a New Home at Prices That Compete With Today’s Resale Homes If we could modify codes and incorporate new building materials and techniques could we construct a home today that would be safe, durable and at a price that competes with existing homes? That’s a question that a group of Twin Cities housing experts is now tackling. The Regulatory Affairs Subcommittee and Local Government Issues Working Group of Housing First Minnesota have taken on this challenge. These groups began work on the initiative last year.

Rethinking the Development Process Physically building the home is only part of the equation. Delivering an affordable, attractive, entry-level home also requires rethinking every step in the development process to get to a lower lot price.

Members of the Local Government Issues Working Group are tackling the land development and permitting process for local government units. They are looking at items such as lot sizes, setbacks, in-development infrastructure, off-site improvements, water management, land rationing policies, and park and

A New Look at Construction Using a home design that one builder has been building for three decades, the group is examining all the changes in construction techniques, materials and codes over the past 30 years to see what efficiencies can be achieved. By examining changes in state regulatory policies and in technology, the group hopes to develop a safe, durable, attractive, saleable home at a more affordable price. Starting from foundation excavation and working all the way through the construction process, this group has worked through each phase of the construction process and developed a proposed work plan. Builders and subcontractors are now being asked to “bid” on the project, giving the group its first look at how affordable this home could be.

BUILD IN THE VALUE OF NATURAL GAS.

permit fees. To aid the group in its work, they have been reviewing best practices from cities across Minnesota. For example, Waconia city officials worked with developers and builders to reduce the cost of homes as it sought to attract more townhome projects. “Waconia is a great example of a city taking a forward-thinking approach to affordability,” said David Siegel, executive director of Housing First Minnesota. In similar fashion, the city of North St. Paul and a developer collaborated on bringing a new affordable townhome project to the community. Kick-Starting Innovation Housing First Minnesota believes this is just the beginning of a wave of innovation that will sweep across housing construction in Minnesota. Both project teams hope to demonstrate to state and local governments what is possible – more affordable construction through partnerships. This may prove to be a template for workforce housing as well as providing an affordable product more broadly. Support from government partners to make this first cost-busting home a reality is essential and can help establish Minnesota as a leader in home construction innovation.

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HOUSING INDUSTRY NEWS

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Housing at theAFFAIRS Capitol REGULATORY

Minneapolis and Bloomington Adopt Affordable Housing Mandates

Minneapolis City Hall

Inclusionary zoning is a requirement that real estate developers include below-market-rate units in new projects. While the concept may on the surface appear positive, substantial research on the effectiveness of inclusionary zoning indicates that it ultimately has negative consequences. Generally, these affordable units can only be achieved by increasing the monthly rents for other tenants. This makes overall housing and what is known as “naturally occurring affordable housing” less achievable, and it can at times makes such projects entirely unfeasible. Despite broad concern over the policy, both the cities of Minneapolis and Bloomington are immersed in inclusionary zoning discussions with both cities adopting new ordinances. Minneapolis Inclusionary Zoning The Minneapolis City Council now requires all new rental projects constructed in the city to provide reduced rent for 10 percent of the units. The proposal calls for those rental units to be held for households at or below 60 percent of the area median income, or to have at least 20 percent of the units priced for and occupied by households at or below 50 percent of the area median

Bloomington City Hall

income, with the city providing financial assistance. The affordable rents would need to be guaranteed for at least 20 years. Minneapolis continues work on a comprehensive inclusionary housing policy with a goal of completion in 2019. Bloomington Opportunity Zones The city of Bloomington has also been delving into inclusionary zoning but has added a variety of available options to help lower the cost of construction of these units to offset what are the acknowledged challenges with the concept. Under a new ordinance adopted this spring by the city, for new projects with 20 or more units, at least 9 percent must be available to homebuyers or renters at or below 60 percent of the area median income. To lessen the potential negative impact on the remaining units and make these projects more feasible, Bloomington is offering significant incentives to developers: • Partial waiver of fees and allowance for alternative exterior materials • The possibility of waivers from city standards for such items as structure size, parking, development density and height

“I am pleased that the city of Bloomington took a unique approach to meeting the housing needs of the community by working with advocates, tenants, owners, developers and builders to find solutions that will work and ways to reduce the costs imposed by regulations,” said Shawn Nelson, a Bloomington City Council member and remodeling contractor with Burnsville-based New Spaces. While many in the housing industry are pleased with the collaborative approach taken by the city of Bloomington and believe the incentives provided are relevant, its ordinance nonetheless remains mandatory for any project of more than 20 units. “We are certainly pleased that the city sought feedback in crafting its ordinance. Bloomington’s policy would serve as a model affordable housing ordinance for cities across the state were it not for the mandate,” said David Siegel, executive director of Housing First Minnesota. “We urge the city to make the incentives available to all developers, knowing that we need to build 300,000 more housing units by 2030 and that it is just this kind of

flexibility and creativity that will allow that to happen.” The mandate remains problematic for the housing industry because the

“I am pleased that the City of Bloomington took a unique approach to meeting the housing needs of the community by working with advocates, tenants, owners, developers and builders to find solutions that will work and ways to reduce the costs imposed by regulations.” Shawn Nelson,

BLOOMINGTON CITY COUNCIL MEMBER

track record for inclusionary zoning consistently shows a reduction in affordable units and rising prices for housing overall. For example, in September 2016, Denver repealed its inclusionary zoning requirement, which city leaders described as a

Shawn Nelson, Bloomington City Council member

failure. The program created 77 affordable units in 14 years. In New York City, former Mayor Michael Bloomberg’s affordable housing initiative, which relied heavily on inclusionary zoning, planned to build or preserve 165,000 units. By the time Bloomberg left office, only 3,470 units were built, 2.1 percent of what was pledged. Portland, Ore., has also faced challenges. It adopted an inclusionary zoning policy on Feb. 1, 2017 and permits for new housing projects fell. The city began looking at changes to its policy late last year.

Are You Sure You Don’t Need a Construction Stormwater Permit? When stormwater drains off a construction site, it carries sediment and other pollutants that harm lakes, streams and wetlands, according to the Minnesota Pollution Control Agency. To control this erosion, the agency requires construction site owners and operators to obtain a National Pollutant Discharge Elimination System (NPDES)/State Disposal System (SDS) Construction Stormwater General Permit. The requirement for the permit has been in place for well over a decade, but some in the industry remain unaware.

HOUSING INDUSTRY NEWS

You need an NPDES/SDS permit if you are the owner or operator for any construction activity disturbing: • One acre or more of soil • Less than one acre of soil if that activity is part of a “larger common plan of development or sale” that is greater than one acre • Less than one acre of soil, but the MPCA determines that the activity poses a risk to water resources Of particular significance for custom builders, for those building on one lot within a larger subdivision over an acre,

an NPDES/SDS permit is needed. Housing First Minnesota continues to receive phone calls from builders and developers regarding this requirement. Fines for failure to comply can be significant. When in doubt, contact the Minnesota Stormwater Hotline at 651-757-2119 or 800-657-3804 for assistance. More information and appropriate forms can be found online at the MPCA website: https://www.pca.state.mn.us/water/ construction-stormwater.

Minnesota’s Green Path Program Takes Center Stage at the RESNET Conference Minnesota’s Green Path is the leading energy efficiency and green building program for the residential construction industry in Minnesota. The program has provided Home Performance Reports (HPRs) for more than 16,000 newly built homes highlighting the Home Energy Rating System (HERS) score and air exchange rate. When Green Path was created by BATC-Housing First Minnesota in 2011, only 4 percent of Parade of Homes entries were energy tested. In recent events, 70 percent of the homes have been energy tested by a certified rater, showcasing the growth of the program. Green Path program manager, Tom Gavaras, recently traveled to New Orleans with Ross Anderson of The Energy Network Worldwide to share with the 2019 Residential Energy Services Network (RESNET) Conference attendees the success of the Minnesota program. Here’s what he had to say:

Q: What did you share with the attendees at the RESNET Conference?

A: The evolution of Minnesota’s Green Path program. At the time Green Path was created, there was a void in the marketplace for a residential construction energy efficiency and green building program. From the outset, the goal of Green Path has been to help builders and homeowners look at energy and green building in a different, more affordable way. Using Green Path as a model, we shared some of the strategies for bringing together utilities, builders and raters to highlight energy-efficient building techniques by the promotion of the HERS index through HPRs, leveraging the connections of local or state builder associations, and using consumer marketing vehicles such as home tours and other consumer events. Q: What did you hope people learned from your presentation?

A: To be energized by what has been accomplished in Minnesota with Green Path and evaluate the resources available in their area to promote the HERS rating and energy efficiency. Q: What’s next for Green Path?

A: If residential home construction continues at its current pace, we will

hit 20,000 HPRs in 2020. In addition, we are planning the introduction of a Green Path Designated Builder program to recognize builders who test a minimum of 75 percent of their homes and attend our annual Green Path conference. Q: Why do you think Minnesota’s Green Path Program stands out among green programs in the country?

A: Minnesota has the lowest average HERS score (51) among high-growth states. Factoring in current building/energy codes, utility energy rebates and the marketing power of the Parade of Homes, this all creates a wonderful incentive to educate consumers about the advantages of new home construction or finding ways to make their current homes more energy efficient.

16,000+ HPRS ISSUED 2019 GREEN PATH SPONSOR

Ross Anderson and Tom Gavaras at the RESNET Conference

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Housing theTHE Capitol HOUSINGatON HILL

Q&A with Rep. Shane Mekeland Rep. Shane Mekeland Discusses Housing Regulations market with the safety nets in place for those with pre-existing conditions and that are financially unable. Rising costs are forcing many small business owners to take jobs that offer insurance benefits. And finally, to put emphasis on teaching trades and tech in our public schools – all trades, not just housing/building – and to educate our next generation that it is okay to not attend colleges and universities. Q: How do you plan to use your experience as a residential homebuilder to assist with your work at the Capitol?

Rep. Shane Mekeland is a residential building general contractor. He represents District 15B which includes Becker, Rice and Foley. Q: As a new state representative, what are some of your legislative priorities?

A: My priority is to reduce duplicitous, unnecessary regulations. A great plan to be instituted on a federal level is that for every new regulation, two must be removed. Return our health insurance back to the free

A: With all of the focus on affordable housing, I have talked with some of the freshman representatives about the overburdensome and duplicitous regulations that continue to drive up cost. The lack of tech in our public schools (K-12), the shortage of young people entering the trades as the older generation exits, the push for a higher minimum wage, the rising cost of permits, the never-ending list of licenses required from multiple state departments and many other factors contribute to the rising cost of doing business in our occupation. Many are not even remotely aware of the effect these have. As I was explaining a few different negative impacts of some of the newer regulations, some of them said that they never would have thought of

that – only the consumer protection side. Some of the new representatives from the other side of the aisle seem receptive to the issues I shared with them, others felt a lot of these will be fixed with more government. In my years of being a general contractor, naturally not all customers are like-minded, and it’s always been my position to inform and teach my customers, to provide foresight, and to have a unified plan going forward to produce a sound product with time and cost efficiency. Q: Former Gov. Dayton’s Housing Task Force recently announced that the homebuilding industry needs to increase production in order to meet Minnesota’s housing needs. How can the legislature assist in making this happen?

A: The problem, as I see it, is that we have entered the perfect storm: the lack of tech in our public schools, the stigma that everyone needs a four-year degree, the vast exit from our older generation and the rising cost of doing business in Minnesota. The risk for many is not worth the reward. I have several friends that have left the trades due to rising costs, for many it was the healthcare insurance, contractors insurance and state fees. I personally stopped working on pre-1974 homes due to risk vs. reward.

“My priority is to reduce duplicitous, unnecessary regulations. A great plan to be instituted on a federal level is that for every new regulation, two must be removed.” Rep. Shane Mekeland, DISTRICT 15B

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Housing Industry Member Wins Special Election

Other Bills To Watch Minnesota has the only divided state legislature in the country this year, and each chamber has different priorities. The DFL-controlled House of Representatives has advanced bills associated with paid family and sick leave mandates and wage theft modifications, and the Republican-controlled Senate has advanced bills related to college affordability and sports gambling authority. As the session continues, Gov. Walz also has a list of priorities related to education and health care. Watch in the coming weeks to see what gets across the finish line.

On Feb. 5, Jason Rarick, a residential electrician from Pine City, won a special election to fill a vacancy in the State Senate in District 11. The opening was created when State Senator Tony Lourey was appointed by Gov. Walz to be the Department of Human Services Commissioner. With the win, the Minnesota State Senate now stands at a 35-32 majority for the Republicans. Rarick had served in the Minnesota House of Representatives since 2015.

/HousingFirstMinnesota

@HousingFirstMN

Jason Rarick won a State Senate election in February

TOUGHER THAN THE ELEMENTS Stands up to storms and harsh weather

Tax Conformity

Water resistant to protect against swelling, warping and cracking; also resists mold damage

Business and personal taxes could be impacted.

Minimum Wage

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HOUSING INDUSTRY NEWS

| 9

HOUSING ON THE HILL

Housing rally at Capitol rotunda

Housing’s Day at the Capitol Draws Hundreds Hundreds of members of Housing First Minnesota and the Minnesota REALTORS® gathered from across the state for the third annual Housing Day at the Capitol on March 4. This year’s event kicked off with a rally at the Capitol rotunda where attendees heard from Speaker of the House Melissa Hortman (DFL, Brooklyn Park), Senate Majority

Leader Paul Gazelka (R, Nisswa) and House Minority Leader Kurt Daudt (R, Crown). All three praised the groups’ efforts to promote housing affordability and more inventory options across the housing ecosystem. Attendees also had individual meetings with their legislators to discuss the various housing legislation that is working its way through the legislative

process. In total, attendees held meetings with 61 state senators and 95 state representatives, which is 78 percent of the legislature. Finally, the day rounded out with a reception in which Housing First Minnesota members and REALTORS networked and continued the conversation with legislators who attended.

Realtors, homebuilders arrive at State Capitol before legislative meetings

10 |

HOUSING INDUSTRY NEWS

Speaker of the House Melissa Hortman, Brooklyn Park, rallys for housing

Senate Majority Leader Paul Gazelka, Nisswa, speaks at the reception

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HOUSING INDUSTRY NEWS

| 11

MARKET REPORT

Household Formation Is Up, Home Sizes Are Down National Homeownership Rate

Size of New Single-Family Homes

CHART: NAHB

Recent data from the Census Bureau points to a transition from renting to owning which is pushing up household demand. The Bureau’s most recent measure of household formations, a key driver of housing demand, revealed that the count of total households increased to 122.4

CHART: NAHB

million in the last quarter of 2018, from 120.1 million a year ago. The gains are attributed to strong owner household formation, as the number of homeowner households has been climbing since the third quarter of 2015. The number of renter households has been falling.

Households ages 35-44 marked the largest gains among all households, up 2.2 percent from a year ago. The homeownership rate of millennials, mostly first-time homebuyers, stood at 36.5 percent in the last quarter, a half percentage higher than a year ago. This indicates that millennials

are gradually moving into the forsale housing market. The average home size seems to reflect that homebuilders are working to meet the needs and budget of these additional millennial households. According to fourth quarter 2018 data from the Census

Quarterly Starts and Completions by Purpose and Design, median single-family square floor area dropped to 2,316 square feet. Experts predict home sizes will continue to trend smaller as builders add more entry-level homes into inventory seeking to address affordability.

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HOUSING INDUSTRY NEWS

Conventional Loans Hit 10-Year High

Wage Growth to Help Housing Market Slow wage growth throughout this economic expansion has put a damper on the housing market as home prices have climbed much faster than wages. Nationally, only 48 percent of households can afford the median-priced new home. And that number shrinks much lower in many markets. The lack of wage growth has perplexed many. With job growth having the longest stretch on record, experts have expected wage growth to follow.

New Home Sales by Financing Source Q4 2018

To date, that growth has been painfully slow. But there are signs of hope when it comes to wages. The U.S. economy hit full employment in March 2017 and after a year and a half we have seen a shift. According to ADP, the payroll processor, wage growth hit 3.5 percent in the second half of 2018 after nearly a decade of minimal growth.

When it comes to individuals that switched jobs, there was a 5.5 percent increase in their wage, a full 1.5 percent higher than last year. This is relevant because job quits are close to their highest level on record and 25 percent of millennials voluntarily left their job in the past year. As long as mortgage rates stay stable, the growth in wages should add to increased housing demand.

Higher wages + lower mortgage rates = positive momentum for housing demand SOURCE: U.S. CENSUS BUREAU CHART: NAHB

For the first time since 2008 conventional loans make up more than 75 percent of new home financing. According to data released by the Census Bureau, conventional loans accounted for 76.9 percent of new home sales in the fourth quarter of 2018, a 2.4-percentage point increase from Q3 2018. Conventional loan financing started falling in 2008 and bottomed out at 57.3 percent in the fourth quarter of 2010. The share has steadily risen since then. The share of new home sales financed with FHA-backed

National Wage Growth (YOY Change)

mortgages in Q4 of 2018 was 11.5 percent, less than half its high of 27.6 percent. Cash purchases accounted for 7,000 new home purchases for 5.4 percent of total new home sales. Cash sales make up a much larger share of existing home sales. Roughly 23 percent of existing home transactions were all-cash sales in September 2018, according to estimates from the National Association of REALTORS. The share of new home sales backed by Veterans Administration products increased 2.1 percent to 6.9 percent of the total.

CHART: NAHB

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HOUSING INDUSTRY NEWS

| 13

MARKET REPORT

Housing Market Report January 2019: Single-Family Construction Starts Year Strong While the new year began with a dip in permits both statewide and in the Twin Cities, builder confidence remains strong and most economists are projecting that 2019 will be similar overall to the previous year for homebuilders. Data from Housing First Minnesota’s Keystone Report, supplementing this Census Data reported here, indicates a flat start to 2019, suggesting it will echo the previous year. The challenge with this is that housing experts have called for a massive uptick in production, citing the need to build 300,000 new units by 2030, in order to address growing demand and provide pricing relief. Through January, single-family permits were down 4.8 percent statewide and 14 percent in the Twin Cities. Rochester and Mankato saw year-over-year declines as well.

State of Minnesota

Moorhead

SOURCE: CITY OF MOORHEAD

588

Duluth

Year-to Date Mankato Single-Family Construction

SOURCE: US CENSUS

St. Cloud

SOURCE: CENTRAL MINNESOTA BUILDERS ASSOCIATION

Twin Cities

435 13

(St. Cloud-Area Data Not Reported to US Census)

Mankato

SOURCE: US CENSUS

Rochester

SOURCE: US CENSUS

SOURCE: US CENSUS. HOUSING FIRST MINNESOTA COLLECTED THE ABOVE PERMIT INFORMATION FROM AVAILABLE PUBLIC RESOURCES.

JAN. 2019

$259,555

$233,000

JAN. 2018

+5.9%

+6.4%

$245,000

Y-Y Change

JAN. 2018

$219,000

Y-Y Change

2017

$219,000

Twin Cities Median Sales Price

Minnesota Median Sales Price

SOURCE: MINNEAPOLIS REALTORS

SOURCE: MINNESOTA REALTORS

United States

Twin Cities Construction Employment Past 5 Months

South - 55

SOURCE: DEED

Midwest - 58

Northeast - 50

Regional Remodeling Market Indicies, 2018 Q4 SOURCE: NAHB

The Overall Remodeling Market Index is calculated by averaging the Current Marketing Index and the Future Market Indicators Index. Any number over 50 indicates that more remodelers view remodeling market conditions as higher than the previous quarter. Results are seasonally adjusted.

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HOUSING INDUSTRY NEWS

SOURCE: DEED

2017

$245,000

West - 64

Minnesota Construction Employment Past 5 Months

The state added 3,800 seasonally adjusted jobs in January, according to new figures released Thursday by the Minnesota Department of Employment and Economic Development. DEED now estimates employment grew only by 7,893 jobs, or 0.3 percent, in the past 12 months. That’s the lowest rate of growth since the end of the Great Recession. Construction saw no change from December, but for the past year the sector has been the clear front-runner in the state for growth, up 8.7 percent, almost 9,000 jobs, since January 2018.

Lennar Tops the List of Twin Cities Builders Results from a recent survey by Housing said Bill Burgess, Lennar division president. First Minnesota show that Lennar - Min- “We want to thank all of our homeownneapolis/St. Paul was the region’s top- ers for continuing to make Lennar the #1 ranked builder once again in 2018. Lennar homebuilder in the Twin Cities, for the past has held the top spot since 2006. Rankings 13 years.” In addition to Lennar, the top 10 homeare based on annual gross revenue as reported by respondents for for-sale housing. builders were D.R. Horton, Inc with over $235 million in Lennar reported revenue and 599 gross revenue at “The Top 25 builders are clearly housing units $591,305,200 for experts in building community closed; Pulte 1,036 single-famHomes of Minily homes and and are working to provide 341 multifamiMinnesotans with a safe, healthy, nesota, LLC with over $231 million ly homes closed efficient place to call home.” in revenue and in the 2018 calenDavid Siegel, 510 housing units dar year. HOUSING FIRST MINNESOTA closed; followed “The Top 25 EXECUTIVE DIRECTOR by M/I Homes, builders are with revenue of clearly experts in building community and are working to $200 million and 478 units; Robert Thomas provide Minnesotans with a safe, healthy, Homes, Inc. at $127 million and 215 units; efficient place to call home,” said David Hanson Builders, Inc. with $107 million Siegel, executive director of Housing First and 169 units; Gonyea Homes, LLC with $95 million and 96 units; Creative Homes, Minnesota. “At Lennar, we strive to build each Inc. with $66 million and 138 units; Eterhomeowner their dream home. Our asso- nity Homes, LLC with $44 million and 84 ciates are honored and take pride in being units; and David Weekley Homes with $40 part of this special moment in their lives,” million in revenue and 73 total closed units. Rankings are based on information provided by survey respondents. Respondent information is believed to be reliable. Each company has verified information to the best degree possible. Commercial construction firms building rental or senior housing were not included in this ranking.

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HOUSING INDUSTRY NEWS

| 15

INDUSTRY IN ACTION

BRS 2019 Connects the Industry

A PRODUCT AND SERVICE EXPO

More than 700 industry members attended this year’s Builders and Remodelers Show at the Minneapolis Convention Center on Feb. 13. There were nearly 200 exhibitors at the event showcasing the latest products and services in the construction industry. The best new product or service was awarded to Anderson Windows for their Easy Connect Joining System. Best Booth overall went to the The Tile Shop and best booth runner-up was Biff ’s Inc. Next year’s show will be on Feb. 12 at the Minneapolis Convention Center.

Over 700 attendees at the Minneapolis Convention Center

From L to R: Andersen Windows awarded with the best new product/service; The Tile Shop awarded with the best booth overall; Biff’s Inc. awarded with the best booth runner-up

Student Demonstration Inspires Next Generation of Workers In a first-ever effort at the annual Builders and Remodelers Show, six student teams donned bright orange t-shirts and safety goggles as they studied the lumber, materials and plans in their stations at the Minneapolis Convention Center on Feb. 13. Coming from both high school and technical college, these young people faced the challenge of constructing a wall, framing in a window and attaching an adjoining wall under the watchful eyes of their instructors.

“Some of the students haven’t really touched any tools before, and it gives them a great opportunity to learn and really understand what the trades are like.” Heather Gay, INSTRUCTOR AT DUNWOODY COLLEGE

The students and instructors came from District 916 (high school); Wayzata High School; Dunwoody College of Technology; and St. Paul College. Housing First Minnesota’s Education and Workforce Development

Committee created the student demonstration as part of its effort to showcase career opportunities in the industry and expose these young people to the many attendees and exhibitors at the show. It also provided a great opportunity to strengthen relationships with these schools and their faculty who specialize in residential construction. The demonstration was modeled after student activities from SkillsUSA, but was not an official event. “I loved having multiple students working together and demonstrating their skill sets on stage in front of builders and remodelers,” said Heather Gay of Dunwoody College. “Some of the students haven’t really touched any tools before, and it gives them a great opportunity to learn and really understand what the trades are like.” Exhibitors and attendees alike enjoyed seeing these students showcase their talents and gain knowledge through this learning experience. Once the demonstration was complete, many of the students and faculty were able to walk the show floor and visit with industry experts. Plans are already underway for a repeat and expansion of the event at the 2020 show, where the task force set a goal of 12 teams drawn from a wider array of schools. Students faced the challenge of constructing a wall, framing in a window and attaching an adjoining wall

16 |

HOUSING INDUSTRY NEWS

Minnesota Building Industry Takes in the International Builders Show The International Builders Show hit a post-recession high in attendance at this year’s event in Las Vegas. More than 67,000 building professionals from around the world filled the exhibit halls of the Las Vegas Convention Center for the National Association of Home Builders’ 75th annual event in February. New smart home technology shined at the show, proving that soon our homes will be more interconnected than ever before. Another hot trend was color. Bright color trends were seen in every element and product

for the home, from deep purple bathtubs to bright floral appliances. Yet another trend was personalization, from interchangeable farmhouse sink fronts to a suite of changeable faucet wraps and accessories that give buyers a chance to update their look more easily. More than 150 Minnesota homebuilders, remodelers and suppliers stopped by Housing First Minnesota’s happy hour at Chayo for a great networking opportunity at the International Builders Show.

Minnesotans gather at IBS Happy Hour

The latest technology and trends seen at IBS 2019

Minnesotans gather at IBS Happy Hour

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| 17

INDUSTRY IN ACTION

Home Tours Kick Off the Spring Housing Market Twin Cities Parade of Homes and Remodelers Showcase Featured 472 New Homes and 59 Remodeled Homes The Twin Cities Spring Parade of Homes and Remodelers Showcase provided homebuyers the opportunity to see, free of charge, the entire gamut of new and remodeled homes across the Twin Cities, central Minnesota and western Wisconsin. There were 472 new homes and 59 remodeled homes open this March, with new home prices ranging from $210,000 to $3.57 million. Of those homes, four were Dream Homes and two were Dream Remodeled Homes, with their $5 admission benefitting the BATC-Housing First Minnesota Foundation. The Foundation focuses on building and remodeling homes for the homeless, veterans and others in need. Consumers visited the homes on the self-guided tour to find their next home and learn more about the benefits of buying new construction or remodeling with a professional. The homes are also a source of design inspiration. A multitude of home types and styles were available to tour, from condos to single-family homes and townhomes to single-level living. More than 300 homes on the Parade of Homes were tested by an independent energy rater and assigned a HERS (Home Energy Rating System) rating. These homes show visitors a Green Path Home Performance Report (HPR) that graphically explains the home’s energy test results and allows homebuyers to compare expected energy use between homes.

Home #87 on the Parade of Homes, built by M/I Homes

Home #38 on the Parade of Homes, built by Sustainable 9 Design + Build

Cities with the most Parade Homes

• • • •

Home #R25 on the Remodelers Showcase, remodeled by Michels Homes

Lakeville (36) Woodbury (30) Plymouth (29) Lake Elmo (27)

Home #R53 on the Remodelers Showcase, remodeled by McDonald Remodeling

Facebook.com/ProjectBuildMN Instagram.com/ProjectBuildMinnesota Twitter.com/ProjectBuildMN

Project Build Minnesota Update “It’s going to take a powerful effort by the thousands of Minnesota construction businesses to create a movement that makes construction an industry of choice for Minnesota’s youth,” said David Siegel, executive director of Housing First Minnesota and treasurer of the Project Build Minnesota board. “This is no small task and it won’t be completed in just one year or two. It’s going to take a sustained effort over time and our challenge will be to maintain enthusiasm and momentum,” said Dennis Medo, executive director of Project Build Minnesota. Medo issued a call to action for the industry.

18 |

HOUSING INDUSTRY NEWS

Here are three simple steps he outlined from Project Build Minnesota that can help ignite this challenge. • First, engage on social media. • Second, put the Project Build Minnesota logo on your website with a link to www.projectbuildmn.org. You can obtain the logo by contacting Dennis@projectbuildmn.org. • Third, volunteer to be part of the speakers bureau. Contact Medo at Dennis@projectbuildmn.org to learn more. Project Build is seeing increased brand awareness. The energy is rising as it speaks in high school classrooms, visits with key

influencers at professional education conferences and attends career fairs. But it can only achieve its real potential if the industry steps up to assist. “We need the entire industry to step forward and carry the message,” explained Siegel, who also chairs the organization’s Marketing Committee. “We call this a guerilla marketing campaign. The more engaged we can get members of the industry, the more successful we can be.” Representatives of Project Build Minnesota are at the ready to appear before any trade partner meetings and industry events. “Wherever there is an opportunity to share the message and bring more members of our industry on

board, we’re interested,” said Medo. Anyone wishing to donate to Project Build Minnesota, which relies entirely on contributions from the industry and its associations, can contact Medo at Dennis@projectbuildmn.org or visit the website at www.projectbuildmn.org to make a contribution.

“We need the entire industry to step forward and carry the message.” David Siegel, HOUSING FIRST MINNESOTA EXECUTIVE DIRECTOR

INDUSTRY GIVES BACK M I N N E S O T A

HOUSING INDUSTRY NEWS March 2019, Volume 3, Issue 1 PUBLISHER David Siegel David@HousingFirstMN.org EDITOR Katie Elfstrom Katie@HousingFirstMN.org GRAPHIC DESIGN Adora Vang ACCOUNTING Janice Meyer ADVERTISING SALES Brad Meewes Kori Meewes CONTRIBUTING WRITERS Katie Elfstrom Katie@HousingFirstMN.org

Nick Erickson Nick@HousingFirstMN.org

Mark Foster Mark@HousingFirstMN.org

David Siegel David@HousingFirstMN.org

James Vagle

Bloomington Renovation Renews Hope Over the course of the last four years, Pastor Nick Dyrud of Emmaus Lutheran Church in Bloomington and his family along with several others within the Emmaus congregation have been working with Together for Good, an organization that connects trusted volunteers to assist mothers facing crisis situations with respite care for their children.

“We look forward to opening this new chapter at the House of Hope; so that those in the greatest of need find a place of stability and safety, a home where they can rest and find hope.” Pastor Nick Dryud, EMMAUS LUTHERAN CHURCH

James@HousingFirstMN.org

ADMINISTRATIVE STAFF Kate Wigley Kate@HousingFirstMN.org

Housing First Minnesota David Siegel, Executive Director John Rask, President The Housing Industry News is a publication of Housing First Minnesota. Housing Industry News is published and distributed four times per year to housing industry professionals and others associated with the home building industry. Neither the advertisers, nor Housing First Minnesota, will be responsible or liable for misinformation, misprints, typographical errors, etc., herein contained. For address change information, contact Housing First Minnesota. Suggestions, ideas and letters are welcome. HOUSING INDUSTRY NEWS 2960 Centre Pointe Drive Roseville, MN 55113 info@housingﬁrstmn.org www.HousingFirstMN.org Housing Industry News is published by Housing First Minnesota

“It’s been a great blessing to be a part of this process of creating pathways for the church to come alongside vulnerable children and families with Christ-centered ministry, needed physical assistance and social support,” said Dyrud. “Over the course of this process we have grown in our understanding of the great need to go even further.” Earlier this year, Pastor Dyrud and the church were able to take another step in truly affecting the housing crisis. On the grounds of Emmaus Lutheran Church there was a home built in 1952 for the minister and his

family who were serving the congregation. Now named the House of Hope, this home was remodeled with the help of the Housing First Minnesota Foundation and their build partner Homes by Tradition. “Respite care alone is not enough to get mothers and children out of the cycle of poverty,” said Dyrud. “That is where we are missing out as a church; we needed to help offer resources to wrap around these parents and support them in this stage of life.” The home was completely remodeled from floor to ceiling and will help house women and their children facing life crises get back on their feet. Pastor Dyrud hopes that this program will offer them an opportunity to live in House of Hope while receiving education and employment assistance, nutrition and healthy living classes, as well as mentoring. “Imagine what this could provide for a mother with young children who is striving to make ends meet, living on the streets, without any trusted, reliable or safe support from family or friends,” said Dyrud. “From the renovation and construction of the home, to the hands-on work with each family, and everything in between, we all play a role in helping those in great need. We look forward to opening this new chapter at the House of Hope; so that those in the greatest of need find a place of stability and safety, a home where they can rest and find hope.”

Bedroom before

Bedroom after

Kitchen before

Kitchen after

From L to R: Dean Nelson, Homes By Tradition; Pastor Nick Dryud of Emmaus Lutheran Church; and Dennis Medo, Housing First Minnesota Foundation president

Directory of Advertisers Housing First Minnesota is the voice for home builders, remodelers and all who are dedicated to building safe, durable homes at a price Minnesotans can aﬀord. Housing First Minnesota was created to advance the interests of the housing industry, engage industry members, and to be the leading resource for housing-related issues in Minnesota.

SEE YOUR AD HERE.

Housing First Minnesota features a modern, comprehensive advocacy program that is dedicated to helping industry professionals grow their businesses. Housing First Minnesota recognizes its role as the state’s voice for the housing industry and engages industry members in advocacy opportunities related to grassroots advocacy, legislative lobbying, regulatory issues with state agencies, political elections, and events such as Housing Day at the Capitol.

KORI MEEWES

BRAD MEEWES

612-801-9874 Kori@BATC.org

651-269-2399 Brad@BATC.org

Arrow Building Center................................................................................... 20 Bayer Interior Woods........................................................................................ 7 Brush Masters. .....................................................................................................4 James Harding Building Products ................................................................9 JL Schwieters Bldg. Supply/Const., Inc. ....................................................15 Lampert Lumber.................................................................................................9 Larkin Hoﬀman ...................................................................................................11 Lyman Lumber Co. ............................................................................................13

Our advocacy work has never been more important. The housing industry remains under intense regulatory and political pressures that impact Minnesota homeowners’ ability to buy, build, and remodel their dream home. Housing First Minnesota supports reasonable regulations and protections, but our call for balance in rules and aﬀordability for families is a voice that must be heard.

Pella Windows & Doors ...................................................................................12 Quarrix Building Products..............................................................................17 Schwieters Companies, Inc.............................................................................8 Xcel Energy .......................................................................................................... 5

ARE YOU MAKING A DIFFERENCE IN YOUR COMMUNITY? We’d love to highlight your community service project in Housing Industry News. Send your story to info@housingﬁrstmn.org.

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