Housing Industry News Vol. 5 Issue 2 - April 2021 by Housing First Minnesota

VOL. 5 ISSUE 2, APR. 2021

THE MINNESOTA HOUSING INDUSTRY NEWS SOURCE BY HOUSING FIRST MINNESOTA • HOUSINGINDUSTRYNEWS.ORG

Bill aims to lift barriers to the construction of affordably priced homes by limiting local mandates that unnecessarily drive up housing costs.

Senate takes first step toward addressing exclusionary zoning In an important discussion around housing affordability, a bill aimed at addressing Minnesota’s exclusionary zoning practices was sent to the Senate floor after hearings in both the Housing Finance and Policy Committee and Local Government Committee. Senate File 915 addresses the use of the Planned Unit Development (PUD) processes in the approval of housing applications. The goal of the legislation is to limit the inclusion of unauthorized terms and conditions in PUD contracts that exceed the state’s building code. The bill also aims to lift barriers to the construction of affordably priced homes by limiting local mandates that unnecessarily drive up housing costs, such as requirements for large lot development with stone exteriors and other design aesthetic elements. The measure’s chief author, Sen. Rich Draheim (R-Madison Lake),

introduced the bill as a key portion of the necessary reforms to improve Minnesota’s housing market. “I’ve been working hard on trying to help the cost of housing in Minnesota. The cost to build a new home in Minnesota is one of the highest in the whole country,” stated Draheim. “The bottom line is we have a shortage of housing. We have one of the worst equity gaps in the entire country. We have a lot of regulation in Minnesota, and this bill addresses a couple things, encouraging cities to look at lot sizes, and fixes the PUD loophole that has been used to circumvent the building code.” Peter Coyle, legal counsel for Housing First Minnesota, gave technical testimony in favor of the bill. “PUDs have now become the primary means by which many cities force the developer to take on additional responsibilities over and above what the code would otherwise require,” stated Coyle. “It’s a unilateral

position. If we are bound by the cities’ zoning and planning ordinances, then the cities ought to be bound by those same rules.” Additional testimony came from David Siegel, executive director of Housing First Minnesota. “This bill is a first step to addressing the issue that experts have almost unanimously agreed is the key to fixing our growing housing and homeownership problems: lifting local barriers and zoning carve-outs which are currently restricting the construction of affordably priced homes,” stated Siegel. “We have heard from government groups that these are simply ‘the market.’ That is wrong. The market does not restrict land availability and drive land costs, local governments and the Met Council do. The market does not demand large lots, large homes, with large garages for starter homes—local governments do. And, the CONTINUED >> PAGE 7

INSIDE THIS ISSUE

Regulatory Affairs Roundup: Plumbing and Electrical Code updates PAGE 4

Lumber price impacts continue into 2021 PAGE 7

Minnesota housing inventory continues to plunge PAGE 9

Permit fee challenges initiated Action taken against excessive permit fees in Corcoran and Dayton Housing First Minnesota initiated legal challenges over what it views as excessive building permit fee charges in the Minnesota cities of Corcoran and Dayton. The challenge commenced with the State Board of Appeals, which has declined to hear the challenge. Housing First Minnesota

now has an opportunity to appeal this decision to the Commissioner of the Department of Labor and Industry (DLI), or to seek other relief through the court system. “While excessive permit fees are not the largest barrier behind our CONTINUED >> PAGE 4

HOUSING INDUSTRY NEWS

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PRESIDENT’S NOTE

Keeping an eye on housing inventory

HOUSING INDUSTRY NEWS April 2021, Volume 5, Issue 2

With so many factors impacting housing, including surging lumber and oriented strand board (OSB) prices, labor market challenges, and the various supply chain bottlenecks, it is easy to miss the biggest long-term threat to the housing market, crisis-level inventory shortages of homes for sale. In Minnesota, we saw inventory challenges in the years leading up to COVID-19, and now our lack of available homes for sale has become our biggest long-term challenge. In the first quarter of 2021, we slipped to just 0.8 months of supply of inventory for available homes—a healthy market would have 4-5 months of available homes for sale. This inventory measure is critical to the long-term health of our housing market, whether we are thinking of existing home sales, new home building, or remodeling. At all price points, we need a healthier supply of housing for Minnesotans.

Without it, we will continue to see a surge in home prices and a freeze in listings. A healthy exchange of homes for sale is critical for a healthy housing market. Young Minnesotans need options to enter the housing market, which will free up the move-up market through the housing cycle. In a growing region like ours, the only way out of this is to add more housing supply. This will not be easy with soaring land costs, labor and material constraints, and regulatory barriers. As the pandemic continues to lift and the material supply issues moderate, housing supply and inventory will remain our biggest challenges. We need to keep innovating and bring all of the parties together to find a way to build more homes.

PUBLISHER David Siegel David@HousingFirstMN.org EDITOR Katie Elfstrom Katie@HousingFirstMN.org GRAPHIC DESIGN Emily Doheny ACCOUNTING Janice Meyer ADVERTISING SALES Brad Meewes Kori Meewes CONTRIBUTING WRITERS Katie Elfstrom Katie@HousingFirstMN.org

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Todd Polifka 2021 President, Housing First Minnesota

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Housing Industry News is a publication of Housing First Minnesota. Housing Industry News is published and distributed six times per year to housing industry professionals and others associated with the homebuilding 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 Entire contents copyright 2021 All rights reserved

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Housing First Minnesota is the voice for homebuilders, remodelers and all who are dedicated to building safe, durable homes at a price Minnesotans can afford. Housing First Minnesota is dedicated to advancing the American dream of homeownership for Minnesotans and is the leading resource for housing-related issues in Minnesota. This 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 policies, regulations and protections, but our call for affordability for families is a voice that must be heard. Learn more at HousingFirstMN.org.

HOUSING INDUSTRY NEWS

THE HOUSING BEAT

Across the country, there is much talk about housing HERE ARE SOME OF THE LATEST QUOTES ON THE STATE OF THE INDUSTRY:

This is the reason why home building is so critical. When a brand-new home comes on the market, no one has to move out (and elsewhere) to free it up. Home building is an empty home. They’re just bringing empty homes to the market.”

Every additional home that gets pulled off the market incentivizes someone else to not sell their house. That’s a selfreinforcing cycle.” RALPH MCLAUGHLIN HAUS CHIEF ECONOMIST

There’s just a huge glut of young adults in the country now that wasn’t there a decade ago. The force driving the demand forward is here to stay and should provide more support in the year to come even as the pandemic craziness calms.”

LAWRENCE YUN CHIEF ECONOMIST FOR THE NATIONAL ASSOCIATION OF REALTORS ®

MATTHEW SPEAKMAN ZILLOW ECONOMIST

The dream of homeownership is out of reach for so many working people. Rising home prices and flat wages means that many families, especially families of color, may never be able to afford their first home.” SEN. SHERROD BROWN (OHIO)

I don’t think we’ve seen a housing market quite like this one. And other recessions looked a little bit different, so that makes it hard to know what’s going on.”

Right now, I wouldn’t describe it as a bubble, but that doesn’t make it less concerning. With home prices rising at three times the rate of income growth, that means we’re going to outrun the buyers out there.”

JENNY SCHUETZ BROOKINGS INSTITUTION

MIKE FRATANTONI MORTGAGE BANKERS ASSOCIATION CHIEF ECONOMIST

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HOUSING INDUSTRY NEWS

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REGULATORY AFFAIRS

Plumbing and Electrical Code updates, Commercial Energy Code review, annual reporting changes Plumbing Code – Version I The 2018 Uniform Plumbing Code with Minnesota-specific amendments will become Minnesota’s plumbing code effective Dec. 17, 2021. On March 2, Richard Jacobs, chair of Minnesota’s Plumbing Board, signed the order adopting the 2018 Uniform Plumbing Code, with Minnesota-specific amendments, as Minnesota’s plumbing code. Under Minnesota law, there is a 270-day waiting period for the adoption of a new building code to allow for training of the new code and for publishing new codebooks. Delayed GFCI enforcement began April 5 In November, the Minnesota Department of Labor and Industry (DLI) suspended enforcement of the 2-pole GFCI circuit breaker requirement. COVID-induced supply chain issues, common across all sectors of construction, have made 250volt GFCI receptacles and outlets required in the 2020 National Electrical Code (NEC) sections 210.8(A) and (F) hard to come by. This shortage, according to manufacturers, has begun to resolve itself. With the availability of these components, DLI reinstituted the 250-volt GFCI receptacle and outlet requirements effective April 5. Electrical Code hearing The Minnesota Court of Appeals is planning to hold its hearing on the challenge to the adoption of the 2020 NEC on April 29 at 9:30 a.m. Housing First Minnesota appealed a November 2021 decision by Administrative Law Judge Barbara Case in which it was found the Board of Electricity followed proper rulemaking procedures. International Brotherhood of Electrical Workers (IBEW) Local 292 filed a friend-of-the-court brief on the topic in mid-March supporting the Board of Electricity. In its brief, IBEW cited the national model code process as a thorough enough

of review of the proposed model code. Under Minnesota law, the process and procedures used by the organization that create the model building code are not the same standards for proper rulemaking. Since Jan. 5, members of the Commercial Energy Code Technical Advisory Group (TAG) have been reviewing changes in ASHRAE 90.1-2019. Due to the pandemic, all meetings have been virtual. Members of the Commercial Energy Code TAG include Barry Greive of Target Corp., Gerhard Guth of HGA, Julianne Laue of Mortenson, Britt McAdamis of the City of Duluth, Ben Rabe of Fresh Energy, John Smith of Michaud Cooley Erickson, and DLI staff members Greg Metz and Chris Rosival. Municipal reporting changes Before the COVID-19 pandemic, the Minnesota Legislature was considering mandating changes to the format of the municipal construction and development financial annual reporting form. In that time, DLI has worked with stakeholders to improve the format and legislators were pleased enough with the form to proceed with the update. The major change to the format is centered on increased disclosure of inspection costs. For the past 15 years, municipalities reported only total costs attributable to inspections, both directly and indirectly. Beginning on the 2020 reports due on June 30, 2021, municipalities will be required to specify separate expenses for inspection staff salary and benefits, travel/vehicles, office space, supplies and equipment, and administrative overhead. Another important change is that smaller municipalities now have the option to file a report stating they have not met the filing threshold. The regulatory affairs roundup makes reference to in-progress and developing items of interest to industry members. The information was up to date at the time of publishing.

Spring load restrictions in effect Due to the February thaw, spring load restrictions began in early March. • • • • • •

2021 spring load restrictions started in early March.

At the time of printing, MnDOT has not yet announced an end to spring load restrictions in each region. Please visit www.dot.state.mn.us/materials/pvmtdesign/sll for the most up-to-date information.

HOUSING INDUSTRY NEWS

Permit fee challenges initiated region’s soaring housing costs, they are one of the most solvable issues to address in order to bring down the cost of housing in our state,” said David Siegel, executive director of Housing First Minnesota, in a statement when the challenge was announced. “The legal challenge taken by Housing First Minnesota is necessary as cities have continued to overcharge homebuyers in conflict with state law and guidance from the Minnesota Department of Labor and Industry.” According to public reports filed with DLI, the two cities have reported surplus building permit revenue of more than $2 million. In its public reports from 2015, 2018 and 2019, the city of Dayton reported more than $1.3 million in excess building permit revenue. Corcoran, which has only two reports on file, reported more than $880,000 in excess revenue between 2018 and 2019. “At a time when Minnesota is facing one of the nation’s worst housing inventory and affordability crises, adding on illegal costs to housing should be addressed,” said Siegel. “All housing stakeholders, including local governments, should be working to reduce barriers to homeownership.” Board of Appeals declines to hear case According to the filing submitted to the DLI’s Board of Appeals, Housing First Minnesota argued there was precedent confirming that the Board of Appeals is the proper venue for such a challenge. The Board of Appeals is used when permit applicants and municipalities differ. Under the 2014 Court of Appeals precedent in Centra Homes v. Norwood Young America, challenges to building permit-related matters must first exhaust administrative remedies before a challenge can be brought to district court. In the Centra Homes v. Norwood Young America case, Centra Homes challenged the validity of a valuation as determined by the local building official. According to the opinion from the State of Minnesota, “Unlike the municipal fee schedule officially adopted by the Dayton City Council by ordinance, the valuation assessments in Centra Homes were specific determinations conducted by a municipal building official applying and interpreting residential building requirements under the State Building Code. As such, the State Board of Building Code Appeals had the technical expertise, authority, and jurisdiction necessary to conduct a thorough review of those valuations.” Housing First Minnesota has 180 days from the March 24 decision to appeal the ruling. “We are reviewing all options and look forward to resolving this issue,” stated Siegel. “It’s an important part of creating a healthier housing market for all Minnesotans.” Long-simmering issue Prior to initiating the legal challenge, Housing First Minnesota sent letters to both cities in late 2020 seeking permit fees in line with state law and refunds of past over-collected permit fees. The city of Corcoran did not respond to Housing First Minnesota. The city of Dayton cited a recent change in plan review fees as a reason to not adjust its permit fees and did not respond to the request of refunds. Dayton has since changed its plan review fee structure, the second adjustment in four months. These refunds, Housing First Minnesota says, are to be paid to the homebuyers who were overcharged, not the builders who pulled the permits. “Permit fees are pass-through dollars,” explained Siegel. “Those who were overcharged need to be made whole.” Past challenges This is not the first time the organization has initiated legal challenges over excessive building permit fees in growing communities. In 2005, then known as the Builders Association of the Twin Cities, the organization sued the cities of Elk River and Shakopee over their building permit fees. Both lawsuits were settled out of court, with the settlements resulting in temporary measures. These temporary measures expired during the Great Recession, at a time when there was very little homebuilding activity.

North Region: March 8 North-Central Region: March 8 Central Region: March 5 Metro Region: March 4 - April 12 South Region: March 4 - April 12 Southeast Region: March 4

Overweight permits for vehicles more than 80,000 gross pounds will continue, and new permits will be allowed if all axle and group weights are legal. Additional information on axle weight limits and maps showing the locations of routes in which the weight restrictions are in place can be found on the MnDOT website. Full-summer overweight permits can be issued during this restriction period for travel on the interstate travel system only. Middle-range overweight permits will not be issued in each frost zone until the spring load restrictions are fully lifted.

CONTINUED FROM PAGE 1

Legislative interest The Minnesota Legislature has been following the building permit debate for more than 18 months. In August 2019, members of both chambers attended a press conference to express concerns over a report that highlighted millions of dollars in excess building permit fees being generated by municipalities. The Senate Select Committee on Homeownership Access and Affordability held a hearing on the topic. COVID-19 delayed a 2020 legislative proposal that would have changed how residential building permit fees are calculated. This year a similar measure that would require building permit fees to be based on square footage, not valuation, passed with bipartisan support in a legislative committee. Arbitrary valuation changes were cited as one of the contributing factors to excessive building permit surpluses.

REGULATORY UPDATE

April showers bring stormwater management Spring is here and summer is just around the corner. Soon, we’ll be in the middle of the three wettest months in Minnesota, which brings an added emphasis on construction stormwater management practices. Most common violations According to the Minnesota Pollution Control Agency (MPCA), the five most common construction stormwater violations are: 1. Missing or inadequate soil stabilization. Without proper stabilization, soil is vulnerable to erosion. 2. Missing perimeter controls. When perimeter controls are missing, stormwater carries sediment off site and into waters of the state. 3. Missing or inadequate inlet protection. Missing or inadequate inlet protection allows sediment to enter the storm sewers and/or water bodies. 4. Vehicle tracking. Without a tracking best management practice (BMP), vehicles track sediment onto paved surfaces. 5. BMPs not contained. Unmaintained BMPs do not function properly and allow sediment to escape and enter waters of the state.

Spring is the time to update your construction stormwater permit and plan if one is needed.

Reminders on compliance • Ensure that you have a construction stormwater permit and plan if one is needed. • Remember to inspect your site within 24 hours of a rainfall greater than ½ inch. • Repair, replace or supplement all nonfunctional BMPs by the end of the next business day after discovery, or as soon as field conditions allow access unless another time frame is specified by the MPCA.

Do I need a construction stormwater permit? You need a 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.

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HOUSING INDUSTRY NEWS

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HOUSING ON THE HILL

Housing bills at the Capitol A dive into the legislation this session that would impact housing

Several bills that would impact housing now await further discussion in floor debates or in the larger omnibus finance bills that will be voted upon later this spring.

After months of working through a remote legislative session by Zoom, there are a number of bills moving through the process that would impact the housing industry. Several of these have advanced through the committee process and await further discussion in floor debates or in the larger omnibus finance bills that will be developed and voted upon later in the spring. Five-year payback for energy code provision SF 910 (Draheim) Several legislators have prioritized protecting Minnesota’s top ranking in new home energy efficiency, while also raising affordability as a top issue. This legislation mandates that the costs of any new provisions added to future updates to Minnesota’s energy code must have no longer than a five-year payback following completion of a new home project. This bill drew opposition from more than a dozen special interest groups, but advanced following the committee discussion. Single-family homes exempted from window fall prevention HF 1496 (Fischer)/SF 802 (Koran) Several years ago, during a building code

update process, single-family homes were mandated to include window fall protection devices in certain settings. This bill moves to strike that provision in many locations throughout one- and two-family dwellings and townhomes, solving an egress issue and saving homeowners hundreds of dollars in the process. This bill was heard and advanced in both the Senate Labor and Industry Committee and the Housing Committee. Modernizing building permit fees HF 1085 (Stephenson)/SF 801(Koran) Substantial valuation variations and large permit fee surpluses in many growing cities have revealed structural problems with valuation-based permitting. SF 801/HF 1085 would end the valuation method of establishing permit costs and instead move to a square footage-based system. This move would ensure that building permits and the homeowners who ultimately pay these costs are charged fees that are fair, reasonable and proportionate to the actual costs to perform these inspections and plan reviews. The bill was heard in both chambers and has been laid over for possible inclusion in an omnibus bill.

Senate passes PPP loan tax forgiveness, final deal awaits 6|

HOUSING INDUSTRY NEWS

Protecting homebuyers and the contractor recovery fund HF 762 (Mekeland)/SF 419 (Eichorn) In past state government shortfalls, funds from the Contractor Recovery Fund were utilized to help the state government offset the deficit. This bill would prevent the fund from being similarly raided for any purpose other than to protect homeowners in the unlikely event their contractor is unable to fulfill their obligations. The bill was heard in both chambers and now sits on the floor of each body. Increasing park dedication authority HF 1350 (Boldon)/SF 1781 (Nelson) Initiated by the city of Rochester, this bill would create new park dedication authority for cities of the first class who are approving development projects. The House bill was heard and passed in both the Local Government Division and State Government Finance & Elections Committee and now sits on the House floor. The bill attracted opposition from several housing industry groups, including the Minnesota Association of Realtors®, Housing First Minnesota and the Minnesota Multi-Housing Association.

A proposal that would conform state and federal tax code for businesses that received Paycheck Protection Program (PPP) loans last year passed the Minnesota Senate in bipartisan fashion 55-12 in early March. The proposal would cost the state government approximately $438 million in lost revenue. Currently state law treats those loans as taxable income, even though the federal government made the loans tax-free late last year. “Taxing our struggling small-business owners who did the

Street impact fees HF 527 (Masin)/SF 277 (Pratt) The street impact fee debate has returned in the 2021 session, continuing many years of discussion surrounding the need and appropriateness of off-site transportation fees in new developments. Prior to the Harstad v. Woodbury Supreme Court decision, many cities were requiring these fees despite having no legislative authority to do so. After the Harstad decision deemed these fees illegal, local government groups have asked the legislature to legalize the fee collection, which would create a new tax on housing developments for future, undefined transportation improvements. The House bill was heard and passed in both the Local Government Division and State Government Finance & Elections Committee after very contentious hearings. It was ultimately laid over for possible inclusion in an omnibus bill. Housing First Minnesota leads a coalition of nearly a dozen other business and nonprofit organizations that are opposed to this legislation. Cities authorized to establish street improvement district HF 1565 (Elkins)/SF 1998 (Johnson Stewart) A close relative of the street impact fee issue, the proposal for street improvement districts would expand authority by allowing cities to draw street improvement districts where a fee or transportation utility could be required. This would impact both existing and new development. Dozens of business and nonprofit organizations stood in opposition when this bill was heard in the House Local Government Division. Carpet stewardship program HF 1426 (Jordan)/SF 1171 (Weber) Aimed at better managing flooring waste, this bill would create a new program to recycle carpet and has the potential to increase the costs of carpet by 4-6 cents per square foot. As written, it would authorize the commissioner to administratively increase the fees even more in coming years. The bill was heard in the House Climate Change Committee and laid over for possible inclusion in an omnibus bill. Mandating all new garages to be electric car ready BE 053 (Bierman) This concept would mandate all new garages and any remodeled garages of at least 50% to be electric car ready. Industry observers have estimated that this provision has the potential to raise the costs of housing by hundreds of dollars at a time when housing affordability is a top-tier concern and market demand for electric vehicles remains minimal. The bill was heard in the House Climate Change Committee.

right thing, by keeping their workers on payroll, would make it much more difficult to get our state's economy back moving again," said Sen. Tom Bakk (I-Cook). The Minnesota House of Representatives has not yet voted on the proposal, though it is expected to be discussed in the final weeks of session. Many other states, including all of those bordering Minnesota, have adopted the federal provision that doesn't tax PPP loans.

Lumber price impacts continue into 2021

SOURCE: NAHB

Lumber prices have nearly tripled since the emergence of COVID-19.

Framing lumber prices Aug. 2020 through Feb. 2021.

On top of the structural challenges presented by the inefficiencies and costs associated with the housing regulatory structure, lumber prices have surged to become a leading challenge for housing affordability over the past year. Industry leaders have identified a constellation of factors that have driven lumber prices to unforeseen heights. These include

building an average new single-family home to increase by more than $24,000 since midApril 2020, according to the National Association of Home Builders (NAHB) standard estimates of lumber used to build the average home. NAHB estimates the cost of the average new multifamily unit has increased by $9,000 over the same period due to the surge in lumber prices.

a seizing of supply as the COVID-19 pandemic bore down on the world and then an explosion of demand that outstripped the supply chain’s ability to keep up. Lumber prices have nearly tripled and oriented strand board (OSB) prices are up more than 250% since the emergence of COVID-19 in the second quarter of 2020. These price surges have caused the cost of

While price volatility marked the end of 2020 with reductions in lumber and OSB, a quick turn upwards has brought the prices to new heights as the industry and homeowners wait for price relief. Market watchers have begun to speculate that some price moderation could begin to emerge sometime in the second or third quarters of 2021.

State budget outlook improves The centerpiece of the Minnesota Legislature’s work is the state’s twoyear budget, which must be established by July 1 of this year. In late 2020, the state forecasted a $1.3 billion deficit. This has now swung in a positive direction, and the February budget forecast projects a $1.6 billion surplus. Bolstering the budget outlook is an improving economy and substantial federal stimulus measures that have emerged over the last two months. The improved forecast sets the stage for a budget debate between Gov. Tim Walz, the DFL-led House and GOP-led Senate. Walz’s plan includes a higher corporate tax rate that would rise from 9.8% to 10.8%. His plan also proposes the creation of a new income tax tier for single filers with incomes over $500,000 and married filers over $1 million. Walz also proposes to allow the first $350,000 on forgivable loans received through the federal Payroll Protection Program (PPP) to be taxfree. According to the Minnesota Department of Revenue, around 90% of loans were at or below this level. The Minnesota Senate GOP released its budget, which includes full conformity with the federal standard of no taxes on all forgivable PPP loans

and unemployment benefits during the pandemic. The Senate majority proposes a total tax reduction package of just under $600 million and a pledge to not raise any taxes in the budget. The legislature has a mid-May constitutional deadline to complete its work, however, recent budget impasses have led to special legislative sessions where leaders use the extra time to iron out differences.

The February budget forecast projects a $1.6 billion surplus.

The zoning bill passed out of committee and was sent to the Senate floor where it awaits further action. CONTINUED FROM PAGE 1

Senate takes first step toward addressing exclusionary zoning market does not demand stone exteriors on starter homes—local governments in PUDs do.” The Minnesota Realtors® also testified in favor of the concept stating that there is less than one month of available inventory, where a healthy market would have between four and six months of inventory. “Lack of housing inventory continues to be a serious and chronic challenge for buyers and the overall health of our housing market,” stated Paul Eger, vice president of governmental affairs for the Minnesota Realtors. City government representation had numerous testifiers argue that the bill would take away local control and would hurt existing homebuyers. “What this bill does is jeopardize residents who have already purchased homes in our community and expect similar homes to be

constructed around them consistent with the city’s comprehensive and zoning plans. To suggest this change in land use after they have already made what is likely the single biggest investment they will ever make is not transparent nor is it equitable. This is just pointing cities down the path of Minneapolis and their zoning practices,” stated Jason Wedel, city manager of Prior Lake. “All over this state you hear about people not being able to find an affordable house, that’s what we are trying to get at here,” stated Draheim in his final remarks to the committee.

The bill passed out of committee and was sent to the Senate floor where it awaits further action. The House companion, authored by Rep. Steve Elkins (D-Bloomington), has not been scheduled for a hearing.

HOUSING INDUSTRY NEWS

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MARKET REPORT

Housing market report Housing market remains hot going into spring Minnesota’s homebuilding industry continued to soar through the new year and remains strong headed into spring. Despite concerns over rising costs of labor and materials, the demand for new homes remained. The Twin Cities market in February saw a 32% increase in single-family permits year-over-year. However, home prices continue to rise across the state as the inventory of available homes for sale gets tighter. This has resulted in extremely fierce competition among potential homebuyers and has highlighted the affordability challenges across the market.

State of Minnesota

Moorhead

4,681

Duluth

Year-to-Date Single-Family Construction Select Cities

SOURCE: CITY OF MOORHEAD

Through February 2021 SOURCE: U.S. CENSUS

SOURCE: U.S. CENSUS

St. Cloud

SOURCE: CITY OF ST. CLOUD

Twin Cities

4,201

Mankato

SOURCE: U.S. CENSUS

Rochester

SOURCE: U.S. CENSUS

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

FEB. 2021

$314,000 +11.5%

$282,000

FEB. 2020

+10.6%

$281,500

FEB. 2020

$255,000

SOURCE: DEED

Y-Y Change

2020

$281,500

$255,000

Twin Cities Median Sales Price

Minnesota Median Sales Price

SOURCE: MINNEAPOLIS REALTORS

SOURCE: MINNESOTA REALTORS

Twin Cities Construction Employment Past 5 Months

United States

West - 83

South - 76

SOURCE: DEED

Midwest - 79

Northeast - 81

Regional Remodeling Market Indices, 2020 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.

Minnesota Construction Employment Past 5 Months

HOUSING INDUSTRY NEWS

Employment Update Minnesota’s unemployment rate fell to 4.3% in February, according to the Minnesota Department of Employment and Economic Development (DEED). This is compared to the January unemployment rate of 4.5%. The national unemployment rate also saw a decrease from 6.8% in January to 6.6% in February. Construction in Minnesota recorded an 8% employment decline, or 8,788 jobs, since February 2020.

Minnesota housing inventory continues to plunge in 2021, while closed sales grow The number of homes for sale in Minnesota fell by the sharpest decline the state has ever seen in February falling 51% from 2020, according to the Minnesota Realtors®. Statewide there were only 7,460 homes for sale in February and the total time on the market is down to just 47 days statewide, according to the Minnesota Realtors.

The unbalanced housing market is of course pushing sales prices higher and higher, up 10.6% to $282,000 in February. “In a heated market where there isn’t even a month of supply available, many sellers are in the enviable position of sometimes getting offers that exceed the list price,” said Chris Galler, CEO of the

Inventory of Homes for Sale

SOURCE: MINNESOTA REALTORS®

Homes for sale in Minnesota fell by the sharpest decline the state has ever seen in February.

Closed Home Sales Across Minnesota by Region NO. REGION YOY% CHANGE 6W Upper MN Valley 100.0% 2 Headwaters 51.4% 4 West Central 46.7% 1 Northwest 41.7% 6 Southwest 26.6% 5 North Central 26.7% 7W Central 15.3% 7E East Central 13.1% MN Average 58.0% 9 South Central 4.0% 11 7-County Twin Cities 2.7% 3 Arrowhead 0.0% 6E Southwest central -2.7% 10 Southeast -3.7% Closed sales were up by double-digits across much of the state.

Minnesota Realtors. “As we come into the spring selling season, more inventory will come online. But as long as interest rates remain favorable, buyers will come out in even greater numbers.” The impact of the global pandemic can be seen across the state’s housing markets. With more people working remotely and more people looking for vacation homes, many areas in the state saw double-digit gains in the number of closed sales in February. “A year into the pandemic, changes in work and lifestyle continue to fuel the desire for more space. The dropping rate of

SOURCE: MINNESOTA REALTORS®

COVID infections in Minnesota and the increasing number of vaccinated individuals also will likely impact consumer behavior,” said Galler. “So, although we’re anticipating another record-breaking sales season, it is likely that supply will run short of the overwhelming demand.” According to the Minneapolis Area REALTORS®, the inventory of homes on the market in the Twin Cities dropped by 40% in February. That amounts to just .8 months of supply of homes. A balanced market is 4-6 months of supply of homes for sale. Statewide there is .9 months of supply of homes for sale.

HOUSING INDUSTRY NEWS

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MARKET REPORT

Mortgage rate outlook The COVID-19 pandemic and the subsequent downturn throughout the national and global economies prompted an array of policies in response. The Federal Reserve, for example, stepped in to preempt possible damage across multiple economic sectors. Interest rates were slashed to near-zero levels last spring in an effort to stabilize the rocky stock market and the overall economy. As a result, mortgage interest rates dropped significantly, and potential homebuyers flooded the market looking to lock in these record-low rates. This demand for housing far outpaced the supply of available homes for sale and resulted in intense competition. As additional stimulus payments are distributed and more doses of the vaccine are administered, the economy is beginning to make strides to recovery. Interest rates have begun to rise again for the first time since the pandemic began. Since the new year, mortgage interest rates have jumped half of a percentage point. Freddie Mac reported that in late March, a 30-year mortgage reached its highest rate pre-COVID-19 at 3.17%. Many are looking to this trend as a pressure release valve to cool demand across all sectors of the housing market. In the weeks and months ahead, interest rates are expected to remain on this upward trajectory. However, this growth is expected to be slow and rates, overall, will remain low for the next 12 to 18 months. While these rate increases will dampen some of the demand, there is continued concern that insatiable demand will disproportionally remain on the lower end of the market and largely affect first-time homebuyers and people of color. Strong affordability issues re- Mortgage interest rates have jumped half of a percentage point since Jan. 1. main within these groups.

Despite layoffs occurring in other sectors of the economy, skilled construction workers are getting harder and more expensive to hire.

Minnesota faces construction labor shortage Last spring and summer, COVID-19 left a wake of widespread economic disruptions, including record-high unemployment rates. According to the Minnesota Department of Employment and Economic Development (DEED), Minnesota reached its highest COVID-induced unemployment rate in May 2020 at 11.1%. Since then, this rate has slowly but surely begun to descend. Minnesota’s unemployment rate in February came in just above 4.5%. The national unemployment rate has also recovered from its peak of 14.4% in April 2020 to 6.6% in February. Some industries are faring better than others in terms of economic recovery. “We are moving in

the right direction, but we still have a lot of runway for job growth,” said DEED Commissioner Steve Grove. One of the areas that still is looking to recover its job losses is Minnesota’s construction industry. Despite layoffs occurring in other sectors of the economy, skilled construction workers are getting harder and more expensive to hire. Construction was down 8,788 jobs, or 8%, from last year. Specifically, residential construction saw a 1.2% loss of workers since February 2020. Nationally, the U.S. Bureau of Labor Statistics estimates that construction firms will need to hire 430,000 more employees than they did last year to make up for the loss in labor. Despite a boom in homebuilding demand throughout last summer and fall, factors like record-high lumber prices and supply chain problems have added thousands to the cost of a new home. Issues with labor shortages are only causing more of a squeeze and more affordability issues across all sectors of the housing market.

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HOUSING INDUSTRY NEWS

Fed survey results Minneapolis Fed survey finds pandemic continues to impact the housing market Since the start of the COVID-19 pandemic, the Federal Reserve Bank of Minneapolis has been conducting a series of surveys to gauge sentiment among various economic sectors. The most recent survey conducted among construction firms in Minnesota and the surrounding area covered various topics such as impacts of material costs, labor issues and project delays. In total, this latest survey collected 503 responses from several Midwestern states and other geographical areas. However, a majority of these respondents are concentrated in the Minneapolis-St. Paul metropolitan area. Overall, respondents shared mixed feelings about the current economic conditions facing the construction industry but indicated that the industry was showing signs of improvement from last spring. One area that is being watched throughout the industry is material and labor costs. Lumber and other materials experienced supply chain disruptions resulting in increased prices. The National Association

of Home Builders estimates that these increased costs can add up to $24,000 to the price of a new single-family home. According to the Minneapolis Fed, 70% of respondents indicated that they had experienced cost increases of at least 5% over the last year, and 35% of respondents predicted their costs would increase 10% or higher over the next year. Additionally, labor constraints continue to be a worry in the construction industry. Nearly 35% of respondents indicated the present labor availability as “very tight.” There is also a growing concern over the wage pressure surrounding hiring skilled workers. Just under 30% of Twin Cities respondents said that since the start of the pandemic, skilled trade wages have increased at least 3%. The impacts of COVID-19 can still be seen and felt in the construction industry. However, indicators like increased RFPs and strong hiring expectations for next year demonstrate that the industry is on the road to recovery.

Nearly 35% of respondents indicated the present labor availability as “very tight.”

HOUSING INDUSTRY NEWS

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INDUSTRY IN ACTION

Minnesota housing industry joins forces with REALTORS® to show support at the Capitol While things at the Capitol look much different this year, Housing First Minnesota and the Minnesota Realtors® pivoted to a virtual format to hold their annual Housing Day at the Capitol event. Housing Day at the Capitol connects legislators with industry faces, voices and personal stories to help lawmakers understand each issue. During this year’s event, virtual meetings were held with nearly 80% of the state legislature, with over 400 members of both associations registered to attend. “The goal of raising awareness with legislators of the issues facing the housing industry remains key for the future of homeownership and housing in Minnesota,” said David Siegel, executive director of Housing First Minnesota. “During a legislative session where it is even more difficult for lawmakers to meet with their constituents, we found it especially important to have these conversations. Once

again our partnership with the Minnesota Realtors helped to make a powerful show of support for housing and homeownership at the Capitol.” Having a safe home has become even more important during the global pandemic. The need for homeownership opportunities and housing options for all families has elevated to a new level at the Capitol. This year’s event will help support Housing

First Minnesota’s advocacy team as they continue to support legislation that would remove barriers to homeownership in the state while fighting legislation that would harm homeownership.

CAPITOL SPONSORS

ADVOCATE SPONSORS During this year’s Housing Day at the Capitol, virtual meetings were held with nearly 80% of the state legislature.

All, Inc.

Scherer Bros. Lumber Co.

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