Frey's Fantasy World: The Luxury-Funded Affordable Units that Never Were

Proponents of luxury condos claim that these steel-and-glass towers for wealthy people will bring good things to the rest of us. Luxury condos generate tax revenue that will then fund affordable housing. The increase in supply of rental units will ease the demand and cause rents to fall.

Generic luxe condo development.

Yet, these things never seem to happen. New buildings have been going up around the city of Minneapolis for years, and we still have an affordable housing crisis. This magical tax-funded affordable housing never goes up. Long-time low-income residents get displaced from the neighborhoods they call home. New rental units are snatched up as quickly as they go online, but there’s no evidence that this helps people who can’t afford market-rate housing. How can we account for the disconnect between economic theories and what actually happens when these buildings go up?

During a mayoral candidate forum at Shiloh Temple in May 2017, Jacob Frey extolled the virtues of luxury buildings, claiming that they would make our city flush with cash that could then be spent to put up affordable housing. Nekima Levy-Armstrong replied, “With all due respect, Jacob, I think you’re living in a fantasy world.”

Dr. Levy-Armstrong isn’t the only one to suggest that these claims may be the stuff of dreams. While it’s true that new developments do add to the property tax base, they also increase demand for services. To pay for these additional services, tax levies must increase accordingly. Additionally, according to an anonymous source, there is usually no shortage of backlogged projects in need of funding, so there is a real policy incentive to increase the levies with consideration of the increased tax base.

Simply put, in a fantasy world, an increased tax base would spread the levies further and bring everyone’s taxes down. In a fantasy world, the larger tax base would yield a windfall that could be spent on affordable housing. But here in Minneapolis, property taxes have gone up steadily each year, leaving many middle class homeowners feeling squeezed and wondering what they are getting for their money. It would seem that the new developments don’t alleviate the city’s burden, they add to it.

In any high school economics class, you can learn about “the invisible hand,” or the mythical force that magically brings free markets into a state of equilibrium and causes everything to work out perfectly for everyone. It is worth noting that the “invisible hand” theory was put forth by Adam Smith, the “father” of modern economics, who also said this: “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” A statement which becomes more evident with each passing day.

In the real world, deregulating housing markets is a lot like opening the paddock gate and assuming that none of your horses will run away. It’s trickle-down economics as applied to housing.

In fact, there are other cities in which deregulation caused the exact opposite of an increase in affordable housing. In an article titled “When Affordable Housing Meets Free-Market Fantasy,” published in Dissent last November, activist Zelda Bronstein writes:

“[A]s planner and University of Southern California faculty member Murtaza Baxamusa has written, “regulatory hurdles are a bogeyman for the housing crunch.” Baxamusa backs up this claim with evidence from his own city of San Diego, where, downtown, “there is virtually no NIMBYism, and development permitting is mostly by right,” yet “private developers are building fewer units than the zoning allows, and avoiding building affordable housing altogether, despite a tower of regulatory incentives.” More affordable housing is “being demolished than [being] built.” Since 2015, the unsheltered homeless population downtown has spiked 60 percent.”

At least San Diego has a temperate climate with lots of sunshine. A 60 percent spike in homelessness in Minneapolis would prove that we are callous and cruel. If we want to solve the affordable housing crisis, the first thing we need to do is preserve existing affordable housing, not knock it down in favor of some new project that will in all likelihood be too expensive for low- and middle-income Minneapolitans to afford.

We need to acknowledge that the law of supply and demand won’t solve all of our problems. When renters are competing for $900-per-month apartments, building new units that go for $1200 per month does not ease demand for the cheaper units. It might, if there were evidence that people in $900-per-month apartments were willing to move to the $1200-per-month apartments.

But that’s not what’s happening in Minneapolis. Rents are rising while wages are too inelastic to absorb the increases. A Star Tribune article from November 2017 states, “the Twin Cities is one of the tightest rental markets in the country...with rent growth outpacing expected wage and income growth.” In 2016, 75% of people earning $20,000 and $34,000 per year were considered “cost-burdened” by rent. People worry that they won’t be able to stay in the apartments they are in now, let alone move to a more expensive one. Unless new construction is expressly for mixed or low-income renters, it won’t help anything but a developer’s bottom line.

The economic arguments that politicians and pundits use to justify pro-big development policies can seem like they make sense, but you only have to dig into them a little bit to see that they’re a canard as slippery as duck confit.

Contrary to what Mayor Frey and others would have you believe, affordable housing will never just magically spring up from a pile of taxpayer money. We need our politicians demonstrate a commitment to preserving existing affordable housing and protecting low -and middle income people. And if they fail, it’s our job to remind them who they work for. Next time you hear someone make an economic argument for luxury apartments, hit them with this quote from Adam Smith: “No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable.”

1 Buchta, Jim, Twin Cities apartment market stays hot, driving up rents, Star Tribune, August 2017

2 Redmond, Tim, A leading voice on urban planning in CA debunks housing trickle-down, 48Hills, August 2015

3 Buchta, Jim, Apartments keep increasing and so do rents in the Twin Cities, Star Tribune, November 2017

4 Kaul, Greta, Is there — or is there not — an affordable housing crisis in the Twin Cities? MinnPost, October 2017

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