Who should pay for the roads and related costs of new housing projects: the developer who builds them, or existing homeowners and property taxpayers? Embedded in the question is the overarching issue of housing affordability and, with it, the cost of growth. Does growth pay for itself?
Two years ago, Woodbury developer Dennis Harstad sued when the city of Woodbury wanted $1.3 million in development fees to pay for city road improvements made necessary by Harstad’s project. Woodbury’s demands seemed reasonable — more people, more cars, more pressure on local roadways.
Logically, shouldn’t developers pay up front when it’s their development project that creates the need and the demand for more roads and city services? Not so, said the Minnesota State Supreme Court. Cities lack clear statutory authority to levy such fees. The Legislature would have to amend state statute granting cities that authority.
A lot of money is at stake. Before Harstad, the city of Prior Lake was charging developers $6,549 per buildable acre for road infrastructure. With 3,775 acres of buildable land, that’s a $25 million revenue loss to the city that will fall on current taxpayers unless the Legislature grants such statutory authority to Prior Lake and all growing communities.
It’s a question of fairness. If it’s a developer’s project and the developer profits from the project, should the developer keep the profits while the community’s costs are socialized among existing homeowners, businesses and taxpayers? Is it corporate welfare for developers and higher taxes for everyone else?
That’s why state Sen. Eric Pratt, R-Prior Lake, and Rep. Brad Tabke, DFL-Shakopee, introduced legislation giving cities the authority to levy such fees. It’s legislation that’s supported by the League of Minnesota Cities and other communities, notably Dayton, Shakopee, Savage, Jordan, Belle Plaine, New Prague and Elko New Market.
Developers have a different view and have the legislation in their sights. Enter the Builder’s Association of the Twin Cities, also known as Housing First Minnesota, a developer trade association and lobbying group.
In 2018, BATC created the Housing Affordability Institute, which markets itself as a friend of the homebuyer and affordable housing. It argues that municipal fees and regulations drive up housing costs and make it impossible to build a single-family home in the Twin Cities for less than $375,000.
Not that many years ago, a simple single-family home with three bedrooms and two baths could be had for $150,000 to 200,000. Of course, it wasn’t 4,000 square feet, nor did it have a three-car garage and sit on an acre lot on a cul-de-sac in a project with an upscale name. Housing costs are grossly inflated, but how much of it is driven by developers and land owner speculation? Expensive homes on big lots mean more profits for developers and landowners. That’s why they build them.
Comes the question: Is the Housing Affordability Institute a friend of the homebuyer and affordable housing, or is it about fattening developer profits and sticking the costs to current residents? In the January-February edition of its journal, Minnesota Cities, the city league wrote: “The League believes that BATC’s work is financially motivated and that BATC is using cities as scapegoats for increases in costs that affect housing affordability.”
The future of the Pratt-Tabke legislation is murky. It’s unknown if it will make its way in the special session set for June 12. Meanwhile, Republican Sen. Rich Draheim of Madison Lake has introduced six bills that would actually take away local control of the development process.
Development doesn’t pay for itself. Nor should businesses or retired homeowners or young families get stuck with the costs of development, particularly in a COVID economy with income inequality, rising unemployment and increasing debt. It’s said we live in a new Gilded Age. A better term might the Age of Inequity — an absence of simple fairness that puts greed before the common good.
Development should pay for itself. Taxpayers shouldn’t subsidize McMansions. The legislature should pass Pratt-Tabke, but, more than that, a compromise is needed between developers and cities. To get there we need more information, an objective study of housing affordability and development costs — what drives them and what policy and regulatory changes are needed in this changing economy.
It’s a job for the Legislature and the Met Council, whose current policies take heavy criticism for driving up costs.
Otherwise, it’s a standoff with taxpayer opposition and cities declaring moratoriums on all future projects. That’s a non-starter for the future of the region.