Housing lessons from Minneapolis

Midwestern cities can control housing costs too

Before we get started, a reminder: Mark your calendars for another upcoming City That Works event. We’ll be at Uptown Taproom on November 5th, from 5:30-7:30pm, for a conversation with Evanston Mayor and IL-09 Congressional Candidate Daniel Biss. You can RSVP here.

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Daniel Koslovsky has previously written for the University of Chicago’s Becker Friedman Institute, Streetsblog Chicago, and Crain’s Chicago Business.

In 2024, Chicago was dead last among major metro areas in new home construction.This is a continuation of a problematic trend that started following the Great Recession. The city’s anemic growth in housing supply is the primary reason average rent in Chicago has increased nearly 50% in the last decade and 45% of renters are now cost-burdened. Reforms advanced by City Council this year — Green Social Housing, ADU legalization, and eliminating parking minimums — will be useful in addressing housing costs, but they are not sufficient to solve the problem.¹

If the changes made by Chicago policymakers this year aren’t enough to make housing widely affordable, then what is? To answer that question we can look at other cities which *have* started to fix this problem. Previously, A City That Works looked at Austin, which has realized a decline in housing costs of over 15% the last few years thanks to a building boom.

But Austin isn’t the only city that has kept housing costs in check. Closer to home, Minneapolis has also made substantial progress on housing affordability. The city’s housing costs used to increase rapidly and at a pace matching the rest of the country. But since 2020,he average rent for the city has grown at an annual rate of just 1.8%, well below the national rate and the rate of inflation, implying a decrease in housing costs in real terms. Given Minneapolis’ success in taming what was an out of control housing market, it’s worth looking into how our Midwestern neighbor pulled it off.

Minneapolis’ 2040 Plan and Its Impact

Minneapolis’ path to a housing affordability crisis closely resembles Chicago’s. In the wake of the Great Recession, housing construction in the city also ground to a halt. From 2010 to 2017, just 64,000 new homes were built in Minneapolis, while it added 83,000 new households. This pushed the city’s vacancy rate below 5%, the minimum level needed to ensure the cost of rent doesn’t outpace inflation.

In response, city leaders developed and passed the Minneapolis 2040 Plan, which included a suite of reforms aimed at making homes more affordable. The most notable was the change to allow three homes by-right on any residential land, a big change for a city where 70% of residential parcels had previously been restricted to only single family use. Additional reforms included:

• Lifting zoning restrictions to allow three to six story buildings in commercial corridors

• Allowing ten to thirty story buildings in lots adjacent to light rail and bus rapid transit stations by-right

• Implementing height minimums in parts of downtown and along major transit corridors.

• Eliminating parking minimums for new developments citywide

Minneapolis’ major policy changes have garnered attention from academics seeking to measure its impact and implications for other cities with rising housing costs. A 2021 study from Iowa State found that the Minneapolis 2040 Plan actually increased home prices by 3%-5% in the city. In contrast, an observational study released by Pew Research Center in 2024 attributed the Minneapolis 2040 Plan with improved housing affordability. Finally, researchers at the Federal Reserve Bank of Minneapolis found last year that there has yet to be any significant change in housing costs one way or the other.

While previous research painted a murky picture on the Minneapolis 2040 Plan’s impact, a new study released this summer provides the strongest evidence yet of its success. A pair of economists from Middlebury College found that five years after the plan’s reforms were implemented both buyers and renters spent up to 34% less on average than they would have without the policy change. For context, if Chicago rents were 34% lower today, the average renter would save more than $700/month.

This study is the most robust examination of the Minneapolis 2040 Plan to date. It uses a synthetic control model to compare existing rent and home prices with prices in the counterfactual world if the plan had not been implemented. Synthetic control models create a “synthetic twin” of the treated unit (in this case Minneapolis) by combining and weighting data from comparison units (in this case other cities) in a way that best mirrors its behavior before treatment. In scenarios like this where there is only one jurisdiction “treated” with a policy change and no clean comparison jurisdiction, synthetic control models are considered the preferred method for causal inference. In comparison, difference-in-difference models like the one used in the Iowa State study, are more susceptible to confounding factors.² The Fed study also utilizes a synthetic control model, but its data is limited through 2022, whereas the authors of this most recent study are able to use data up to January 2025, providing their model with more statistical power.

Changing Demand By Changing Expectations

Perhaps unexpectedly, the authors find that the decrease in housing costs was the result of changes in demand, not supply. The traditional argument for zoning reform is that by lifting the ban on where multifamily housing can be located, more homes are built, increasing the supply and driving down the price.

However, there has yet to be a construction boom in Minneapolis. Since the start of 2023, there hasn’t been a single quarter in which the city issued more than 500 new building permits, a threshold that was consistently surpassed prior to 2020. In fact, the average quarter in 2024 barely cracked 100 new building permits issued. A major reason for the construction slowdown is a legal challenge to the Minneapolis 2040 Plan, which halted its implementation from September 2023 to May 2024 and infused the construction market with uncertainty, making developers wary of investment.³

If there is no change in supply, then the drop in price must be the result of a change in demand. Indeed, the authors find an increase in the number of days houses are on the market, an increase in housing inventory, and an increase in the list-to-sale ratio after implementation of the plan, all indicators of softened demand in the market.

One possible theory for the change in demand is that the Minneapolis 2040 Plan made the city less desirable to live in because of concerns over density, congestion, and neighborhood change. Due to the length of time it takes this change in demand to manifest into residential flight, the data are not yet available for this explanation to be ruled out. But it is contradicted by a wealth of evidence showing that areas which are upzoned typically become more desirable, not less.

Instead, the authors posit that the policy changes caused people to expect lower prices for the future cost of housing in anticipation of more of it being built. Raised supply expectations and lowered price expectations reduced the urgency of many people searching for a new place to live. Rather than feeling like they had to secure housing immediately from a shrinking supply, consumers felt comfortable waiting in anticipation of more affordable options being available in the future. In short, zoning reform switched housing consumers’ mindset from one of scarcity to one of abundance.

A similar phenomenon was also documented in Auckland when they implemented large-scale upzoning. Researchers found that a significant decrease in housing costs occurred after the public release of the proposed zoning changes, three years before the policy change went into effect. These findings are also consistent with conventional economic theory, in which consumers are forward-looking and, thus, take into account policy changes that have yet to occur.⁴

Overcoming Collective Inaction

Beyond understanding the what of the Minneapolis 2040 Plan, it’s also important to understand the how.

Ambitious zoning reform is notoriously difficult to achieve at the municipal level. It illustrates a classic collective action problem: while elected officials may recognize the shared goal of lowering housing costs, their individual incentives get in the way of them achieving it. Concentrated constituents worried about “neighborhood character” and other related concerns can pressure city council members into opposing reforms that would provide relief for family budgets citywide.

Minneapolis’ housing affordability advocates were able to overcome the disadvantage they faced in the political economy through coalition building, community outreach, and good timing.

To build broad support, proponents of the Minneapolis 2040 Plan emphasized the interconnection between housing and other progressive priorities like climate change, desegregation, and labor (something previously noted by A City That Works as well). They also made key concessions, such as allowing for an inclusionary zoning provision, settling for three-flats by right instead of four-flats, and updating built-form regulations so that two and three-family dwellings would comply with the existing physical character of neighborhoods previously zoned for single families. This coalitional approach allowed them to align diverse interest groups such as unions, environmental activists, racial justice advocates, and tenants rights organizations behind the plan. These groups then made concerted efforts to educate their rank-and-file members, and the communities in which they lived, on the reforms.

Timing was also a key factor in the plan’s successful passage. Housing affordability advocates had been laying the groundwork for major reform for years. They helped elect allies to the city council and mayor’s office, who then passed ordinances that were smaller steps towards increasing the supply. Incremental progress helped acclimatize the public to larger reforms by showing that the nightmare scenarios described by opponents wouldn’t come to pass. Then, when it came time to update the city’s comprehensive planning document in 2018, advocates were able to take advantage of the window of opportunity it presented.

What it Means for Chicago

Policywise, the counterintuitive result in the most recent study out of Minneapolis has two key implications for Chicago. First, zoning reform’s impacts can be felt more quickly than the time necessary to actually build new homes. In Minneapolis, the authors found a meaningful impact on housing costs just a year after the new zoning went into effect. Second, the study belies the fears of zoning reform’s opponents who think it would destroy neighborhood character through a frenzy of overnight development. This study shows that if Chicago were to allow homes of all shapes and sizes tomorrow, the whole city would not turn into River North the next day.

There are convincing reasons to believe that similar reforms would have equally beneficial effects in Chicago. Currently, 41% of Chicago is zoned for single family homes or two-flats only, and only 12% of land is zoned for three or four-flats by right. This hyper-restrictive zoning severely limits the prospect of housing supply ever catching up with demand. Moreover, zoning reform’s effects are amplified when paired with other reforms like the ones included in the Minneapolis 2040 Plan. Given that Chicago just effectively eliminated its parking requirements for new developments and allowed wards to opt-in to legalizing ADUs, it is now ripe to reap the extra benefits from removing zoning restrictions.

The host of housing reforms passed this year also bode well for the politics of making Minneapolis-style reform a reality in Chicago. They demonstrate the growing influence of YIMBY-minded alders in City Council. The success of these reforms may also help build confidence among the public for supply-side policies and make the policy leap to widespread upzoning feel smaller.

Despite these advantages, there are major political headwinds that must be overcome to achieve comprehensive zoning reform in Chicago that were not present in Minneapolis. The first is the balkanized nature of Chicago’s city council. Having fifty wards, instead of just thirteen as they do in Minneapolis, incentivizes alders to be more concerned with hyper-local issues and less concerned with citywide problems. This structure also reinforces the scourge of aldermanic prerogative, an informal lever of power for alders that they are reluctant to weaken by loosening zoning restrictions.

Another structural disadvantage Chicago zoning reform advocates face is that there is no ”focusing event” in the municipal governance calendar similar to what Minneapolis had with their decennial planning document. Focusing events are important in policymaking because they can hone people, energy, and resources towards specific policy failures that need to be addressed. They can be created through proactive governance, as is done in the Twin Cities, or through sudden crises that demand the attention of policymakers. The former is obviously preferable to the latter, as it provides the opportunity for important reforms to be achieved without incurring the human cost of an emergency. Chicago is lacking in this type of forward-thinking, comprehensive governance, not only for housing and zoning but more broadly, as can be observed by the trio of fiscal crises facing the city, CPS, and RTA. Without a scheduled focusing event for policymakers to consider the housing future of Chicago, it will be an uphill battle for advocates to achieve something similar in scale to the Minneapolis 2040 Plan, at least until we find ourselves in a housing crisis similarly as dire as New York, Los Angeles, or San Francisco.

City leaders should not let these obstacles deter them from pursuing zoning reforms. The legislative breakthroughs of 2025 prove that progress is possible. And the alternative of letting the price of housing push out all but the city’s wealthiest residents, as it has in many of our peer cities, is unacceptable. With housing costs now at the forefront of Chicago’s agenda, new evidence shows the path forward is clear: we need to look no further than Minneapolis for a solution that would provide immediate relief. For any policymaker serious about addressing the city’s housing crisis, zoning reform must be at the center for the agenda.

1. While Green Social Housing is an innovative and promising concept for adding affordable housing in the long-term, the city’s own estimates suggest it will only produce 400 new homes a year at first. ADUs provide much needed flexible housing options for Chicagoans, but they also lack the scale to provide a comprehensive solution. And while there is strong evidence for the effectiveness of eliminating parking minimums, which the city essentially did this summer, its impact will be blunted as long as large swaths of the city have restrictive zoning that limit plots of land to one or two homes.

2. Difference-in-differences models rely on the assumption that treated and untreated units would have followed parallel trends over time — an assumption that’s hard to justify when only one unit receives the treatment and there isn’t a suitably comparable control unit.

3. Note that this creates the possibility that the zoning reforms could do even more good once more supply comes online - if of course that new supply exceeds the expectations that buyers currently have. Basically, prices now reflect the expectation of additional supply. If that supply is held up in the short term, but then over delivers in the long term (once the regulatory uncertainty is resolved), things could look even better for the Minneapolis housing market in a few years.

4. One implication to note about this change in supply expectations hypothesis is that its effects won’t be amplified when the expected supply eventually does come online because that supply is already baked into consumer expectations. If realized supply were to exceed expected supply then prices would drop further, however, if realized supply falls short of expected supply then we would see some of the housing affordability gains reversed.