When Apartment Dwellers Subsidize Suburban Homeowners
The dirty little secret which nearly every municipal government in America must grapple with is that single-family homes are usually a money loser from the local government’s point of view. Especially if they’re on larger lots in automobile-oriented neighborhoods, the services and infrastructure they demand will likely cost more, in the long run, than the tax revenue these properties bring in.
(Our friends at geoanalytics firm Urban3 have been pioneers in demonstrating this fact, in such places as Lafayette, Louisiana and, more recently, Eugene, Oregon—where a startling graph reveals that the 80% or so of the land within Eugene’s borders that is populated by single-family residences is essentially all revenue net-negative.)
Homes in Edina, Minnesota’s Country Club neighborhood.
Elected officials must often do a difficult rhetorical dance, because if they’ve spent time seriously contemplating their budget outlook, they understand this fact. And yet they must speak to a citizenry many of whom not only live in single-family homes, but ascribe a huge amount of cultural value to this living arrangement. In a place like Edina, Minnesota, the whole cultural identity is built around an archetype of the suburban Good Life. Detached home, big garage, big yard, quiet and leafy neighborhood full of prosperous families.
Edina is an interesting case because it’s emphatically not a poster child for suburban decline and insolvency. A first-ring suburb of Minneapolis, Edina has been known for seven decades as a posh address for the Twin Cities elite. This reputation precedes it even outside the Twin Cities region—largely thanks to The Mighty Ducks movies, which popularized the label “cake eaters” for the suburb’s (presumedly) pampered children.
And yet, even wealthy Edina is not immune to budget worries, for a simple reason: automobile-oriented, suburban style development is really expensive. A remarkable clip from Edina Mayor Jim Hovland’s recent State of the Community Address reveals the gambit the city is adopting to meet this reality.
Here’s the clip (it should automatically play from the relevant section, which starts at 1:06:51).
Here’s the transcript of the relevant section (boldface emphasis mine):
[W]e’ve got to constantly be thinking about the benefits of some height and density in some selected small parts of our community that don’t affect single-family living. As I said, preserve what’s great about Edina, but make sure that we’re helping grow the community and help pay for what we all own together.
We own this town together: that’s how I look at it. And it’s our responsibility to take care of it, just like you take care of your house. And so, when the plumbing’s got to be fixed, we’ve got to fix the plumbing. When the roof needs to be fixed, we’ve got to fix the roof.
If we don’t do that, we don’t maintain our double / triple-A bond rating from Moody’s and Standard and Poor’s. It’s that simple. If you go into deferred maintenance mode, you’re in trouble with your bond rating and that means you’re borrowing money at a higher rate and putting it on the backs of your residents. We’re trying to keep those rates as low as we can.
So what does height and density do for you in some circumstances? If we’re doing it in 7 percent of our land area, out in the Southdale district primarily, how does that help all of us that are living in single-family homes? Well, here’s the way it helps.
The average single-family home—the median priced home in Edina, $550,000, might generate 5 dollars and 50 cents a square foot in property tax. A multifamily dwelling out in the Southdale district with some height to it might generate at least twice or more than twice that amount per square foot. I view that as a subsidy for single-family homeownership, and I also view it as a way of helping us pay for everything we own together, without putting the burden on all the single-family homeowners.”
On one level, this appears to be a case of Mayor Hovland saying the quiet part out loud: that Edina’s whole budgetary strategy is premised on having the taxes paid by (generally younger and less wealthy) renters subsidize the lifestyle of (generally older and wealthier) homeowners.
And yet this isn’t necessarily a bad deal for the renters involved: they get to live in Edina, which is a pretty nice place, without necessarily being able to afford the ante of a half-million-dollar home. They pay less in taxes as individuals than most homeowners, even as their apartment buildings—because of their higher density—generate much more in taxes per acre of land.
I should note that we’ve spoken positively of Hovland before—he’s someone who seems committed to good governance and transparency and not dodging the tough questions. So what I take from this clip—granting all benefit of the doubt—is not that Hovland believes Edina’s well-off homeowners deserve a subsidy from apartment dwellers, but rather that he knows exactly who his audience is.
A slide from Mayor Hovland’s presentation.
The big outstanding question to me, rather, is whether Edina’s gambit to keep its lifestyle intact and its bond rating shipshape is actually viable. The city could have followed the path being charted by neighboring Minneapolis, and open up all of its neighborhoods to incremental development in the form of missing middle housing like triplexes. This could generate a virtuous cycle of productive growth—albeit at the expense of the city’s idyllic unchanging self-image. Edina has shown no interest in doing that.
Instead, Edina has chosen to open up roughly 7% of the city—one little corner—to huge-scale redevelopment, in order to preserve the other 93% in amber and avoid subjecting its homeowners to fiscal pain or tough choices. And it’s not even clear that homeowners are on board with this bargain: mid- and high-rise development around the aging Southdale Mall has been consistently controversial, and at least one prominent development proposal has gone down in flames amid citizen outrage over traffic and perceived overgrowth.
This is a deeply fragile approach to growth, dependent on—and thus granting disproportionate power and influence to—a small number of large-scale private developers to shape the city’s fiscal future and its land-use vision. And also dependent on the rest of the city maintaining the elite reputation among Twin Cities residential enclaves that it has so far managed to hold on to, even as other inner-ring suburbs have undergone socioeconomic decline.
Hovland actually boasts in his speech that the city has of late denied permission to build more housing units than it has approved, which he chalks up to Edina’s “judiciousness” and high expectations for managed growth. But at some point, Edina needs to face up to fiscal reality. Courting carefully-curated luxury development in one tiny pocket of your city in order to pay the bills for the other 93% is not a foolproof long-term strategy. It’s more of a tightrope act for the city’s leaders.
But hey, Edina exceptionalism—if there’s any city whose residents believe they ought to have their cake and eat it too, it may be this one.
Daniel Herriges has been a regular contributor to Strong Towns since 2015 and is a founding member of the Strong Towns movement. He is the co-author of Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis, with Charles Marohn. Daniel now works as the Policy Director at the Parking Reform Network, an organization which seeks to accelerate the reform of harmful parking policies by educating the public about these policies and serving as a connecting hub for advocates and policy makers. Daniel’s work reflects a lifelong fascination with cities and how they work. When he’s not perusing maps (for work or pleasure), he can be found exploring out-of-the-way neighborhoods on foot or bicycle. Daniel has lived in Northern California and Southwest Florida, and he now resides back in his hometown of St. Paul, Minnesota, along with his wife and two children. Daniel has a Masters in Urban and Regional Planning from the University of Minnesota.