Minneapolis-St. Paul Residential Real Estate Market Update 1Q-2018 For the Governor’s Housing Task Force 1Q-2018 Ask Linda for update – with affiliates Presented by David Arbit DavidA@MPLSrealtor.com

Crisis in Seller Confidence – “Nowhere to go”

Buyers highly motivated by rising rents, job/wage growth, low interest rates But highly frustrated by lack of options, especially at affordable price points

2017 Closed Sales

What’s holding back new construction? 4 “L”s Lots Labor Lending Lumber And the 1 R - Regulation Developers point to park dedication fees, stormwater retention ponds and façade mandates, but home buyers want to live near parks and in homes with nice curb appeal that don’t flood.

Market failure? Why? Failures: Reasons: The 4 “L”s 1) Inadequate inventory <$250K 2) Declining affordability (+/-) 3) Spatial/Product mismatch Reasons: The 4 “L”s 1) Rising Land/lot prices 2) Rising Labor costs 3) Construction Lending shortfall 4) Rising Lumber (building material) costs

Any fixes? We desperately need additional housing options! Especially <$250K and Workforce Housing Improved public-private partnerships and increased awareness of resources Preserving NOAH is cheapest & least disruptive to private market Homebuyer savings accounts Job retraining to prepare workers to succeed in new economy Geography-based tax credits/incentives to add housing density near job and transit/transportation nodes and corridors Plenty of building in Blaine, Lakeville, Ham Lake, Rosemount but not enough jobs/businesses nearby Encourage non-traditional housing production for multi-generational families Mpls ADU ordinance is helpful and could be a model for other areas Regulatory relief and reform (permitting, fees, impact assessments) and improving speed/delivery of product to market Easing of Statute of Limitations on material building defects (timeline/scope) Municipal disposition and infill policies – release the inventory! Minimum lot size requirements (1 house/acre vs. 4 homes/acre) Anything that encourages “workforce housing” production

Thank you! Q&A ? David Arbit Director of Research + Economics DavidA@MPLSrealtor.com