Minneapolis City Council officials say they are determined to see more affordable housing available across the city and want developers to build for the future with that goal in mind.

Under the Minneapolis 2040 plan, developers will have to set aside specific numbers of affordable or deeply affordable units to create mixed-income communities. But building developers say the mandate could be costly for them and even cause them to forgo building in Minneapolis altogether.

City officials say "inclusionary zoning" with mixed-income families living in affordable units will work in tandem with the Minneapolis 2040 plan of creating more housing in denser parts of the city.

While the idea of mixed-income units is something the City Council wants, developers say this policy would make it harder for them to get loans from banks if they cannot guarantee they'll make enough money back on the buildings.

Steve Cramer, president and CEO of the Minneapolis Downtown Council, said the city's inclusionary zoning plan is "going to run counter to the idea of affordability." He also said while development will continue in Minneapolis, companies may focus more on existing buildings instead of creating new ones. While the city plans to decrease the number of required affordable units, he said it's still not enough.

"It's kind of a modest acknowledgment that 'yeah, we better be careful with how we think of this policy,' " Cramer said. "It's a pretty modest nod and it's not a sufficient number to bring down our concerns."

Min­ne­ap­olis City Council mem­bers voted last month to move for­ward on the 2040 plan af­ter get­ting ap­prov­al from the Metropolitan Council, the a­gen­cy re­spon­sible for over­see­ing its im­ple­men­ta­tion. While the 2040 plan goes into ef­fect Jan. 1, the coun­cil has had to take a piecemeal approach for final votes on certain parts of it.

Council Member Jeremy Schroeder, chairman of the council's Zoning and Planning Committee, said the idea of inclusionary zoning is to make sure that new projects are not just being built in downtown but in other neighborhoods, too.

"We need to keep this city affordable, and inclusionary zoning is one way to do that," Schroeder said.

A major part of the 2040 plan is implementing inclusionary zoning for new projects being built in the city. The council is slated to vote next month on whether to re­quire de­vel­oper­s to set a­side 8% of rental units for households earning up to 60% of the area median income. Developers could also set aside 4% of affordable rental units for households earning up to 30% of the area median income. City officials have said in the future they plan to re-examine whether Minneapolis should increase the number of affordable units that must be available.

Minneapolis council members passed an ordinance in December 2018 that allowed for an interim inclusionary zoning policy. It requires developers to provide 10% of rental units for households earning up to 60% of the area median income. It also requires developers to set aside 20% of affordable rental units for households earning up to 50% of the area median income. This interim policy will go away once the permanent inclusionary zoning ordinance goes into effect in January.

Sim­i­lar poli­cies already exist in Bloom­ing­ton, Brook­lyn Park, Golden Valley, Edina and St. Louis Park.

Andrea Brennan, director of housing policy and development for Minneapolis, said that city officials worked with developers on how inclusionary zoning would work and created multiple options that would keep their future projects in compliance.

"We've reviewed the financial feasibility of many projects throughout the city, and we've customized this inclusive zoning policy to the Minneapolis market," Brennan said.

City officials also are recommending several options that developers can choose from for compliance, including financial assistance; a so-called "in lieu fee" where developers pay 10 percent of what it would cost to create affordable units on the project; partnering with an affordable housing developer to build the units off-site in another development within a half-mile radius; or donating land to the city for future housing developments.

Mark Treskon, senior research associate with the Washington, D.C.-based Metropolitan Housing and Communities Policy Center at the Urban Institute, said that other cities and policymakers are watching how Minneapolis implements inclusive zoning and other parts of the 2040 plan. He said it's unclear how many affordable units will be created from the policy, but it likely will not upend Minneapolis' housing market.

"You're not going to see developers move [away from] regions or municipalities," Treskon said. "All municipalities have different regulations anyway, so you have to account for it, but Minneapolis is the big city in the region, there's a lot of people there and there's a strong housing market … these generally get implemented in a way that doesn't affect the housing market that much."

The city's finalized inclusionary zoning policy has two ordinances that have to move through the Housing Policy and Development and Zoning and Planning committees next week before reaching the full City Council for a vote Dec. 13.

Marissa Evans • 612-673-4280