How Trump’s plans for housing could impact shortage of homes in Minnesota

NINA MOINI: We are talking a lot about housing today, on the program. And Minnesota, like the rest of the country, is grappling with a deepening housing shortage. It's an issue that started way back, during the 2008 financial crisis, where housing production slowed to a crawl. And experts say the market is still feeling those effects. Municipal, state, and federal government leaders have pitched a number of strategies to get more houses built and slow the climbing prices of already existing houses.

President-elect Donald Trump has plenty of ideas of his own. For a preview of what that could look like in the new administration, Andy Babula is here. He's director of the Real Estate program at St. Thomas University in Saint Paul. Welcome back to the program, Professor.

ANDY BABULA: Thank you, Nina. It's good to be back.

NINA MOINI: Well, it is a complicated issue, housing. Listeners have heard it many times. We need to build more housing. We need to build more units. Can you explain why developers aren't just building more housing, since there's so much demand?

ANDY BABULA: Sure. Absolutely. The biggest issue is the cost of construction and the cost of building overall. We've seen prices of both materials and labor increase over the past few years in particular, but over the last several years. But also, more recently, with interest rates climbing, that also makes it more difficult for developers to borrow money so that they can develop new properties.

NINA MOINI: And what would it take to help with some of those issues?

ANDY BABULA: Well, it's a complicated situation. Obviously, if the costs are high, finding a way to either lower costs or-- while people don't want to hear this-- raise the prices, which the developers can sell the houses for. So if materials or labor costs go down, if borrowing rates go down to make housing more affordable, all of those things would help. But those are challenges that don't come easy.

NINA MOINI: Yeah. And I mentioned in my introduction there that a lot of the experts say this didn't happen overnight. It can be traced all the way back to the Great Recession, 2008-ish. Why is that? Can you explain? And why are we experiencing that more than 15 years later?

ANDY BABULA: With the Great Recession in 2008, housing prices plummeted. A lot of home builders went out of business. And for many, many years, it wasn't profitable to build housing. And so as a result, from about 2008 to almost 2015, there was an under-building of housing. And so while development and building has picked up in the last 5, even 10 years, we just haven't caught up with the amount of building that was needed to keep up with demand.

NINA MOINI: You also mentioned the price, the price to make all of this happen. President-elect Trump has identified a large, new tariffs on foreign goods entering the United States as a way to help fix a lot of the problems that he sees here, in the US. How might those tariffs affect the housing market?

ANDY BABULA: Yeah. Unfortunately, the tariffs, if they are implemented-- and it's uncertain exactly and how much tariffs would be implemented. But if they are implemented, it actually could have a negative effect. When tariffs are implemented on goods for housing-- that could be things like lumber, appliances, any number of goods that go into the building of a home. When those tariffs are implemented, it raises the cost of those goods. And when the cost of those goods goes up, the cost of building a home or an apartment goes up. And it makes them either more expensive, or they just don't get built because they're not profitable.

NINA MOINI: President-elect Trump has also said that he has plans to deport up to around 11 million immigrants, which he says would free up housing. What is the connection between immigration and housing? Could that be effective in driving home prices lower?

ANDY BABULA: Well, it would have kind of a double-edged sword, I suppose, or two sides to that. Yes. If immigration is slowed or if there's actually deportation, that means there are fewer people that need homes. And so that would reduce demand. So that would mean that there may be more supply out there.

But the flip side of that-- one, I think that's somewhat incremental or nominal impact that it would have. The flip side or the bigger, I think, concern is that a lot of immigration, a lot of the homes that are being built are built using labor from foreign-born workers, whether it's skilled or unskilled.

And so if we lose those workers, there are fewer people that are able to be building those homes, which means the cost of labor goes up, which, again, then means the cost of housing or the cost of building new housing goes up. So I think that's actually what would have the bigger impact than the impact of the lowering of demand.

NINA MOINI: Another option Trump has wanted to explore is to open up pieces of federal land to build housing, use land that isn't being used, federal land. Is there value, in your opinion, in looking at federal lands for a potential solution?

ANDY BABULA: Right. And both Democrats and Republicans have mentioned this as a potential solution. Is there benefit in looking at it? Yes, if there are properties that are owned by the federal government in locations where housing is needed, so mainly in cities and urban areas.

The unfortunate thing is that most federal land is out West, is not in areas where jobs and access to resources, food, et cetera is viable. So federal land that's in a city, that could provide a very small, incremental benefit to freeing up land. But by and large, federal lands aren't in locations that are needed for housing.

NINA MOINI: OK. Moving on to another promise from President-elect Trump is to bring down mortgage rates, which have been very problematic in recent years, as you mentioned. Who controls mortgage rates? Does the president have influence on those rates?

ANDY BABULA: The president has indirect influence, I suppose you could say. But ultimately, the markets control those. And then the biggest source of influence is the Fed. And so by lowering interest rates, the president can put pressure on-- and the incoming president has talked about being more deliberate about getting involved with the Fed and pushing that. How feasible or legal that is, is just still to be sorted out.

But for the most part, the president traditionally has not had the ability to influence. And that's been set up that way for a reason. The Fed is intended to be nonpartisan and not political, to be able to focus on the economy.

So for many reasons, it would be beneficial to have interest rates lower. It would mean that homeowners could afford a more expensive home, and that would allow builders to potentially build and be profitable for them. So that would be beneficial. But unfortunately, if interest rates-- excuse me. If inflation goes up through things like tariffs, that's going to actually push the Fed to drive up the borrowing rates, which won't help the housing crisis.

NINA MOINI: OK. Lastly, we're talking a lot about, at the federal level, what's going on at the very top. But zeroing in more so to our state of Minnesota, what have we been doing right here, within the state? What gives you hope, if any, around the housing market here?

ANDY BABULA: Right. And I think that's a good question to ask because, I mean, we talk about the federal what the federal government can do, but the reality is that housing is a very local issue. And so solving the affordability crisis needs to be-- I mean, the federal government needs to be aware of it and take some action. But by and large, most of the action that can be meaningful needs to happen at the local level.

In Minnesota and the Twin Cities, Minnesota or Minneapolis in particular, has been fairly aggressive and at the forefront of pushing changes that will help solve this crisis. In particular, allowing for greater density and trying to reduce the burdens that come to home builders and apartment builders for adding new housing.

So one of the big issues has been single-family zoning. And by eliminating or allowing for building more than a single family home on a lot, so duplexes, triplexes, et cetera, those are things that cities can do, which citizens, people don't always love. There are different opinions on whether that's a good thing or not. But increased density allows for greater supply. And that, ultimately, is what we need to keep up with demand and make housing affordable.

NINA MOINI: All right. Well, we'll see what's ahead, under the next administration and at the state legislature as well. Professor Babula, Thank you so much for breaking that down for us.

ANDY BABULA: Absolutely. Thanks for having me.

NINA MOINI: That was Andy Babula, the director of the Real Estate program at St. Thomas University in Saint Paul.