Minnesota, like many states, faces a severe shortage of affordable housing, with developers struggling to overcome financing hurdles, rising construction costs, and regulatory challenges. The Minnesota Legislature is considering initiatives such as the Minnesota Adaptive Reuse/Conversion of Underutilized and Vacant Buildings (CUB) Tax Credit to incentivize redevelopment. However, the affordability crisis is exacerbated by inflation, high interest rates, and competitive financing programs.

Jeffrey Drennan, a shareholder at Winthrop & Weinstine, was recently interviewed by Finance & Commerce, where he highlighted the growing financial strain on developers, noting that “headwinds in the market have increased, and the costs of these deals are becoming extremely expensive.” He emphasized that while many states offer strong incentives for affordable housing, Minnesota’s stringent regulations and lack of accessible capital deter outside developers. Rent control measures and program requirements often negate the benefits of funding, making long-term investments risky. Drennan pointed to states like Arizona and Texas, which attract developers by offering property tax and sales tax exemptions, as models for Minnesota to consider in addressing its housing crisis.

March 7, 2025