Minnesota has long touted housing affordability in its efforts to recruit and retain people and industry. Although it still largely holds, it’s patchy depending on where you live and how much money you make, according to a Reformer analysis of income and housing costs.
For a long time, a rule of thumb for homebuyers was that the total price of your home should not be more than 2.5 times your annual income, but even in the 1980s buyers ignored the rule, and the average price national-to-income ratio hovered around 3.1, according to the Harvard Joint Center for Housing Studies.
And over the past few decades, as house prices skyrocketed as wages languished, the disconnect between the two has become increasingly greater. Today, according to that same Harvard study, the national ratio of house prices to income stands at 5.3. And in some major metropolises it’s much higher – in much of California, for example, the typical home now costs well over 10 times the income of a typical family.
Here in Minnesota, on the other hand, homes are considerably more affordable. Our statewide price-to-income ratio hovered just above 4.0 in 2021, according to a Minnesota Reformer data analysis of the National Association of Realtors and the United States Census Bureau. This has led to a homeownership rate of just over 74% – the eighth highest in the nation, according to census data.
In some places in the western half of the state, in fact, the median home on the market still costs less than 2.5 times the median family income.
In Kittson County, in the far northwest of the state, for example, the median sale price in 2021 was $103,000 when the typical family had an income of $55,000. The resulting price-to-income ratio of 1.86 is the lowest in the state. Lac Qui Parle and Traverse counties, bordering South Dakota, were the only other places with ratios below 2.
The ratio in Hennepin and Ramsey counties, on the other hand, was around 4.5, reflecting the relatively high prices in the Twin Cities area. That’s in the same ballpark as other similarly sized Midwestern metros, like Chicago (4.4) and Detroit (3.3). But affordability in the Twin Cities is considerably better than in peer metropolises on the coasts, such as New York (7.1), Washington, DC, (8.4) and Boston (9.6).
In Minnesota, the biggest disconnect between affordability and income occurs in Cook County, in the far northeast of the state. There, the typical home is almost five times the median household income. The county’s economy is heavily dependent on tourism, which means relatively low wages coupled with housing shortages due to a large number of vacation and rental homes.
“We often see this in areas that rely heavily on tourism and service sector jobs,” said Andrew Aurand, vice president of research at the National Low Income Housing Coalition. “It’s a significant problem as the housing stock doesn’t really serve these workers.”
Similar dynamics are also likely to play out in Minnesota’s Lakes Region, in places like Cass, Hubbard and Crow Wing counties, which also stand out on the map.
When it comes to rent affordability, the situation statewide is somewhat different. The Reformer performed an analysis using data on median rents Department of Housing and Urban Development. The traditional guideline for rent affordability is that families should spend no more than 30% of their income on housing. Only Ramsey County, where the median family income is 25% of the median rent, approaches this threshold in Minnesota. Just across the river in Hennepin County, the ratio is closer to 20%.
It should be noted, however, that renters generally earn less than homeowners, so these numbers would be worse if the census income data only included rental households.
Again, prices are generally more affordable in the western half of the state. Stevens County, near the South Dakota border, boasts the most affordable rents, accounting for less than 14% of a typical family’s income.
All of these estimates are somewhat squishy, especially during a period of rapidly rising prices. Home prices and rental data are from 2021, and costs have been rising since then. Income data, meanwhile, comes from the US Census Community Survey, which currently runs through 2020. The pandemic and its immediate aftermath has disrupted housing, employment and migration patterns in the whole state, and it is possible that in a few years, the relative images may look different.
These numbers also reflect, where possible, the experience of the median or typical household in each county. Low-income families often struggle to afford housing costs, regardless of middle-class status. The Minnesota Housing Partnership, for example, estimates that approximately a quarter of Minnesota families spend more than 30% of their income on housing.