Location, location, location

Should Dinkytown stay dinky?

by Derek Olson


Local news outlets are buzzing about the potential new apartment complex proposed by the Opus Group in the heart of Dinkytown. Is this good for students, campus and surrounding businesses? Is this what the neighborhood wants? The transformation is part of a larger wave of building projects in Minneapolis.

According to a Minnesota Daily poll, 68 percent of voters believe that “as more and more luxury apartments replace old gems, Dinkytown is losing the charm that makes it so special.” With a change such as this, those who oppose it are likely to be the most vocal. The sentiment to preserve that Dinkytown character that many have grown to love invokes an emotional appeal. Family businesses and small-town character are near and dear to the hearts of Americans.

Trouble lies in trying to quantify the value of Dinkytown’s historic character. To some, particularly those who have real memories of the neighborhood’s history, it may be priceless. But for the macroeconomy of the University of Minnesota community, it is tougher to gauge.

The Dinkytown neighborhood is already changing. In 2010, Doran Companies opened Sydney Hall Apartments kitty-corner from McDonald’s. In 2011, Floco Fusion opened on University Avenue, and 412 Lofts opened on Fourth Street. Two more apartment complexes are up and coming on University Avenue, another two on Fourth Street and one across Fifth Street from the Opus Group’s proposal. With or without this controversial edifice, Dinkytown is in the middle of an upswing in population density. This demographic change will inevitably alter the climate for local businesses.

The upswing in population density is part of two broader trends. Within the last decade, the popularity of commuting to the University has fallen as more students wish to live near campus. In addition, apartment complexes are popping up fast throughout Minneapolis; the number of building permits issued by the city hasn’t been this high in years.

It has become common to criticize the upswing in “luxury student apartments” near campus. Students are upset that they cannot find “affordable housing” close to their classes. The irony is that this new outcry is a perfect reflection of the fact that more students want to live near campus. Apartments in close proximity to campus are in high demand, and if developers are unable to meet that demand, prices will continue to rise.

But why luxury apartments? Students want budget-friendly options. At most of the “luxury student apartments,” the competitive prices are approximately $1,000 for a one bedroom and $2,000 for a two bedroom. If rooms are shared, the cost is about $500 per month.

Putting that in perspective, it costs about $569 per month to live in the Superblock. For $69 more in University housing, you get a smaller room that is not as well-furnished and sans a private living room, kitchen or bathroom. In comparison to the dormitories, most of these “luxury apartments” are fairly economical options. “Luxury,” after all, is a great word for marketing. For students in search of less expensive housing, one can hope that the light rail will create more possibilities.

Neighborhoods are full of what economists call externalities. If a dirty factory sets up shop next to your home, your home loses value and appeal to potential buyers. In the Marcy-Holmes neighborhood, social stigmas have fomented strict zoning laws on fraternity houses and limited the number of unrelated occupants living together.

Externalities can also be positive. If your neighbor builds a beautiful garden that fills the sidewalk with fresh smells and beautiful sights, your house has gained appeal and value. Zoning laws can be helpful in maximizing the welfare of externalities, but the public voices for or against individual externalities have a temptation to be overzealous and unrepresentative of the whole community.

A simple axiom is that when economies grow, they evolve, sometimes, substantially. Resistance to the evolution of economies is quite common, and it is often driven by nostalgia. The trouble is that nostalgia doesn’t always show its face in the market. It becomes difficult to measure the fundamental value supporting that sentiment. Because preventing an economy from changing will curtail, if not stop it, from growing, it is important to think rationally about the costs and benefits of our neighborhood changes.

There are a number of examples that display the effects of housing restrictions, or lack thereof. Houston is the fourth-largest city in America, yet, it is one of the 15-least expensive housing markets of 319 studied by Coldwell Banker. Houston does not have any zoning laws. From 1980 to 2000, the population of Las Vegas nearly tripled, yet the real median price of houses remained flat because building restrictions there are some of the country’s lightest. In the decade of the 1970s in Palo Alto, Calif., the average price of houses nearly quadrupled although there was no concurrent population increase. Severe building restrictions sprouted in Palo Alto in the 1970s, and after those restrictions, not one house was built in the city for 10 years. 

The economic evidence is highly supportive of loose restrictions on housing development. Rent control is among the most universally opposed policies by economists. It is difficult to balance this evidence against the sentimental value of Dinkytown’s character and the goods and services provided, and perhaps threatened, by a changing local economy.

I happen to have a rather personal connection to the Opus proposal: Its construction will displace my current place of residence. I have come to adore Dinkytown. We signed our lease two days after it went public in order to seize this location. Living on the same block as Mesa Pizza, Al’s Breakfast and Burrito Loco is a treat. That must be why so many people want to move here.