Homebuilders in a rush to beat what could be costly code changes drove a February surge in construction of single-family houses in the Twin Cities.
During the past four weeks, metro-area builders were issued 347 permits to build 357 units, according to a monthly report from the Builders Association of the Twin Cities (BATC). Though that was a decline in total units because of a pause in apartment construction, there was a 47 percent increase in single-family houses compared with last year.
"We know that builders across the region have seen a rush to get permits filed before the new expensive codes take effect," said Chris Contreras, an area homebuilder and BATC president. "We are concerned that these new regulations will stifle the industry."
BATC estimates that an amended energy code that went into effect in mid-February could increase the cost of a new house by $6,000 to $10,000. That doesn't include an amendment to the building code that went into effect in late January that requires fire sprinklers in houses larger than 4,500 square feet, including the basement.
The changes followed years of debate among building scientists, builders, code officials and fire officials. In mid-January, BATC filed a petition with the Minnesota Court of Appeals challenging the Department of Labor and Industry's amendments, requesting a delay in enforcement of the rules until a decision is made on the main petition.
"BATC believes the codes have substantial flaws, that the Minnesota Department of Labor and Industry did not properly analyze the impact of the rule and these codes need to be sent back and fixed for Minnesota homeowners," said David Siegel, BATC's executive director.
The group is in the process of preparing briefs, and an oral argument before the Appeals Court is expected in the next two to three months. In the meantime, the updated codes remain in effect.
The codes aren't the only head winds that have faced homebuilders. Suburban housing construction growth has lagged the broader economic recovery in the Twin Cities and beyond. Observers think tepid wage growth and a slow return of move-up home buyers have stifled new home sales.
Most of the housing construction in the Twin Cities during the past few years has been luxury rental apartments in Minneapolis, which represented about half of all housing built in the metro area. While apartment construction is expected to be slightly behind last year, more than 3,500 apartment units are expected to be permitted later this year, according to a year-end report from Marquette Advisors.
Sales trends have prompted growing optimism within the industry. Sales of new homes across the United States posted a solid gain during December, and economists at Wells Fargo Securities recently raised their housing forecast, saying that new-home construction should be one of the significant upside surprises for the economy during the next two years.
Prices for existing homes are expected to accelerate this year, enabling homeowners to convert that equity into new homes. Wells Fargo expects U.S. sales of new homes to increase 17 percent this year.
Sales of new homes have suffered from a lack of inventory, limiting options for buyers. Today, builders are slowly gaining the confidence to build more houses without buyers lined up. Nationwide, the inventory of unsold new homes is 17.2 percent higher than last year.
In the Twin Cities area, most new houses are being built in the suburbs on small, infill developments. The bulk of that construction this month has been in Plymouth, Lakeville and Blaine, which together accounted for about a quarter of all houses permitted this month.
"We're always happy to see an increase," said the BATC's Contreras. "But with the new residential building code taking effect this month, we have concerns over what the numbers really mean."