A bootless month for builders

Article by: JIM BUCHTA , Star Tribune
Updated: April 30, 2011 - 9:25 AM

In the slowest April in five years, Twin Cities area permits show apartment and home construction is way down.

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Roofers from Midwestern Roofing Systems were at work this week on a home under construction on Merrimac Lane in Plymouth.

Photo: Jeff Wheeler, Star Tribune

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For Twin Cities-area builders, it's been the slowest April in at least five years, especially for those that build apartment buildings and other multi-family housing, according to a report from the Builders Association of the Twin Cities (BATC).

The group said this month that 203 permits were issued to build 230 units throughout the metro area, a 33 percent decline in permits and a 38 percent decline in units compared with April 2010. For most of last year, on average, about half of the planned units in the metro area have been apartments, senior housing and condominiums, but last month that percentage fell to 14 percent as builders focused on building single-family houses.

"It's clear that the residential construction market is still far from healthy," said BATC president Rich Riemersma.

Though new home sales are still near historic lows, many home builders say that sales activity has been relatively strong and that they are pulling permits to build houses that they sold during last month's Spring Preview, the biggest marketing event for area builders.

For example, Carole Griffith, vice president of sales for Homes by Tradition, said that home sales have been stronger than they were at this time last year and that the company is ahead of its sales goal. She said that since the Parade ended, sales have slowed a bit, and she attributes her company's strength in a time that's been difficult for many builders to its having projects in Plymouth and Lakeville, where demand has been brisk and inventory levels are relatively tight.

She said that the weekend before Easter, a couple came in and bought a model house in Lakeville with 2,812 square feet for full price. Like many new home buyers today, that family is trading up to a bigger house.

"There are a lot of people who want to make a change or move," Griffith said. "They've just been waiting and waiting and saying, 'When is the right time?'"

Permit activity during the first four months of the year suggests that lots of new home buyers are still in a wait-and-see mode: So far this year builders have been issued 758 permits to build 851 units, almost half of what was planned at the same time last year and the lowest number of planned units in at least five years.

Much of the decline in overall permit activity so far this year has come about because of a lull in multifamily construction, which is expected to experience something of a boom later this year as demand for rental apartments rises and apartment developers complete plans for their new projects.

The apartment vacancy rate in the metro area fell to 3 percent at the end of the first quarter, its lowest level in five years. During 2011 about 700 new apartments are to be built in the metro area, according to Brent Wittenberg, vice president at GVA Marquette Advisors.

Whether rental apartments or new houses, construction activity so far this year remains focused on the central cities and inner-ring suburbs. Last month, for example, construction was most robust in Maple Grove, which had 28 units. With 22 units, Blaine came in second, and Plymouth issued permits to build 16 units. So far this year Blaine leads the pack with 82 units, followed closely by Maple Grove and Woodbury.

Those numbers reflect strong demand for new houses in small, in-fill developments. Griffith said that when the company opened its Hampton Hills development in Plymouth in December, they sold all but one of the 15 lots they offered by the end of January.

And just this week, Pulte Homes of Minnesota closed on the purchase of 49 fully developed lots in a struggling housing development along the shores of Lake Minnetonka. Pulte's Minnesota division president, Marv McDaris, said that it's an unusual but highly sought-after site because homeowners will share a private beach, boat slips and amenities that include a swimming pool for $500,000 to $600,000. The land was bought from a developer that had trouble selling them when new home sales started to plummet.

McDaris said that sales throughout the metro area slowed noticeably in April but were in line with expectations. "It was nothing that alarmed us," he said, noting that sales last year got a boost from the federal home buyer's tax credit, which expired at the end of April.

Jim Buchta • 612-673-7376