Demand for apartments is fueling an increase in building in the metro area, especially in Minneapolis and inner-ring suburbs.
Housing construction in the Twin Cities is getting a big boost from robust demand for rental apartments and dwindling supplies of existing houses.
During March, Twin Cities home builders were issued 234 permits to build 530 units, a 51 percent increase in permits and a 164 percent increase in units, according to a monthly report using data gathered by the Keystone Report for the Builders Association of the Twin Cities.
Home building has been up in recent months amid improving consumer confidence, strong demand for rentals and a growing shortage of houses to buy.
It's not a wholesale recovery. The construction industry remains in one of the deepest and prolonged downturns. The increases represent a marginal improvement and construction activity remains significantly below historical averages.
In the Twin Cities, the number of houses on the market has fallen to lows not seen in more than a decade, according to the Minneapolis Area Association of Realtors. Of those active listings, many are foreclosures or short sales that have a limited market because of their distressed condition.
That's why many people are deciding to build new, said Sharry Schmid, manager of the Edina Realty office on France Avenue in Edina and vice president of the company's Builder Resource Group. And stronger demand comes at a cost, she said.
"Builders are also able to command full price on their product because of low inventory," she said.
That phenomenon is especially true in inner-ring suburbs like Edina where there's little land available for development.
"The Edina new construction market is on fire," Schmid said.
During March, Minneapolis saw a big rise in permits, with the help of a 283-unit multifamily building. Such projects explain why Minneapolis has the led the Twin Cities in construction activity.
Rental vacancy rates remain near historic lows because demand for apartments has outstripped supply. During the real estate boom few new apartment buildings were built, leaving renters with few options now that renting is back in favor.
Maxfield Research says that there are proposals for nearly 3,500 new apartments in the Twin Cities. Multifamily units represented 54 percent of the units planned last month.
For single-family houses, new-home buyers have been flocking to suburbs with easy access to jobs and shopping, while passing on exurban communities that require long commutes. Blaine, for example, followed Minneapolis with 33 units and Woodbury had 20.
Dale Wills of Coon Rapids-based builder CentraHomes said its sales have been spread across the north and west suburbs, including Blaine, Rogers and Maple Grove. He said that sales during March were 50 percent higher than anticipated.
But Twin Cities builders must balance increasing demand against an uneven recovery. For years, builders have tried to unload their unsold houses. Now, some firms are again building houses without having buyers lined up, in anticipation of customers who don't want to wait.
"Our industry is hopeful that housing is beginning to rebound, but [builders] are remaining cautious with their business decisions," said Curt Christensen, president of the builders association and co-founder of Lee Lyn Construction of Watertown.
Jim Buchta • 612-673-7376