Twin Cities home building coming around

  • Article by: JIM BUCHTA , Star Tribune
  • Updated: January 3, 2013 - 9:16 PM

Construction of housing in the Twin Cities area last year almost exactly doubled from 2011. But it remains well below normal.

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Developers got permits to build 4,058 single-family homes in the metro area last year, including these being built by Keyland Homes last month in Lakeville. But apartments drove the year’s construction turnaround.

Photo: Richard Sennott, Star Tribune

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Housing construction in the Twin Cities doubled last year, signaling the end of the worst construction slowdown in generations and the beginning of a historic apartment boom for the city of Minneapolis.

Still, the recovery has far to go, as home building remains well below the long-term average.

During 2012, builders and developers got permits to build 9,035 units in the 13-county metro, a 99.5 percent increase over the previous year. That included permits to build 4,058 single-family homes and 4,977 multifamily units, according to a year-end report from the Builders Association of the Twin Cities.

"It was the year the housing market came back to life," said Ryan Jones, director of the Twin Cities office of MetroStudy, a national company that tracks new for-sale housing across the country.

Indeed, the housing crash and Great Recession hit the construction industry particularly hard as demand for new houses ground to a near-halt by 2011, causing painful layoffs and some of the state's best-known companies to go out of business.

Ironically, it was the housing downturn itself that helped lead the construction turnaround. As housing prices plummeted and sales slowed, demand for rental apartments soared, creating a refreshed market for developers and contractors that had been idled by the downturn. Even as housing construction was sliding to record lows, apartment developers were ramping up with plans to build thousands of new apartments.

Of the nearly 10,000 planned units for the metro, 55 percent of them were for multifamily housing, mostly rental housing in a handful of Minneapolis neighborhoods coveted by young professionals and empty-nesters who prefer the flexibility that comes with renting.

"We have been as busy over the last 18 months as we have ever been," said Brent Rogers of Greco Development. "This is in stark contrast to three years ago, when next to no new development was going on."

The company completed 567 new apartments last year, including several warehouse conversion projects in Minneapolis' North Loop neighborhood. Rogers said he expects apartment construction to taper in the coming year as companies shift their focus to more for-sale housing.

In fact, more units were planned in Minneapolis than in any other community last year, with more than 3,100. Next on the list was St. Louis Park with 509 units.

Jones and others say that while the market has improved dramatically, the industry is still far from healthy. Construction activity last year was the strongest since 2006, but far below historical averages, according to Toby Madden, a regional economist with the Federal Reserve Bank of Minneapolis.

He said across the state there were nearly 15,000 authorized housing units last year, a nearly 5,000-unit increase from 2011, but well below the 40,000 units authorized in 2003 and 2004.

"Home building is still way below its peak and longer-term trends," Madden said. "We're coming out of the deep trough we were in, and it looks like that will continue into 2013."

Despite what is expected to be a gradual recovery, there were tangible signs the market changed in a meaningful way last year.

With builders burning through once-deep inventories of developed lots, land scouts are back on the hunt, especially in the first- and second-ring suburbs where the housing crisis helped make building sites in prime locations more affordable than they were at the peak of the market. As those lots have been gobbled up, developers are now working their way back out to the outer edges of the metro in search of developable land with the expectation that development -- and higher prices -- will work its way back out again.

Jones said when it comes to buildable lots, the market is "undersupplied."

"Developers are now taking raw land and developing infrastructure and adding new lots," he said. "That would have been unheard of a few years ago."

While BATC doesn't track new home sales, very few companies are building houses for inventory, so the bulk of what's being permitted represents real sales. According to the Minneapolis Area Association of Realtors, which tracks only new home sales that happen through a licensed Realtor, over the past 12 months new homes sales increased 23 percent. That's in contrast to 2011, when new home sales fell 11 percent.

Perhaps the best sign the market has improved is that builders have been able to raise prices.

At the Minnesota division of Pulte Homes, the company has reduced the number of sales incentives it offers and has increased prices in some areas.

Division President Marv McDaris said 2012 "was a great year for the Pulte Group." He noted that the company sold more than 300 new houses last year, and that the company purchased enough land to develop 226 home sites and have additional parcels under contract. Last year, the company opened new developments in Maple Grove, Eden Prairie, Apple Valley and Inver Grove Heights.

McDaris, a BATC board member, said the group is already starting to closely monitor the labor situation and is sponsoring a job fair to make sure the companies are staffed to meet growing demand. "During the peak times last year, we saw the labor market tighten up," he said.

Bill Burgess, president of the Minnesota division of Lennar Corp., is reporting similar strength and says there's no doubt consumers are feeling more confident. "I can tell the strength of the market when people say, 'I'm not going to have a problem selling my home, so i'm going to build.'"

Jim Buchta • 612-673-7376

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