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The last recession also is a factor in what may be the simplest reason of all for the surge in apartment construction: Our region continues to need more places for people to live.
Looking back at the last dozen years, total new housing units permitted in a year peaked at 19,000 units. While that may sound like a lot, the Metropolitan Council had a forecast that said household growth would require a total of 16,500 units per year in additional units of housing of all types. The Met Council has updated that forecast to an average need of more than 17,000 housing units every year through 2030.
So, 19,000 units in 2003 was too many for a 17,000 average trend line, among the years in the recent past when single-family homebuilders and everyone else in the industry collectively built too many units.
Then there was a deep recession, and new units of housing of all types fell to less than 5,000 in 2009 and again in 2011. In 2012 there was a rebound to more than 9,000 units, and annualized data so far for 2013 suggests a similar total for this year.
It’s been seven years since the total output matched or exceeded the 16,500 to 17,000 annual forecast of need, and one developer shared with me a rolling tally that suggested that by the end of the year the Twin Cities market will be short more than 50,000 housing units from that Met Council trend line.
Whether 5,000 units or 50,000 is more accurate, his point is the same: New construction is easily justified.
So when news pops up of a new development, like the 320-unit project recently proposed for downtown Minneapolis by the Minneapolis developer Alatus, it doesn’t mean there’s another developer rolling the dice or hoping to find the region’s most reckless banker to make a construction loan. At least not for a while.
When this cycle will end isn’t easy to predict. Predicting how it will end, on the other hand, that’s easy.
As Bujold put it, “developers won’t stop building until the vacancy rates start to get too high. The vacancy rates will go up faster than the banks’ willingness to start saying no more.
“That’s what always happens.”