One tough year for builders

  • Article by: JIM BUCHTA , Star Tribune
  • Updated: January 6, 2012 - 7:36 AM

Metro single-family home construction remained weak, while apartment building slid.

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Home construction activity in the Twin Cities remained weak last year, leaving builders cautious about 2012.

While the number of building permits jumped slightly to 2,978 last year from 2,942 in 2010, the number of units built declined 20 percent as apartment construction waned. There were 4,529 units built last year compared with 5,611 in 2010.

Last year was also the second-worst in a decade for Twin Cities-area builders.

"While our builders have been seeing small signs of recovery all year, it was pretty clear that any sustained growth would remain elusive," said Rich Riemersma, 2011 president of the Builders Association of the Twin Cities and co-owner of Imperial Homes.

Much of the declines last year were the result of fewer multifamily projects, mostly rental apartments. But builders saw single-family home construction increase 2 percent in 2011, giving them a sense of hope.

Riemersma, for example, said that his sales doubled last year. He noted that traffic at open houses has been brisk.

"For the majority of builders, including myself, it did feel better," he said.

Steve Parker, president of Mattamy Homes, a national home builder with nearly a dozen new home developments in Minnesota, said that he's seeing an increase in single-family home sales. November 2010 was the best since November 2005, he said, and the company racked up 20 sales in 10 Minnesota communities alone.

Pulte Homes has several new developments that opened last year in inner-ring suburbs. Like most new projects, the developments are smaller than they were five years ago and are in established communities. The company was able to pre-sell nearly half the lots even before opening a sales center.

But the recovery of the construction industry is tied to existing home sales, which remain near historic lows. While prices and interest rates are near record lows, many new home buyers need to sell the one they own before they can make a commitment.

Riemersma said builders don't have high expectations for 2012.

"It's not going to be gangbusters," he said. "But as an industry, we're still cautiously optimistic that we're looking at the next year being better than last."

The report underscores the severity of the housing downturn. A decade ago permits for more than 16,000 new housing units were issued, but by 2009, that number had fallen to 4,400 new units.

In recent years, the building industry has been buoyed by rentals units, which at various times in 2010 accounted for nearly half of all new construction. The foreclosure crisis -- along with a lack of apartment building construction during the housing boom -- has spurred demand. And developers have responded by pulling permits to build hundreds of apartments, mostly in Minneapolis. From 2009 to 2010, there was nearly a 20 percent increase in permit activity.

There are still thousands of new apartments in the pipeline, but many won't get permits until this year or next as developers await and approvals and financing packages.

Because demand for rentals has been strongest in Minneapolis, builders in that city were issued permits to build 416 units -- more planned than any other municipality last year.

Blaine was next with 336 units, and Woodbury followed with 292 units.

Jim Buchta • 612-673-7376

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