A building spurt in Minneapolis

  • Article by: JIM BUCHTA , Star Tribune
  • Updated: August 25, 2011 - 11:09 AM

The city expects permits for new units to double compared with last year, bucking a generally dismal construction environment.

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Habitat for Humanity volunteer Yilmaz Bayazit helped install a window in an eight-unit townhouse development in Minneapolis on Wednesday. Habitat plans to build or rehab 60 for-sale houses in the metro area this year, including 16 townhouses in Minneapolis.

Photo: Renee Jones Schneider, Star Tribune

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It's been one of the worst years in history for home builders, but not in Minneapolis.

The city expects to issue permits to build more than 1,500 new housing units -- mostly rental apartments, according to the Minneapolis Community Planning and Economic Development Department.

That's double last year's total and likely the highest number of units for any metro-area city since at least 2006, when Minneapolis issued permits for 1,571 units.

It's a boom that's being fueled by the convergence of two trends: a return to city living and a growing preference for rental housing over homeownership.

Mary Bujold, president of Maxfield Research Group, said that while the data speaks to a recent shift in the housing market, several of the proposed projects have been in the works for years.

"It's not like someone just woke up and said we're putting up 300 units," she said.

With the average apartment vacancy rate in Minneapolis at about 2 percent during the second quarter, according to Marquette Advisors, developers have turned their attention to apartment construction, which has been one of the few growth areas for the industry.

Nationally, new home sales fell to new lows this week, and 2011 is expected to be the worst year on record for the industry. The Census Bureau said Tuesday that new home sales during July had fallen from June and were lower than analyst expectations.

More than 60 percent of the Minneapolis projects in the pipeline are rental housing, according to Tom Streitz, the city's director of housing. And that's happening even though the city has less money to subsidize development.

Only one-third of all units will receive a subsidy, including 180 units at Longfellow Station, a site where abandoned grain elevators were razed to make way for new housing. "There's a real pattern emerging," he said.

That pattern, Streitz said, is being fueled by growing interest in urban living, especially among young professionals and empty nesters who don't want to make a commitment to homeownership at a time when prices still are falling.

That's helping to drive redevelopment of once-industrial neighborhoods that run parallel to the Mississippi River. In the Warehouse District, for example, developers are snapping up historic buildings and converting them into loft-style apartments. And in the Mill District several small parcels are slated for upscale rental housing.

For-sale housing is part of the mix, as well. Twin Cities Habitat for Humanity plans to build or rehab 60 for-sale houses in the metro area, including 16 townhouses in Minneapolis, according to its communications manager, Matt Haugen.

Even in a market in which house prices in some areas have fallen to pre-boom levels, affordability is still an issue, especially with little upward pressure on wages to put more money in wallets.

The nonprofit sells its houses to people at a price that ensures that they will pay only about one-third of their income for their mortgage payment.

Habitat is increasing its production goals in 2011 compared with 2010 because it can take advantage of lower land and labor costs to build its houses more affordably. "There's a lot of opportunity right now," he said.

Minneapolis issued permits for construction of 1,571 units in 2006, but hit bottom in 2009 when it permitted only 274 units. That year the city tied with Blaine for the second-most permits in the metropolitan area. Shakopee was No. 1 at 328.

Jim Buchta • 612-673-7376

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