New apartment building roared in May, ending a big spring for new home building in Twin Cities

Homebuilders in the Twin Cities are digging fast and furiously, ending the best spring for new home construction in at least a decade.

During May, builders in the 13-county metro area were issued 537 permits to construct 1,423 units, an 8 percent increase in permits and a 64.8 percent increase in planned units, according to a monthly report released Wednesday by the Builders Association of the Twin Cities.

It was the most planned units for any May since 2006 and, if demand continues, 2017 will be the best year for builders in nearly 15 years. So far this year, single-family construction is 20 percent ahead of last year, and multifamily construction is 125 percent ahead.

"With the growth we've seen this spring, we expect this to be a strong summer for residential construction," said Bob Michels, a local homebuilder and the current BATC president.

Buying conditions in the Twin Cities are ideal. The unemployment rate is low, wages are rising and mortgage rates are within a percentage point of all-time lows.

The only thing lacking is options. House listings are near record lows and demand for existing houses exceeds demand in some parts of the metro, forcing would-be buyers to consider rentals and new construction.

Changing demographics are also helping fuel demand for new rental apartments, especially in the suburbs where construction has been scarce for years. Older apartment complexes in the suburbs lack the amenities that appeal to young adults and retiring baby boomers who have become renters by choice.

Typically, Minneapolis has been the busiest city in the metro for apartment developers, but with several large rental projects underway, Eagan took the top spot last month. Builders there were issued 11 permits to build 408 units — nearly half of all planned multifamily housing permitted across the region during the month.

Eagan City Administrator Dave Osberg said the city has become a popular destination for renters and home buyers alike in part because of several corporate relocations and a raft of new retail and service options, including the city's first brewery and a new bus rapid transit station.

"To say, 'the market is good' is an understatement," said Osberg. "There's more to come, for sure."

Tom Garrison, the city's communications director, said several high-profile commercial projects, including the new Minnesota Vikings headquarters, a new Prime Therapeutics headquarters and the Twin Cities Premium Outlets have helped stimulate demand for housing.

Construction is already underway on the 174-unit Affinity at Eagan apartments near the Twin Cities Premium Outlets, the 94-unit Stonehaven Senior Living project on Station Trail and the 124-unit City Vue Phase II project on Promenade Avenue.

In Eagan and elsewhere across the metro, the bulk of what's being built isn't affordable to the lowest-income residents. In fact, the total value of all the planned construction so far this year was nearly 25 percent higher than it was during the previous year, suggesting that houses are more expensive to build and that builders are still catering to move-up home buyers.

Michels, the BATC president, said the high cost of land, labor and materials, along with stringent code requirements, make it difficult to build starter housing.

"A big concern of ours is the need for entry-level housing," he said. "And with our current regulatory environment and labor shortage, it's a challenge for builders to meet that price point."

Jim Buchta • 612-673-7376