Construction of new multifamily buildings in the Twin Cities continued to surge in September, reaching an eight-year high, according to report released Tuesday.
The Builders Association of the Twin Cities’ monthly Keystone Report indicates that the 1,424 units permitted last month was just slightly behind the 1,445 permitted in 2005, well before the Great Recession ravaged the area’s residential housing industry.
If year-to-date growth remains on track, the number of units permitted is expected to increase by 30 percent over 2012.
“We definitely have some room for growth. Traditionally our market has not been overbuilt in the past, even before the Great Recession,” said Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas. “We were even a little bit behind the curve coming out of the recession.”
The apartment boom is a reflection of a general housing shortage in the Twin Cities, and a decline in the homeownership rate as more people, especially millennials and baby boomers, seek the flexibility of renting.
Overall, the Keystone data indicate that 481 permits were issued in September. Fast-growing Minneapolis led the pack with many active multifamily projects in the works, particularly in the North Loop, Dinkytown and Uptown.
But beyond that, permits were pulled for multifamily projects in suburbs such as Golden Valley, Oakdale, White Bear Lake and Osseo — areas that have not historically been active because they’re largely built out.
Coming off a successful Parade of Homes season, single-family construction also increased by 22 percent last month, the association said.
While the numbers are “cause for celebration,” association President Pamela Belz said, “the industry remains cautious as the economic recovery remains tepid for the middle class.”
Still, Belz said there much pent-up demand for both multifamily projects and single-family homes despite rising mortgage rates and a labor shortage in the construction industry.
Tousley said residential building likely will slow in coming months as “lenders that do multifamily lending are starting to ask, ‘Are we going over the top? Are we overbuilding?” he said. “I think it will slow down. I don’t know how deep the market is for luxury apartments, but we’re certainly testing it.
“Lenders are looking harder at underwriting some of these projects, and at market studies. Nobody wants to be the developer or the lender in the last project that doesn’t fill up.”