Construction gets new lease on life, thanks to apartments

Builders aren't breaking out the bubbly, but they are quietly celebrating the end of 2010, a year that bested 2009 -- the worst year for residential construction in more than a decade, according to data released Tuesday by the Builders Association of the Twin Cities.

Even as the overall housing market remains depressed, construction companies were issued 2,942 permits to build 5,611 residential units in the Twin Cities metro area during 2010, a 13 percent increase in permits and a 27 percent increase in units. It's the first increase in seven years.

While the increase in construction activity is a positive sign for the beleaguered construction industry, which has battled plummeting prices in the resale market and a skeptical mortgage market, the numbers didn't translate into a comparable increase in home sales. About half of all new units built last year were in multifamily projects, mostly rental apartments being built to accommodate the growing number of people who can no longer afford -- or aren't willing to commit to owning -- a home in a still-falling market.

"We're guardedly optimistic," said Gary Aulik, the association's outgoing president and the owner of a small construction company that focuses on high-end construction and remodeling.

While acknowledging that 2010 was one of the worst years in a decade for his company and others, he said he's seeing subtle signs that some of the pent-up demand building over the past couple of years is finally making its way to his office. He said that during the past couple of weeks he's hired two people to help keep up with work from clients who have been delaying projects for years.

New jobs will be a welcome relief to an industry in which the unemployment rate remains much higher than for many other sectors. The construction industry started hemorrhaging jobs long before others sectors because new home building peaked in 2003, well ahead of the broader housing market.

"I'm getting the sense that we've rounded the corner," Aulik said.

During much of 2010 the housing market -- and broader economy -- has been plagued by so much uncertainty that many prospective new home buyers erred on the side of caution and have chosen to stay put or rent. That's been particularly true of both young and mature professionals who have moved to the Twin Cities for work but aren't sure how long they'll be here.

They've favored both entry-level and upscale rentals in and around active job centers where they have access to lots of amenities and public transportation, rather than sprawling houses on big lots in exurban communities.

That's one reason more units were built in Minneapolis than anywhere else last year. The city issued builders 47 permits to build 810 units, including several projects with more than 100 apartments.

The 50-50 split between single-family and multifamily units has been fairly steady over the past several years, but in the earlier part of the decade much of the multifamily construction was for condominiums, particularly in 2003. Now that mix has shifted almost exclusively to urban rentals and senior housing and to houses in smaller subdivisions in high-demand, inner-ring suburbs such as Maple Grove and Woodbury, which were among the top five busiest communities last year.

Marv McDaris, Minnesota division president for Pulte Homes, said that although sales inquiries have picked up from the dismal market after the home buyer's tax credit expired in the first half of 2010, he expects a decline in home sales during the coming year. But he says revenues will increase as the company shifts from building inexpensive townhouses to higher-priced move-up houses in small subdivisions.

Already, considerable damage has been done to the industry. The Builders Association of the Twin Cities says its membership fell from a peak of 1,900 in 2007 to about 1,100 in recent months as builders and their associates have gone out of business or cut back on non-essential expenses.

But in yet another hopeful sign, the group's membership started picking up again toward the end of the year.

"In 2010 we stopped the bleeding," said Wendy Danks, BATC's marketing director. "We're just bouncing along the bottom."