Exurbs greet housing rebound with caution

Five years after the housing bust, homebuilders and buyers are returning to the Twin Cities exurbs.

In Otsego, the number of housing permits issued last year rose almost 40 percent from 2012, to 188, according to the Builders Association of the Twin Cities. In Farmington, housing permits almost doubled, to 126, while the number issued in Monticello soared from 19 to 49.

Those totals remain a far cry from the early 2000s, when acres of open land gave way to hundreds of new homes. Few expect those go-go years to return anytime soon, but with home prices rising sharply in the Twin Cities and its immediate suburbs, buyers are once again venturing to the outer edges of the Twin Cities metro area.

"Up until 2008 we had people standing in line wanting to buy houses, and then until 2013 it was somewhat of a disaster," said Tom Koerwitz, an Otsego landowner who took back some of his land from a struggling developer in 2010. Koerwitz finally developed lots on some of the property last fall. "The market just wasn't there for homes until last year," he said.

Much of the activity is happening on land like Koerwitz's, including lots that came out of foreclosure. The building also is coming in smaller bites rather than mega-subdivisions that sprouted on former cornfields.

Cities that are seeing some activity after years in the doldrums are approaching their good fortune with caution. Many are still nursing their budgets back to health after being hammered when expected tax revenue never materialized to pay for new infrastructure or expanded city services.

"We were hit pretty hard," said Robin Hanson, finance director in Farmington, where the housing and economic downturn forced cuts to the city's operating budget. Hanson said the city has no plans to rescind those cuts. "It's too early. We'd be more comfortable seeing that it's a longer-term trend," Hanson said.

"I wouldn't say we're in cutback mode any more, but we're certainly still in maintain mode," said Steven Bot, city administrator in St. Michael, where housing permits rose from 26 in 2012 to 58 last year. The city cut its staff during the downturn, and some people are still doing two jobs, including Bot, who also serves as the city's public works director.

Maple Grove land broker Charlie J. Pfeffer worries the boom in outlying areas could taper off once the supply of less-costly lots gets gobbled up. And he recognizes that long commutes remain a deterrent.

"Whether gas is $3 a gallon or $2 a gallon, it still takes an hour and a half to get home to Monticello if you work in downtown Minneapolis. The big issue for people is time," Pfeffer said.

That's a trade-off first-time home buyers Ted and Greta Pelzer were willing to make. They began looking for houses last spring in Maple Grove and on their home turf in Plymouth but weren't able to find what they wanted at a price they could afford, Ted Pelzer said.

They extended their search, eventually winding up in Otsego, where they will move this spring to a newly built four-bedroom house. It will mean a longer commute for Greta to her job in Minnetonka, especially tough because it will eat into time with their infant daughter.

Pfeffer said most of the bargain-priced, bank-owned lots in suburbs such as Lakeville, Maple Grove, Blaine and Woodbury were eaten up in the early stages of the homebuilding rebound. Those communities still led the metro area in the number of houses built in 2013, according to the Keystone Report.

But far-flung communities, which accounted for just 11 percent of all metro-area home construction a few years ago, have grown to 19 percent of new building, according to the most recent data from the Twin Cities office of housing research firm Metrostudy.

Pfeffer and others agree that for now, the relative affordability has made farther-out areas attractive. "If people are looking for a bargain, they're willing to drive a little further out to get it," said Mike Devoe, president of Ryland Homes. In the past year, the company has built homes in Otsego, Rogers and Waconia on lots that had gone back to lenders when original developers ran into financial trouble. Devoe figures the Waconia houses sold for about $75,000 less than comparable homes Ryland had built in nearby Chanhassen.

The lower land prices also make it easier for houses to be built on larger lots. Angela Schumann, community development director in Monticello, said some buyers there have combined two-standard sized lots to accommodate large homes.

Narrower lots with smaller front yards have become more popular in closer-in suburbs so builders can keep prices down. In Lakeville, more than one-quarter of the houses built in 2012 and 2013 were on downsized lots.

City officials say it's still too early to know whether the increase in homebuilding will spur commercial development. In Otsego, City Administrator Lori Johnson said there are no new commercial buildings in the works, but space in existing ones has started to fill up.

Johnson noted that the value of last year's home permits topped $43 million and that the contribution to the city's tax base will likely exceed that after the completed houses are valued for tax purposes. She said the city expects to get back to developing and improving parks near some of the new homes. "It won't be a quick turnaround, but it will eventually come back."