Faced with a housing crisis, this southern Minnesota city is saying yes to experimental builds

NEW ULM, MINN. – Leaders in this southern Minnesota city, famous for its German heritage, have adopted a new philosophy to combat its housing crisis: saying “ja.”

Over the past few months, the City Council in this town of about 14,000 has approved a flurry of housing projects, including nearly two-dozen shed houses in an industrial area, more than a dozen 400-square-foot tiny homes and a 148-unit apartment complex that faced opposition from residents who said New Ulm is moving too fast on housing.

It’s a deliberate choice to hear out real estate developers proposing projects that could be seen as “out there” or experimental, said City Manager Chris Dalton.

It’s “not saying ‘no’ to an idea right off the bat, but looking at it, seeing if it’s a fit for our community, and then seeing how you can say ‘yes,’ ” Dalton explained.

Like many cities in greater Minnesota, New Ulm has a housing shortage, with a total vacancy rate that’s hovered below 1%, high property prices that freeze out most buyers and employers complaining that they’ve lost out on workers who can’t find a place to call home.

The shortage, in part, is due to high construction costs that led to developers giving up on building homes cheaper than $250,000, a 2022 report by Maxfield Research and Consulting found. New Ulm has a record-low supply of housing for sale, and there’s a chokepoint in the real estate ecosystem due to the city’s aging population staying in their family homes with few independent living options to downsize into.

New Ulm is one of many cities trying to fight persistent shortages by being more flexible with zoning and more accommodating to developers in recent years, said Ryan Allen, an urban and regional planning professor at the University of Minnesota.

One of New Ulm’s experiments is planned directly behind the Walmart on the west side of town.

On a recent fall day, Tony Gulden, a local developer, looked out at the dirt behind the big box store. To his left, trucks laden with retail goods glided into loading docks. Above him, a single-engine airplane droned as it approached the city’s airport nearby. All around, a relentless wind tore across the prairie.

His eyes were on the patch of dirt before him, which he hopes will become a community of 22 residential “barndominiums.”

These would be metal-sided structures, the type often used for storing RVs or tractors, but with the option to include living quarters. In his vision, a retiree would park their Winnebago in the shed after a summer’s worth of traveling and then spend the winter in an apartment built into the back.

“The people that are looking for this type of housing are looking to simplify their life,” Gulden said, adding he got the idea from a similar project in Crosslake, north of Brainerd.

Roughly half of New Ulm’s housing projects this year rely on the approval of Planned Unit Developments, a legal instrument used to make things easier for developers, which sometimes attracts controversy.

At a June meeting, Council President Andrea Boettger said she had reservations about the shed house project shortly before voting for approval. “I don’t love it,” Boettger said. “But I’m not afraid to try it.”

Anyone wanting to live in the shed houses needs to join a homeowners association, and they would have to agree that they are aware that they would be moving into a noisy industrial area, with neighboring plots that could be developed into a trucking or a steel yard.

“Everyone’s being given, you know, fair warning,” Gulden said. “The city just does not want to be responsible for any type of noise or pollution calls.”

The grading for a road through the barndominium complex began this fall, with bulldozers scraping the earth. Gulden says he has eight people interested in the properties. One has committed to buy. A model shed house will be built in the spring.

Some residents voiced their opposition to a conventional 148-unit apartment complex on land zoned agricultural.

Opponents, many of whom live in single-family homes next to the proposed development, argued via letters, emails and phone calls that the city was moving too fast. “Changing our 20-year plan in less than a year without proper due diligence is hard to reconcile,” one letter said.

Resident Paulo Pagliari said he supports housing but feels New Ulm is favoring developers over residents — many of whom, he contends, could see their property values decrease due to increased noise and traffic.

“They want to be recognized as the city council that built all this infrastructure, no matter how many people will need to move out of the city” because of it, said Pagliari, who works for the University of Minnesota Extension in Lamberton and moved to New Ulm 14 years ago.

The mayor and council approved the apartment complex unanimously, arguing the project was necessary for the town’s survival.

The tiny homes would be market-rate rentals aimed at attracting traveling nurses, engineers and other temporary workers, said Steve Brown, who leads the New Ulm Business Resource Innovation Center, the nonprofit in charge of the project.

There have been other tiny home projects in Minnesota, with one high-profile case that didn’t fare well. A project in Duluth became a social media punching bag after the house, listed at nearly $200,000, sat empty for about a year until it was taken off the market and its developer went into default and then dissolved.

The plan in New Ulm is to build two model homes out of the 15 needed to be financially feasible, and gauge interest before building the rest, Brown said.

“I don’t see it as a gimmick at all,” he said. “I wanted to build a couple, and let people see it.”

Other municipalities are already keeping an eye on the city, which has approved seven housing projects this year.

The willingness to try different types of housing can be uncomfortable, New Ulm officials acknowledge. “You have to be willing to take these risks to see if they work or not,” said Dalton, New Ulm’s manager, who added that when he moved to the city in 2018, he struggled to find housing.

“It’s obvious that single-family dwellings are not going to be built at a capacity to keep up with population,” Dalton said. “We have to consider other options.”

Dalton said he knows people think that projects such as the shed houses and tiny homes can seem like a gimmick.