Home builders in the Twin Cities go to town on apartments

Home builders in the Twin Cities are hunkering down on rentals as higher mortgage rates make home buying more challenging.

During June, developers throughout the metro were issued 576 single-family permits, 10% fewer than last at the same time and only slightly more than the previous month, according to a monthly report from Housing First Minnesota.

Multi-family housing was up much more dramatically, with enough permits issued to build 2,093 units. Most were market-rate rentals in the the suburbs. That was far above the year-ago level and nearly 600 more units than in May.

Multi-family permits are always volatile from month to month, but that sector has been posting steep annual gains all year as housing developers focus their efforts on much-needed rental housing in the suburbs.

Demand for rentals was tepid during the worst of the pandemic and rents in some parts of the metro dipped, but that's no longer the case.

Yardi, a national rental research firm, this week said that rents in the Twin Cities during March (the most recent data available) increased 5.1% compared with last year. While that gain was the lowest of the all major metros tracked by the group, it was one of the largest increases seen in the market recently. Nationally, rents were up 14.8%.

Housing First officials said the sharp rise in interest rates is taking its toll on the new single-family construction in the metro, with permits posting annual declines for two months in a row.

On Thursday, Freddie Mac said 30-year fixed-rate mortgage (FRM) averaged 5.70% with an average 0.9 point, according to weekly survey. That was down slightly from the previous week when it averaged 5.81 percent, but nearly double the rate a year earlier.

All totaled, 637 permits were issued to build 2,669 units during June (a single permit can be issued to build more than one unit). For several months, construction in the suburbs has outpaced the central cities.

During June, Edina was the top city with 412 permitted units followed by Bloomington with 405 permitted units. In Minneapolis, which was No. 3 with 252 units, multi-family construction over the past year has still been relatively robust, but developers are still finishing several major projects that broke ground over the past year.

That includes a nine-story apartment building that's under construction at the intersection of Excelsior Blvd. and Lake Street. Frana Cos. is building the project for Blaine-based Elevage Development. The company originally planned to build a hotel and condominiums on the site, which is at the north end of Bde Maka Ska.

Home sales in the Twin Cities metro have slowed slightly compared with last year in part because there are still more buyers than sellers in some areas. As well, more buyers have been priced out of the market.