It seems not a week goes by lately without news about low-income tenants forced to move when their landlord sells their apartment building to investors. A new report offers numbers behind those anecdotes, illustrating a major shift in the local rental market.
In “Sold Out,” released this week, the Minnesota Housing Partnership found that sales of apartment buildings in the metro area jumped 165 percent between 2010 and 2015, often driven by the potential to renovate and raise rents.
“There’s an acceleration. … Now it appears to be leveling off a bit, but it’s at a high number,” said Chip Halbach, executive director of the Minnesota Housing Partnership, a nonprofit focused on affordable housing issues.
The report attributed the trend largely to the rising number of renters in the metro area making more than $50,000. Some of those earning $100,000 or more can afford to live in new luxury apartment buildings, which have been rising across the metro area, while the midrange earners may settle into an older renovated building.
“We’re not losing — in terms of aggregate numbers — low-income renters,” Halbach said. “But the increase in that [renter] population is $50,000 and up.”
Some transactions have attracted notoriety, such as the conversion of Richfield’s 698-unit Crossroads at Penn property into “Concierge Apartments,” replete with granite countertops and a spa. Higher rents and the denial of Section 8 vouchers there meant more than 1,000 people had to relocate, according to the report.
Buying up smaller properties
A more hidden trend has played out in the neighborhoods of Minneapolis and St. Paul, where buyers have been increasingly scooping up smaller properties. The two cities accounted for about 61 percent of all apartment property sales in the metro area between 2010 and 2015, and about 37 percent of the units sold.
Twelve percent of all rental units in Minneapolis were sold in those years, with the highest concentration occurring in the greater Uptown area, according to the report. It was 11 percent in St. Paul, with the properties largely peppered along Interstate 94 in the western half of the city. Altogether, 16,876 units changed hands in those two cities through 537 sales.
The report also highlighted that buyers are paying on average 56 percent more per unit than they did in 2010, spelling higher rents in today’s low-vacancy rental market.
There are community benefits to the sales, the report noted, since the properties are often improved and have better management. But the report argued they often come at the expense of higher rents, reduced neighborhood diversity and displaced tenants.
Halbach said there is “no silver bullet” to combat this trend. But the Greater Minnesota Housing Fund has recently created a special fund to preserve so-called “naturally occurring affordable housing” — generally older properties without the rent limits that come with public subsidies. Aided by investors such as Hennepin County and the McKnight Foundation, the NOAH Impact Fund will aid in the purchase of apartment buildings to keep them affordable.
Minneapolis Mayor Betsy Hodges has set aside $1.5 million in her proposed 2017 budget to help preserve existing affordable housing in the city.
“This is a metrowide problem, so we think there needs to be a metrowide solution,” Halbach said.