Hundreds of lots are empty amid frenzy of demand for homes in Minneapolis

In Minneapolis, demand for housing has never been more intense. Agents are begging people to put homes up for sale. The teardown-and-rebuild phenomenon is spreading from the wealthy southwest corner east to the Mississippi River and toward downtown.

But on the city's North Side, there are hundreds of empty lots — some for as little as $1,700 — with few takers.

It's a situation, years in the making, that drags down the wealth and economic potential of homeowners in the area, distorts property value elsewhere in the city and is an obstacle to reversing population loss.

While the strength of the broader market is raising home prices in north Minneapolis, values have been so low that it has been difficult to get a mortgage to cover the cost of building even a small, relatively inexpensive home.

"It's horrible," said Constance Vork, who moved to the North Side in 2008, a year when 167 buildings in her corner of the city met the wrecking ball. "There's been no hope to latch onto."

The glut of empty lots starkly contrasts with a building boom in the rest of the city. Of the 2,700 teardowns in the city from 2002 through 2015, 958 were in the Near North and Camden areas of north Minneapolis. Of those, just 18 percent were replaced. The replacement rate in the rest of the city was 49 percent in the same period.

The area west of Interstate 94 and north of Hwy. 55 has been one of the city's poorest for two generations, starting with race riots in the 1960s. In the early 2000s, the area became the epicenter of predatory lending in the metro. And during the subsequent foreclosure crisis, which peaked in 2008, the city demolished as many as three houses a week on the North Side. Then, in 2011, a deadly tornado carved a path of destruction through the heart of the community, damaging hundreds more.

That rehabber planned to invest tens of thousands of dollars in the house, then sell it to an owner-occupant, according to Brian Finstad, a longtime North Side resident and rehabber. The deal fell apart when there was an impasse between the buyer and the county, which was unable to forgive thousands in back taxes and fees. That would have raised the post-rehab cost of the house far beyond what any buyer would have been willing to pay. The city ordered its demolition, which happened on a misty day just before Christmas last month.

Such situations have cost taxpayers millions. By one estimate, the city pays $3,000 to maintain a vacant lot for a year. That comes after the price of demolishing a house, which can be $20,000 to $30,000 depending on the size and the presence of hazardous materials.

"It's a perverse system that favors demolition over resuscitation with little coordination among jurisdictions about the fate of those abandoned houses," Finstad said. "You would think it should be easy to buy a boarded and vacant house in north Minneapolis, but think again."

Elfric Porte, the city's manager of residential and real estate development, said that while the city's policies might have had lingering, unintended consequences, he's confident it was the best strategy.

"If we're able to remove the blighting influence by rehabbing the house, that's our first approach," he said. "Blighted structures have a negative impact on the community."

But the recovery hasn't been strong enough on the North Side, where prices fell the furthest during the downturn, to help sell the neighborhood's vacant lots. Last year, the median sale price of a house in Near North was $125,200, almost half the median for the entire city.

Since the Recession, only one house has been built and sold in north Minneapolis without a subsidy to bridge the gap between what it costs to build those houses and what the market will bear. The Greater Metropolitan Housing Corp. (GMHC), a nonprofit developer, replaced a storm-damaged stucco house with an almost mirror-image of that one and was able to sell it for the full asking price of almost $350,000.

"That's what we want to happen, we need more of those," said Jean Bain, a north Minneapolis real estate agent and coordinating consultant for the Northside Home Fund. "It's a very slow, patient strategy, but it's what we can do," she said.

A more aggressive effort is underway. The Green Homes North initiative aims to build 100 energy-efficient homes with help from government subsidies. The first 27 homes in the program received an average subsidy of almost $62,000.

As demolitions wane on the North Side, the vast majority of the 170 teardowns last year happened in several southwest Minneapolis neighborhoods that surround Lake Harriet. But with prices on the rise and demand outpacing supply, the trend is moving into less-expensive neighborhoods. In the Nokomis area last year, the number of teardowns nearly doubled.

"I don't see a limit on demand," said Scott Busyn, who builds upscale custom houses in southwest Minneapolis and Edina.

Busyn said that there's no shortage of buyers who want to live in the city, but there's a scarcity of houses with the amenities and floor plans that appeal to them.

Gayle and Phil Malcolm were happy in their Mill District condominium, but with a young daughter they were ready for a yard and a neighborhood with sidewalks, but weren't willing to leave the city.

They paid nearly $300,000 for a 1920s stucco house in Linden Hills, but it needed significant repairs, including asbestos removal, so they tore it down and started from scratch.

"We love the city and everything it offers," said Gayle Malcolm. "Everything is within walking distance and it seems so communal compared with the suburbs where you have to drive everywhere."

The city is selling the bulk of those lots to MyHomeSource, an entity led by Bob Lux, the developer of some of the city's most luxurious high-rise condo buildings. Lux is partnering with GMHC to build 65 houses in what he's calling Parkside at Humboldt Greenway, where houses will sell for about $300,000 – without subsidy.

He hopes the project will appeal to buyers who want a suburban-style house in the city, but at a fraction of what they'd pay in other neighborhoods.

"We believe people are looking for high-quality new homes closer to the employment center of downtown Minneapolis," Lux said in an e-mail last week. "These homes will be priced from $50,000 to $100,000 less than in the surrounding communities – a significant opportunity for buyers."

Data Editor MaryJo Webster contributed to this report.

Jim Buchta • 612-673-7376