New housing being built in Twin Cities at fastest rate in more than a decade

Housing in the Twin Cities metro is being built at the fastest pace in at least a decade, but not enough to satisfy demand in some parts of the region.

This month, Twin Cities homebuilders were issued 477 permits to build 1,208 units — the most since 2005, according to data compiled by the Keystone Report for the Builders Association of the Twin Cities (BATC). That was a 25 percent increase in permits and a 53 percent increase in units.

"With tight existing home inventory in the Twin Cities, there is a serious need for new home construction especially at the entry-level price point," said David Siegel, BATC's executive director.

There were significant gains in all types of housing this month, from suburban single-family houses to upscale rental projects, including a 27-story tower with 407 apartments that's about to be built near the University of Minnesota campus.

This month alone, 753 multifamily units received permits, 81 percent more than last year, and that construction is shifting from Minneapolis and St. Paul to the suburbs where there's been a dearth of apartment construction in recent years. In Apple Valley, for example, Stonebridge pulled a permit this month to break ground on a 126-unit apartment project to satisfy demand for a growing number of families renting by choice.

This month, those multifamily buildings represented 62 percent of all planned units, a much higher share than is typical because of several large projects that are about to break ground.

Despite a nationwide apartment construction boom that's been underway for several years, the U.S. Census Bureau said Thursday that the U.S. rental vacancy rate remained steady at 7 percent. The rental vacancy rate in the Twin Cities has been even lower, hovering at less than 5 percent since the 2008 recession. Vacancies are lowest in the suburbs, where there's been virtually no rental housing built over the past two decades. At the same time, the homeownership rate during the first quarter across the U.S. remained virtually unchanged at 63.6 percent compared with the same time last year. Homeownership rates across the country peaked in the early 2000s at nearly 70 percent and have been falling ever since.

And that's fueling demand for new houses. Builders in the Twin Cities were issued enough permits this month to build 455 single-family houses — a 22 percent increase over last year and mostly in suburbs such as Lakeville, Plymouth and Blaine, which have been the most active for new home buyers so far this month.

David Olson, Lakeville's community and economic development director, said that moderate weather has helped builders get a head start this year, and that construction in that city is on pace to match, or exceed, a forecast 350 new single-family houses this year. That figure is on par with the previous four years.

"We had a mild winter and obviously the market is really strong right now," said Olson. "But coming out of the recession we're still trying to figure out what the new normal is."

So far this year, builders have been issued enough permits to build 3,982 housing units across the 13-county metro, 1,551 units more than the previous year, according to the BATC report. The value of that housing is estimated at $716 million, 20 percent higher than last year. That increase is a reflection of a deepening focus on upper-bracket, move-up housing, though demand for less-expensive starter houses is off the charts. Builders say that it's not feasible for them to cater to entry-level buyers because of the rising cost of labor, land and materials.

"With another great month in permit activity we are on pace to have by far our best year since 2007," said Bob Michels, the BATC president. "When homebuilders are active and homes are sold, our communities grow, jobs are created and our regional economy generates opportunity. However, builders are still concerned about housing affordability due to increased costs from the labor shortage and the expensive regulatory environment we have in Minnesota."