Surge in demand has Twin Cities homebuilders scrambling

The housing recovery now underway in the Twin Cities is reaching all sectors of the home buying and rental market, an expert panel said this week.

City planners and real estate professionals attending a Sensible Land Use Coalition meeting Wednesday heard evidence that the current surge has created unexpected demand.

Michael Ramme, land acquisition manager for Ryland Homes, said his company is facing more competition for prime suburban land — a sure sign that the market is heating up.

"In the last five or six years, there really has not been too much competition in new construction," he said. "Now there's more homeowners out there, so you really have to figure out what is your market, who it is you're going after [with each development]. Is it the move-up buyer? The first-time home buyer?"

The market, he said, has improved to the point where builders are working ahead by two or three projects because of the faster pace of sales, prompting them to look more at doing longer-term developments, with lots numbering in the hundreds rather than in the dozens.

"You can establish yourself in an area and expect to be there for three to five years," he said.

Lender-owned land inventories, which once were plentiful in the wake of the financial crisis that drove many homebuilders out of business, are now starting to dwindle, pushing up land prices from their historic lows.

"Those developers that survived are getting back out there now and creating jobs," Ramme said.

"Re-platting" of never-built developments that were intended for townhouses are being changed to single-family homes — and those are selling, he added.

Especially popular in many areas are modest single-level homes — not only with young families, but also with empty-nesters who choose not to rent.

The construction industry, which had been decimated by the financial crisis, is also picking up thanks to new multifamily building in both core cities and in first-ring suburbs, added Rick Fenske, vice president of business development for Weis Builders Inc.

Fenske, whose firm is working on the conversion of the former Schmidt Brewery in St. Paul into artists' lofts as well as other projects, said the uptick has been remarkable.

"In 2009, the low point of the recession, we had 1,700 units built in the Twin Cities," he said. "We saw about a 50 percent growth over that in 2010, and by another 50 percent in 2012."

Senior housing was the biggest construction driver four years ago, but now has been overtaken by market-rate apartments, dominated by new activity in Minneapolis, including the University of Minnesota area, Downtown, Uptown, Loring Park and the North Loop.

"Those are the areas with the highest achievable rents," Fenske said. "Some of the products in the pipeline are looking at charging $2.25 to $2.50 per square foot."

Demand for multifamily housing, meanwhile, is being fueled not only by the "usual suspects" of retiring baby boomers and millennials in their 20s, but also by those in between, noted Mary Bujold, president of Maxfield Research.

From 1990 to 2010, the age group that saw the biggest increase in the percentage of renters was those between ages 35 and 44.

"In 1990, 23 percent of those people rented, and in 2010 that was up to 29 percent, while other age groups stayed fairly similar," Bujold said.

The housing action, she predicted, is likely to continue favoring the central cities and closer-in suburbs because potential buyers continue to be wary of rising gas prices.

"I think there's still some nervousness in the consumer marketplace about being too far out," she said. "They want to be closer to goods and services, and to be connected to public transportation if they think they'll need it."

Don Jacobson is a freelance writer in St. Paul.