Homebuilders in the Twin Cities are off to a running start this year, but topping 2018 won’t be easy.
Last month metro-area builders were issued enough permits to build 440 single-family houses, making it the best January in a dozen years, according to the latest data from Housing First Minnesota, a trade group that represents builders.
A new report, however, shows a deepening shortage of developable land in places where new home buyers want to live and that a shortage of workers is leading to construction delays, according to the Twin Cities office of Metrostudy, a national company that tracks all facets of development and construction.
That report said there were a record 7,487 new home closings last year, 7 percent more than the year before. Danielle Leach, Midwest regional director for Metrostudy, said the Twin Cities is one of the strongest construction markets in the Midwest but warns that a growing gap between starts and closings is an indication that houses are taking longer to complete and deliver to buyers.
That’s because of a shortage of workers and delays in product deliveries also caused by labor issues in the manufacturing world, she said.
She said there’s only a 13-month supply of vacant lots that can be developed in communities that have accounted for half of all market demand, but a much deeper supply of lots in areas that have been far less appealing to buyers.
Hennepin County accounted for 20 percent of all starts and closings last year, but the top submarkets included several outer-ring suburbs such as Otsego, which was the hottest housing market in the Twin Cities, according to the Star Tribune’s 2018 Housing Market Index, because of a sudden spurt of homebuilding in that exurban community where land is more plentiful and less expensive.
“There are still growing housing affordability pressures in the new construction market that need to be addressed in order to meet the demands of home buyers,” said David Siegel, executive director of Housing First Minnesota.
John Rask, president of Housing First and a vice president of the Twin Cities division of M/I Homes, said the 9 percent annual increase in single-family permits during January is an indication builders are scrambling to finish orders placed at the end of last year and they’re stocking up on houses to sell to spring buyers.
“The warmer weather at the beginning of the month allowed us to get a few extra starts,” he said. “We also see an opportunity to sell specs [houses] this spring.”
Apartment construction, which can be volatile from month to month, was down significantly. During January developers were issued enough permits to build 309 units, mostly market-rate rental apartments, nearly half as many as the same time last year.
The largest projects permitted included a 144-unit project being developed by Ryan Construction in Minneapolis and a 50-unit building by Alliance Building Corp. in Cambridge.
Though the industry faces headwinds, Rask said most builders are optimistic about the market this year and he expects sales to slightly exceed last year.
“Many builders also entered 2019 with a healthy backlog of sold homes to start,” he said. The shortage of [existing] homes on the market should make for a good spring.”