Single-family housing starts in the Twin Cities dipped into negative territory this month for the first time in more than a year, while apartment construction continued to fall far behind last year’s pace.
In September, cities in the 13-county metro area issued permits for 705 new housing units (down 52% year-over-year), including 524 single-family homes (down 20%) and 181 multifamily dwellings (down 78%), according to the Keystone Report.
The year-over-year decrease in single-family permits comes on the heels of mostly double-digit gains dating to June 2023. More recently, however, the percentage increases have been smaller. Compared to last year, single-family permits were up 1.3% in July and 2.6% in August.
Despite the setback in September, single-family permits are still comfortably ahead of 2023 for the year to date. Through September, metro area cities have permitted 4,536 new single-family homes this year, which is up 12% from 2023, according to Keystone.
James Vagle, CEO of Housing First Minnesota, said the past month was a more “normalized” September compared to last year. The double-digit year-to-date gains, he added, indicate that the single-family housing market remains solid.
“Looking ahead, we see strong demand and an undersupply of housing as two very strong indicators for home building growth,” Vagle added. “Add in the projected moderation in interest rates, and I think there's a lot of runway for new home construction growth in 2024 and into 2025 and beyond.”
In another hopeful sign, Vagle said, Housing First Minnesota has seen strong foot traffic for its Fall Parade of Homes event. More than 330 new homes are open for tours during the Fall Parade of Homes, which runs through Sept. 29.
Vagle said it’s not surprising that consumers are interested in new homes.
“The fundamentals of the housing market favor growth in new home construction, both in the short and midterm,” Vagle said, adding that Minnesota has an undersupply of 100,000 homes.
On the multifamily side, planned units were down 78% in September and are off 71% for the year to date, according to Keystone.
Also in September, the Federal Reserve took long-awaited action on interest rates. With inflation moderating and signs of a slowdown in the job market, the Federal Reserve cut its benchmark interest rate by a half-point .
“We know that it is time to recalibrate our [interest rate] policy to something that’s more appropriate given the progress on inflation,” Fed Chair Jerome Powell said at a recent news conference as reported by the Associated Press.
Cecil Smith, president and CEO of the Minnesota Multi Housing Association, said the Fed’s rate cut is encouraging, but he doesn’t expect the move to suddenly open the floodgates for new apartment construction.
“Hopefully [the rate cut] is the inflection point on the trend line, and we'll see when that materializes into new permitting,” he said.
“The fact that we haven't been engaging in any constructions starts, and permits are not being pulled, we're going to have a significant lull in deliveries,” Smith said, adding that deliveries likely won’t pick up again until 2027 or 2028.
Top cities for planned housing units in September were Lakeville (17 permits, 105 units), Carver (seven permits, 66 units), Rogers (47 permits, 47 units), Woodbury (39 permits, 39 units), and St. Michael (36 permits, 36 units), according to Keystone.
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