Homebuilder advocates have repeatedly said that the Twin Cities needs more housing, but so far this year only one of the two major residential construction sectors is doing its part to meet the rising demand for shelter.
That trend continued in May as single-family housing starts in the 13-county metro area grew by double-digit margins compared with last year, while multifamily homebuilding slowed to a crawl, according to the latest permit data.
The Keystone Report reveals that cities in the 13-county metro area have permitted 665 new single-family homes in May, up 37% from May 2023. Year-to-date single-family housing starts (2,432) are now 35% ahead of last year (1,801).
Meanwhile, cities have permitted only 45 multifamily units in the past month, down from 91% from May 2023, and 843 units for the year to date, down 58%. The biggest apartment project permitted in May was a 39-unit building at 1900 22nd St. E. in Minneapolis, according to Keystone.
Andy Babula, director of the Real Estate Program and the Shenehon Center for Real Estate at the University of St. Thomas , said construction costs are “still quite high,” while interest rates remain “stubbornly high,” which is creating headwinds for multifamily construction.
At the same time, he said, property owners have not been able to raise rents enough to keep up with the cost of construction.
“It costs more to develop the property than it’s worth once it’s built, and so that’s why people are slowing down,” Babula said. “And lenders are more stringent with their underwriting.”
Construction costs and interest rates also affect single-family construction, but not to the same extent because the value of a single-family home is driven in large part by personal needs and family situations, Babula said.
“They don’t love having to pay 7% interest rather than the 3% interest of a couple of years ago. But if they have a growing family or if they have to move for a job, then they’re going to buy the home nonetheless,” he added.
On the single-family side, the 665 homes permitted in May are comparable to the levels of 2018 or 2019, Katie Elfstrom, vice president of brand marketing and communications for Housing First Minnesota, said in an email.
“Except for 2021 and a tie with 2019, this was our strongest May since 2006,” she added.
James Vagle, chief executive officer of Housing First Minnesota, said May was “another strong month” for single-family construction.
“The momentum continues. I think it speaks to the undersupply and depth of the demand. There’s a strong demand for housing in our market. We just don’t have enough homes,” Vagle said.
The slowdown in multifamily construction is “the concerning side of the ledger,” Vagle added. “We need all types of homes: apartments, condos, townhomes single family. The only way out of our undersupply is to build more homes of all types.”
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