At the midway point of the year, the Twin Cities residential construction market continues to be a house divided with strength in single-family construction starts tempered by a major slowdown in planned units for apartment projects.
Builders and developers pulled permits for 587 new housing units overall in June, including 563 single-family houses (up 15% year-over-year) and 24 multifamily units (down 88%), according to the Keystone Report, which tracks permits in the 13-county metro area.
For the year to date through June, cities have permitted 3,077 single-family homes (up 29%) and 1,619 multifamily units (down 38%), according to Keystone. Thanks to the strength in single-family construction, overall planned units in the first half of 2024 are down only 6% from last year.
Multifamily construction starts, however, have been in decline for a while now. The first half of 2023 saw permits for 2,391 multifamily units, which was down 66.2% from the same period in 2022.
Local housing market watchers blamed rising interest rates, tighter lending requirements, and steeper construction costs for the slowdown last year -- and at least some of those market forces continue to create headwinds and headaches for apartment developers.
James Vagle, CEO of Housing First Minnesota, said the single-family sector continues to do well amid those challenges in part because the market is undersupplied.
What’s more, he said, single-family builders are “problem-solvers” and have been able to work with homebuyers on financing challenges.
“I think the amount of move-in ready homes is also very attractive to homebuyers. The industry has responded to the market challenges, and we've seen some very steady performance from that.”
Though Housing First Minnesota represents primarily single-family builders and remodelers, Vagle said he’s concerned about the slowdown in multifamily housing because the area needs all types of homes.
“As people think about housing supply, it's housing units of all types. We can't solve housing supply with just single- family construction. It's good news that single-family has remained steady. But we need townhomes, condos, villas. We need apartments. We need we need all of it,” Vagle said.
Cecil Smith, president and CEO of the Minnesota Multi Housing Association, said the housing pipeline is “drying up rapidly,” which is not good because the area needs more housing and housing is an “important driver in the economy.”
Smith said there has been some conversation about an interest rate reduction before the end of the year, but “if they drop it, it’s only going to be a quarter of a point. If you're looking at it from a development point of view, we are essentially going to be in the same interest rate environment all the way into the first part of next year.”
Though construction starts are down, at least some apartments are moving advancing in the pipeline.
JO Companies recently received preliminary development approval from the Richfield Housing and Redevelopment Authority for a proposed $21.4 million, 42-unit apartment building on a site that includes a vacant HRA-owned property 6501 Penn Ave. S. in Richfield.
The project, known as Penn Station, would create homes for households at 30% or less of the area’s median income, and help the city meet its goal to “maintain Richfield as an affordable place to live,” as previously reported.
Johnny Opara, founder and owner of JO Companies, said Wednesday that next steps include a funding application to the Minnesota Housing Finance Agency. If plans come together, he said, construction could begin in the second or third quarter of next year.
Opara points to a number of culprits for the overall slowdown in multifamily, including the interest rate environment, the high cost of insurance, property taxes and other economic pressures.
“Developers are being more cost-conscious and trying to be realistic in terms of dealing with increases in these line items. So I'm not surprised by multifamily permits being down from the year prior,” Opara said.
“But I am still optimistic that our industry will continue to deliver high-quality projects for the Twin Cities. We have a huge need when it comes to fulfilling the state's desired goal of delivering over 114,000 new constructed homes, and that includes multifamily.”
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