New housing lags demand – Finance and Commerce

A new report from the Metropolitan Council offers more proof that housing production in the Twin Cities isn’t keeping up with demand, even as permits for new homes soared in 2019 with only a slight drop-off in 2020.

The Residential Development Trends report also shows that the Twin Cities’ had one of the worst housing shortfalls compared with similar regions in the past decade, and that senior housing’s share of the metro area’s overall multifamily housing market is shrinking, among other findings.

Despite ongoing COVID-19-related headwinds and rising construction costs, the seven-county metro area should continue to see robust homebuilding throughout the rest of 2021, according to the report.

“The demand for housing remains strong, fueled by years of production shortfall and steady population growth in the Twin Cities,” Joel Nyhus, a Met Council researcher, said at the council’s Committee of the Whole meeting Wednesday.

Based on recent permit activity, 2021 “should be a banner year for permitted single-family and multifamily units,” Nyhus added.

The annual report, based on data submitted by metro area cities, takes demolished units into account, so the numbers reflect net changes. New housing units include a combination of new construction, additions and conversions.

Put simply, there’s ample demand for more units, according to the report.

Nyhus said the Twin Cities’ 9% increase in housing units from 2010 to 2020 is “not keeping pace with the 10.7% increase” in the region’s population. Among peer regions, the 9% increase is ahead of only San Francisco, Boston, Pittsburgh and Chicago, Nyhus said.

In 2020, the metro area issued 19,262 housing permits, down 4% from the previous year, according to the report. It was the first year-over-year drop since permits declined by 17% from 2013 to 2014.

From a historical perspective, however, permit activity continues to be robust. In 2019, permits exceeded 20,000 for only the fourth time since 2000, and the 19,000-plus permits issued last year was the second-most since 2004.

Permits issued in 2020 include 12,472 multifamily units, 5,703 single-family houses and 1,013 townhomes. Among the multifamily units added in 2020, 12% are age-restricted — a “notable decline from recent years,” according to the report.

By comparison, age-restricted units made up 26% of all new multifamily housing units in 2017, 35% in 2018, and 22% in 2019, Nyhus said.

Jill Johnson, a Minneapolis-based senior housing consultant and owner of Johnson Consulting Services, said the lower market share stems in part from COVID-19 and strong growth in age-restricted housing prior to 2020.

“COVID’s impact on the industry can’t be minimized,” Johnson said. “You had developers who might have been planning on doing multiple deals that had sites that opened after COVID hit. And for a number of them, their occupancies didn’t ramp up with the absorption speed that they had expected or hoped for. That has created delays.

“And in a state like Minnesota, we already have a lot of senior housing. There’s already been significant development since 2017. And so you had a bigger baseline to start with.”

Metropolitan Council staff is taking a “wait-and-see attitude with respect to senior housing permits, and definitely will continue to monitor to assess any long-term patterns and effects of the pandemic,” Bonnie Kollodge, the Met Council’s senior communications manager, said in an email.

“Given a one-year drop in senior housing permits, we’d be reluctant to identify a trend. Even if there is evidence of market saturation, that doesn’t mean the region isn’t or won’t see construction of more housing restricted to seniors,” Kollodge said.

“We have an aging population. By 2050, we anticipate the region’s population 65 and older will make up more than 20 percent of the population.”

Breaking the numbers down by city, the report showed that Minneapolis added the most units in past decade — and it wasn’t even close.

Between 2010 and 2020, Minneapolis produced 29,236 units. Rounding out the top 10 are St. Paul (8,625), Lakeville (6,012), Woodbury (5,696), Maple Grove (4,856), Blaine (4,387), Plymouth (3,877), Eagan (3,002), Bloomington (3001, and Minnetonka (2,956).

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