Robust year for new homes

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Rising development costs and other barriers to new construction weren’t enough to keep the Twin Cities from reaching a 16-year high in new homes permitted during the past year – but builders say the robust production isn’t enough to satisfy demand.

In 2021, the 13-county metro area added 15,781 new single-family and multifamily housing units – a 6% increase from 2020 and the highest total since 2005, when 18,255 total units were permitted, according to the Keystone Report and Housing First Minnesota.

The totals include 7,629 new single-family homes, up 14.5%, and 8,152 new multifamily units permitted, down 1.2%, according to Keystone. The single-family totals are the most since 2005, when 8,773 permits were issued, according to Housing First Minnesota.

“The good news is, production is up. Builders are responding to market demand. The bad news: it’s not enough,” said David Siegel, executive director of Housing First Minnesota.

“I know people have a hard time believing this because they see construction everywhere,” Siegel added. “But we still find ourselves substantially shorter of units to accommodate the growth in the metro market.”

Among the factors driving new construction is the shortage of existing homes for sale. As of October, the Twin Cities’ supply of inventory was down to 1.4 months, well below the Minneapolis Area Realtors’ definition of a balanced market (four to six months).

Todd Polifka, 2021 president of Housing First Minnesota, said in a statement that the “shortage of homes for sale in the Twin Cities and the demand for new housing has now reached a level that we have not seen before.”

Still, Polifka describes the market as “very challenging.” Barriers to new construction include a shortage of labor, regulatory restrictions, and supply chain costs, according to Housing First Minnesota.

Development of affordable single-family homes is especially challenging, builders say.

Siegel said builders “are capable of building the more expensive product. But they’re not capable of building that less expensive starter home. That really is the focus in 2022 — to tell that story about the challenge of constructing that [more affordable] market-rate affordable house.”

Overall permits were up in 2021 despite a slowdown at the end of the year. In December, the metro area permitted 642 new single-family houses, down 8.8%, and 270 new multifamily dwellings, down 58%, according to Keystone.

The hottest cities for single-family construction in 2021 were Lakeville (669 permits), Woodbury (536), Cottage Grove (485), Otsego (391) and Blaine.

Cecil Smith, president and CEO of the Minnesota Multi Housing Association, said multifamily development began moving from the core cities to the suburbs in 2021. He expects that trend to continue in the coming year.

In general, people are discovering “the advantage of renting your home and owning your life,” Smith said. “People have had that experience downtown and that kind of product is now being built in the suburban markets.”

Rent control, inclusionary zoning, and public safety concerns are creating headwinds to development in the urban markets, Smith said.

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