Building permits off, but townhouses remain bright spot for Twin Cities

Homebuilders had a much better month than apartment developers in the Twin Cities metro in November, where construction declined slightly but outpaced the nation.

Builders were issued 539 permits to construct 1,333 units, according to a monthly report from Housing First Minnesota. That includes enough permits to build 503 single-family homes, 14 percent fewer than last year, and 830 new multifamily units, a 36 percent decline compared with last year at this time.

Townhouses and entry-level houses were a bright spot. Home sales have been buoyed by strong sales of the least-expensive houses, mostly side-by-side townhouses in smaller developments in inner-ring suburbs. Permits to build townhouses doubled this month.

"The rise in townhouse production is a direct result of builders seeking to provide a more affordable product in order to reach the highest array of buyers," said Tom Wiener, a homebuilder and president of Housing First Minnesota.

Housing permits — an indicator of future construction — along with a handful of local and national reports, show that housing construction in the Twin Cities metro has been relatively strong compared with other markets despite falling temperatures and rising prices for everything from land to labor.

Apartment developers are still on pace to build a record number of units in some areas, but that momentum has eased slightly during the past few months. This month, the biggest multifamily project permitted is a 185-unit building on what's known as the Sons of Norway site in the Uptown neighborhood in Minneapolis. It's being developed by Twin Cities-based Ryan Cos. and Washington-based Weidner Apartment Homes.

Across the country, new home sales during October fell 8.9 percent compared with last year, according to a Census Bureau report released Wednesday. But revisions to previous months' data show that summer sales were much stronger than expected, taking the sting out of what is widely considered a dismal October.

It was far from an awful October for Brooke Boss, a sales agent with Keller Williams Integrity. The new home specialist is selling new townhouses for Shade Tree Construction in a small subdivision in Mounds View. With units priced from $289,000 to $309,000, including finish upgrades, that's a rock-bottom price for new construction in that area, she said, and they have been selling fast — but not quite as quickly as last year.

She said that new townhouses in the area took a little longer to sell last month, and showings are down slightly compared with last year.

"This spring things were selling so fast, but it's tapering off a little and people are coming back to reality," she said. "It's getting closer to being a more-balanced market."

New-home sales in the metro have been robust, with the biggest gains coming in sales of the least-expensive houses, according to Metrostudy, which tracks the progress of every subdivision in the metro. Its observers also track the availability of undeveloped and buildable lots in the region. It shows that during the third quarter, new-home starts outpaced the national average, with a 9.6 percent increase.

Danielle Leach, Metrostudy's Midwest regional director, said the third quarter saw 7,992 starts, 7,412 closings and 6,906 new lot deliveries. Leach said the widening gap between annual starts and closings over the past four quarters is primarily due to labor constraints that are increasing the time it takes to build a house. At the same time, the supply of vacant developed lot inventory has remained flat, especially in municipalities that are reluctant to approve higher-density projects.

"Minneapolis remains a strong, expanding new-home market evidenced by starts exceeding closings," Leach said. "With labor and material cost increases expected to outpace resale price appreciation, homebuilders will likely struggle to take price increases in the upcoming quarters."

Jim Buchta • 612-673-7376