Homebuilding increased in the Twin Cities last year, but mostly for apartments

Twin Cities homebuilders gained ground in 2015, chiefly driven by demand for new apartments, according to a year-end report from the Builders Association of the Twin Cities.

Throughout the 13-county metro area, 4,899 permits were issued to build 10,208 units, up from 10,093 in 2014. Of those units, more than half were apartments; 4,679 were single-family homes, up just five units from 2014.

"We had hoped to see a much stronger year in 2015," said Chris Contreras, the Builders Association of the Twin Cities' 2015 president.

Although some metro-area builders posted healthy gains over the previous year, sales of new single-family houses have yet to regain the kind of momentum that other segments of the industry have experienced over the past several years. Instead, apartments have led the construction recovery, reflecting a deep and long-term shift in the way people live in the Twin Cities.

As it has for the past several years, Minneapolis was the most active city in the region for new housing. The city accounted for 1,470 of the new units. Edina was No. 2 with 604. The vast majority of the new housing built in both cities was upscale apartments.

Last year, U.S. homeownership fell to a 48-year low despite an increase in the number of people in need of housing.

Instead of buying, many are renting, putting significant pressure on the rental market in the Twin Cities, where until recently there had been a nearly two-decade lull in apartment construction.

Since January 2015, 5,750 apartments have become available in the metro area, but the average vacancy rate fell slightly to 2.3 percent by the end of October, according to a quarterly report from Marquette Advisors.

Meanwhile, new home sales haven't met expectations. Builders blame the situation on a variety of issues. Contreras said the regulatory climate in Minnesota, for example, has increased the cost of new houses, making it difficult for builders to compete with less expensive existing homes.

New energy and building codes were implemented in the state last year, including a mandate that required large houses to have built-in fire sprinklers. Builders said the cost of compliance would add tens of thousands of dollars to the cost of an average new house, and they successfully appealed the rule to the Court of Appeals, which invalidated it. "We are hopeful that more families will be able to afford their dream home in 2016," Contreras said.

Todd Stutz, president of Twin Cities-based Robert Thomas Homes, said that higher construction costs, including labor and materials, has made it particularly difficult for builders to compete.

Still, the company was able to increase sales in 2015. The company built 124 houses last year, 18 more than the previous year. "We were satisfied with 2015," Stutz said. "We considered it a relatively stable, uneventful year."

Stutz and other builders said that a late-season increase in sales suggests an early and strong spring market in 2016. During December alone, 386 permits were issued to build 1,041 units. That was an 8.7 percent increase in permits and 5.5 percent increase in planned units from the four comparable weeks of 2014.

Graham Epperson, division president for Pulte Homes, a large national builder, said that though Pulte's Twin Cities sales were up 35.5 percent over the previous year, the company expected more.

He also noted a late-year uptick. "We had a very good December and are feeling some good momentum in early January," Epperson said.

One of the challenges in 2016 will be to attract a broader range of buyers, including first-timers and empty nesters looking for less space. So the company is rolling out more affordable side-by-side houses at The Enclave, a new development in New Brighton. Those three-story townhouses will have at least 1,900 square feet and a three-car garage and will be priced in the $300,000s.

Epperson said Pulte's Minnesota business was one of the company's fastest-growing divisions last year. "We think the Midwest has a tremendous opportunity to grow much faster than it is today," he said. "But a lot of people are choosing to rent."

Jim Buchta • 612-673-7376