The numbers don't lie: Twin Cities needs more housing

Twin Cities metro residential construction activity in 2017 was at its highest level since before the recession, finally getting the region back to its 45-year average after 12 straight years below it, a new Metropolitan Council analysis of last year's municipal building permit totals shows.

But despite the continuing construction rebound, the study also found that among its peer U.S. markets, the Twin Cities area still faces one of the sharpest disconnects between housing supply and the demands of a growing population.

The analysis of last year's building permit data was performed by the Met Council's community development research unit and presented in St. Paul this week under the title "We Need More Housing." That's a none-too-subtle distillation of its key findings that found the pace of new residential unit production is not keeping up with a metro-area population forecast to reach 3.5 million in 2030, up 21 percent from 2.9 million in 2010.

Among the good news in the report was that the number of building permits issued around the region has completely rebounded to its long-term average following a dive that began before the 2008 recession. Permits were issued for 15,652 residential units in 2017, including both single-family homes and multifamily buildings, besting the 45-year average of 15,319 units for the first time since 2005.

The scale of last year's housing construction boom is even more apparent when contrasting it solely to other recent years. Using a "net change" standard in which housing units lost as well as those added during are taken into consideration, 2017 saw a net change of 15,226 units added — a significant surge above the average since 2000 of 12,733 units added and fully 11 percent above the 2016 totals.

The Met Council analysis also revealed that, much as in recent years, it was multifamily construction leading the way in 2017 with 60 percent of the total units permitted. Since 2010, apartments and other types of attached housing have accounted for 64 percent of the net change in metro-area housing.

And, in contrast to the rest of the U.S. market, multifamily construction here hasn't peaked or plateaued. Nationally, apartment construction has slowed down after reaching a high point in late 2016, with lower totals forecast for this year and next. But not so locally: 2017 was the biggest year yet for multifamily construction and the Met Council is forecasting it to comprise an even bigger share of the residential development pie going forward.

One reason for that is contained in the more alarming part of the analysis: Even with the recent construction recovery, the Twin Cities remains woefully short of the levels of new housing production needed to satisfy the demands of a growing population, especially relative to peer markets across the country.

The measure used by the Met Council researchers was to compare the rate of housing growth to that of population growth across 12 popular U.S. markets. By that metric, the Twin Cities ranked behind only San Francisco and Atlanta in the failure of new housing production to keep pace with population growth — the latter led the former by 43 percent locally. San Francisco was 59 percent behind, while the Atlanta market was 49 percent behind. In contrast, Chicago and Pittsburgh were the only two markets where housing growth actually outpaced that of the population.

Meanwhile, the disconnect between supply and demand was being reflected in tight vacancies and rising rents for multifamily units and a lack of for-sale listings for existing single-family homes.

The vacancy rate for both sectors combined was 4 percent in the metro, the report found. With 5 percent generally being accepted as the industry standard for a balanced housing market, the researchers determined that an additional 13,400 units would be needed immediately to reach that "balanced" status — a level of extra housing production roughly equal to a typical year's entire output.

Don Jacobson is a freelance writer based in St. Paul. He is the former editor of the Minneapolis-St. Paul Real Estate Journal.