Twin Cities builders turn attention from apartments to new homes

Homebuilders are slowly gaining ground on apartment developers in the Twin Cities.

So far this year, single-family permits are up 10.4 percent compared with the previous year, while multifamily units — mostly rental apartments — have increased only 4.4 percent, a new report from the Builders Association of the Twin Cities said Thursday.

Those gains signal a major shift for housing development in the metro area. Rental apartments led the construction recovery and have dominated the industry for the past several years. But that's changing, with demand for new single-family houses on the rise and concerns that some rental markets are on the verge of saturation.

The situation is the result of shifting demographics and a shortage of existing houses. Though new listings have been on the rise, buyers are outpacing sellers in many communities, especially the inner-ring suburbs that are close to jobs and public transportation.

"We know that families are struggling to find homes in the community they love, which is likely fueling the continued rise in new single-family homes," said Meg Jaeger, president of the builders association.

But this month proved an exception to the trend because of permitting for two big apartment projects. In August, homebuilders in the 13-county metro were issued 465 permits to build 888 units. That represents a 1.6 percent increase in single-family permits and a 48 percent increase in multifamily units.

On Thursday, Lennar Multifamily broke ground on a 20-story apartment building that was just permitted at the former Superior Plating site across the Mississippi River from downtown Minneapolis in northeast Minneapolis. That project, Nordhaus, is being built on a contaminated site at 315 1st Av. NE. that has been in play for several years and was the subject of several other development proposals that weren't embraced by the neighborhood.

For the month, Minneapolis took the top spot with 220 permitted units, including the Lennar project, followed by Blaine, with 219 units. Lakeville was third with 42 units.

The second big apartment building permitted this month was a 191-unit market-rate apartment building in Blaine.

The Lennar project is just the second major apartment building to start construction this week in Minneapolis. On the downtown side of the river, in the Mill District, Sherman Associates held a groundbreaking ceremony for its East End Apartments project along Chicago Avenue between Washington Avenue and S. 3rd Street. The project will include about 180 rentals atop retail space that includes the city's first Trader Joe's ­grocery.

Just a few blocks from the Lennar project, site prep is underway on a six-story, 72-unit mixed-use apartment project that will replace the shuttered Nye's Polonaise Room on a half-acre site at 116 E. Hennepin Av. that's being called the Montage.

Homebuilders across the country are seeing more demand and feeling more confident, mirroring the latest local figures. The most recent Wells Fargo/National Association of Home Builders Housing Market Index showed a 2 point increase this month, rising to a reading of 60, which is now slightly above its year-to-date average of 58.9.

Economists with Wells Fargo say the increase signals a shift from rental apartments to single-family construction, which is expected to continue in the coming year.

Randy Bacchus, director of the New Homes Division at Edina Realty, said that many sales are being driven by an influx of millennials who are getting married and starting a family and want a new home in the suburbs. Agents are also entertaining a growing number of queries from baby boomers who are trading their multilevel houses for one-level living in inner-ring suburbs that are closer to urban ­amenities.

"They're a big piece of this puzzle," he said. "As they move, they create opportunity."

Bacchus said that growth of the Fall Parade of Homes, which goes from Sept. 10 to Oct. 2, is a sign of changing fortunes for builders. The free tour, the largest marketing event for builders, will feature 423 homes, up from 380 last year. Entries range from a two-bedroom detached townhouse in Isanti that's listed at $189,950 to a sprawling house in Edina that's priced at $2.6 million.

"Everyone wants to see more growth, but we're in a very healthy market," he said. "We're now seeing more stable growth."

Jim Buchta • 612-673-7376