Construction of affordable apartments will rise in Twin Cities, though still far short of demand

Developers will build a greater number of affordable apartments in the Twin Cities in 2016 than in recent years, although not nearly as many as the market needs, new data showed Monday.

About 1,000 new affordable rentals will hit the market this year, far short of the 4,200 new units needed annually to keep up with demand, according to an analysis by Thomas O'Neil, a vice president at Dougherty Mortgage in Minneapolis.

The report suggests a deepening crisis in affordable housing, which is defined as what can be paid by households earning 50 to 60 percent of median income in the Twin Cities.

Although there's been an unprecedented apartment building boom, the vast majority of those new units have been luxury apartments in downtown Minneapolis and surrounding suburbs. Rents far exceed the affordable market.

"Less spent on housing means more money can be spent on other items such as food, transportation and household goods," O'Neil said. "New affordable housing thus spreads economic benefits across a much broader sector of the economy."

The demand for inexpensive housing is deep and growing. Nearly 600,000 households in the state pay more than 30 percent of their income for housing, a 69 percent increase since 2000, according to Minnesota Housing.

To help combat the problem by funding more projects, the agency has made a request for a $90 million bonding package, including $70 million for infrastructure, which includes housing.

"Even when the resources go up, demand far outweighs what we're able to accomplish," said Megan Ryan of Minnesota Housing.

Building affordable housing can be difficult if the basic costs of land and construction can't be recovered by rents.

"It is a crisis of growing demand and lack of available funding to support the level of development that is needed in the market," said Mary Bujold of Maxfield Research. "Unless the Legislature would expand funding dramatically, I do not see many developers moving into this arena."

She also said that in communities where developers want to build, neighbors sometimes stand in the way.

O'Neil's latest research shows that at this point, there are only 1,500 affordable units in the pipeline to be delivered next year and beyond, creating a shortfall of at least 3,200 to 3,500 affordable units each year.

Overall, developers are expected to build at least 4,500 rental units in the metro area this year, about 10 percent fewer than last year.

That shortage is especially pronounced in densely populated urban areas where there's access to public transportation. O'Neil's report also shows that light-rail transit lines can be a catalyst for the construction of such housing. About 46 percent of the new income-restricted apartments that have been built this decade are within a quarter mile of the LRT Green or Blue lines.

"This shows that developers believe that securing sites near LRT lines is worth the risk and that transit access is clearly a marketable feature for families with low and moderate incomes," O'Neil said.

The bulk of that affordable housing development is still happening in Minneapolis and St. Paul rather than the suburbs, where the vast majority of people live in the metro area.