2,500 new homes in downtown Duluth in 5 years? Maybe.

DULUTH — Duluth's downtown and surrounding area could be filled with up to 2,500 new housing units in the next five years, a study shows.

The city commissioned the downtown housing feasibility study as part of a larger effort to revamp the area as it emerges from the COVID-19 pandemic and wrestles with a longtime housing shortage.

With a 21% office space vacancy rate in 2022, the way to fill sidewalks with people again is with residents, said Kristi Stokes, president of Downtown Duluth, a nonprofit that promotes the city's waterfront businesses.

The study is "hopefully a roadmap," she said, for what's to come in the downtown and Central Hillside neighborhoods. It was conducted by Zimmerman/Volk Associates of New Jersey, which does residential market analyses.

But new developments and office space conversions depend on the city's willingness to make it easier for prospective builders, Laurie Volk, an executive with the firm, told a room full of business owners, developers, city staff and bankers Tuesday.

Help with building re-use regulations and the creation of a gap financing fund are both good ways to address the area's high development costs, she said.

"We had many interviews before we produced this study, and I heard over and over and over again about how expensive it is to develop in Duluth," Volk said.

The city already has a $16 million Housing Trust Fund to assist with development projects.

Downtowns are "the heartbeat of a community," and housing development is a critical piece of that, said Chad Ronchetti, the city's new planning and economic development director. "We don't want to be a hurdle; we want to be a partner."

The 100-plus page study included cost estimates for market rate and affordable housing, and likely demand for rentals, single-family homes, condominiums and townhomes.

It says an annual average of nearly 2,200 households across a spectrum of incomes makes up the market for housing in the downtown area over the next five years, with about 8,000 households making up the market potential for the entire city. More than half of the 8,000 is expected to be people moving within the city.

Mayor Emily Larson said the size and density of Duluth's downtown "makes this kind of study feel really possible to put into action quickly." Several other major downtown projects are newly completed or in progress, including the new St. Mary's Medical Center, the potential Northern Lights Express train and public library, and a new downtown housing project to be announced this week.

Returning to the level of use the area enjoyed before the pandemic means building density, she said, which will help support the rest of the city.

"What we know from other communities ... is that a significant portion of the property tax that is collected is yielded from downtown activity," Larson said. "And so it is really true when you invest in your downtown, it does end up supporting the rest of the community because the rest of the community cannot ... subsidize downtown."