For Twin Cities builders, 2020 was year of the single-family home

Despite a global pandemic and a recession that clamped down on much of the economy, single-family homebuilders in the Twin Cities had one of their best years since 2005.

During 2020 metro-area builders were issued permits to build 14,245 housing units, including rental apartments and for-sale houses, according to data compiled by the Keystone Report for Housing First Minnesota. Though the overall number of planned units was down compared with the previous year because of a decline in rental construction, demand for new houses surged. During the year builders pulled permits to build 6,439 single-family houses, nearly 5% more than the previous year.

"We spent more time in our homes this year, and it is clear that it has had an impact on the entire housing market," said Todd Polifka, 2021 president of Housing First Minnesota and a Twin Cities builder.

Apartment construction, however, faltered. During the year enough permits were issued to build 7,806 multifamily homes, mostly market-rate rentals. That 16% annual decline followed several years of steady annual gains for apartment construction, which led the industry out of the previous recession.

Multifamily construction, which tends to be volatile from month to month, was tempered during the last half of the year by rising vacancy rates in downtown Minneapolis and St. Paul where demand for rentals has softened in the wake of office closures and rising crime. According to the latest figures, the average vacancy rate in some urban areas is nearing double-digits, forcing some developers to cancel or delay some buildings.

For-sale real estate, however, has been an outlier in an economy that has otherwise struggled. But with more people working and studying from home, homeowners and renters alike have re-evaluated their priorities for both space and location. Before the pandemic, demand for existing homes was already strong, but with mortgage interest rates falling to new lows toward the end of the year, demand only increased at a time when listings hovered near all-time lows. With many buyers looking for bigger houses and larger yards, demand for new construction has been strong.

Polifka, a custom homebuilder who specializes in upper-bracket houses, said his company sold more homes than the year before and he expects 2021 to be even better.

"Before [COVID-19] people wanted to be in that inner-ring loop because they had easier access to downtown, but with corporations and other business changing how they view the workforce, people are getting more flexibility for location and they're able to work whenever they want," he said.

"We've known for a long time that the demand for new housing was out there, but that many were simply waiting for the right time. It seems that low interest rates and a sudden need for new space have pushed many to make the move in 2020."

That was especially true during the last half of the year when demand typically slows. But with the spring buying season delayed by stay-at-home orders, more single-family permits were issued last month than in any December since 2005.

Last month alone, homebuilders pulled 681 single-family permits, a nearly 60% increase over the previous year.

"While 2020 has been a great year in terms of new housing units, it's also been a year of steep home price increases, which is not so great for housing affordability in our region," said David Siegel, executive director of Housing First Minnesota, in a statement.

For the year, Minneapolis was the busiest city with permits to build slightly more than 3,000 houses and apartments, followed by Lakeville with 988 and Maple Grove with 900.

Jim Buchta • 612-673-7376