Home building in the Twin Cities down for the third month in a row

For the third month in a row, single-family home building in the Twin Cities didn't keep pace with last year, but rental construction is rebounding.

Builders throughout the Twin Cities metro were issued 594 permits for new single-family houses in October, a 5% decline from the same month last year.

Multifamily developers, however, pulled enough permits to build 1,178 units, a 90% increase from October last year.

"Homebuilders are seeing a slight slowdown in homebuyer activity, especially compared to what we saw last fall," Todd Polifka, 2021 president of Housing First Minnesota, said in a statement. "As prices have gone up due to supply chain issues, permit delays and overall regulatory costs, more and more potential homebuyers are forced to sit on the sidelines."

According to data compiled by the Keystone Report for Housing First Minnesota, 646 permits were issued to build 1,772 units. As is often the case with multi-family housing, a single permit can be issued to build more than one unit. Most of that has been market-rate rentals in the suburbs, where developers planned to build 1,178 units.

One of the biggest projects is being developed by Twin Cities-based Timberland Partners, which got a permit last month to build a 246-unit apartment building in Eden Prairie called Paravel. The seven-story building will be built by Frana Cos., that com company's largest project to date. It's expected to be completed in 2023.

"We're still generally bullish and positive on multi-family," said Ryan Sailer, Timberland's vice president of real estate development. "We're seeing good occupancy and good demand."

He said rental development is seeing strong demand driven in part by the rising cost and limited availability of new homes. Land, labor and material are all in short supply and the inventory of new houses in the Twin Cities is limited.

"All eyes heading into the fourth quarter and beyond are on rising interest rates, and just like the homebuilding sector we're feeling the effects of rising construction costs and labor constraints," Sailer said.

Timberland, which has holdings in several other metropolitan regions, is seeing solid rent gains and low vacancy rates in most of the Twin Cities. Though the rental in the urban core is generally softer than it is in the suburbs, there are signs of improvement.

Across the metro vacancy rates are declining and rents are on the rise, according to the most recent rent surveys, while some rental owners in and around downtown Minneapolis and St. Paul are still offering concessions and in some cases modest rent discounts.

Sailer said that after opening another apartment building in Eden Prairie in late 2019, that building is already nearly full-occupied with rental concessions including free rent, burning off. He said the company also recently finished a deal in Woodbury, which is leasing up ahead of expectations without any concessions offered.

"Production should be up next year," he said. "But we're all suburban right now."

For homebuilders, comparisons to last year are being skewed by the pandemic, which pushed the spring home buying and construction into the fall. It also drove demand for larger, new homes that had space for home offices and at-home-learning.

From January through October, the total number of planned units is ahead of last year. Despite last month's decline, single-family construction for the year so far is outpacing the same period of 2020 by 23%.

For single-family construction, Lakeville continues to be the busiest city in the metro. Last month builders there were issued 68 permits, followed by Cottage Grove with 41 and Blaine 39.