Homebuilding busts out in Twin Cities in May

Twin Cities homebuilders had their best May in at least a decade.

Last month, 496 permits were issued to build 830 units, according to a report from the Builders Association of the Twin Cities. That was a 38 percent increase in permits and a 61 percent increase in units compared with May 2015.

"We're seeing a lot more sales come across our desk," said Randy Bacchus, director of Edina Realty's new construction division. "Consumers are feeling a lot more comfortable."

After years of trailing the broader recovery in Twin Cities residential real estate, homebuilders are busier than since before the 2008 recession. A shortage of existing houses is forcing buyers to consider new construction. The lowest mortgage rates in a generation are also helping driving sales.

Demand is extreme for entry-level new houses, but homebuilders struggle to find land that's inexpensive enough to keep the total cost of a home below $300,000.

"Building in the $300,000 to $350,000 range is still extremely difficult," Bacchus said.

Of the 496 permits issued during May, 479 were to build single-family houses (a single permit can be issued to build more than one unit). That was the most in a decade.

For most of the past several years, apartment construction dominated the Twin Cities, accounting for more than half of all planned units. But in May, multifamily housing accounted for 42 percent of all planned units.

Most of those multifamily units were upscale rental apartments that broke ground during the month.

That included a 145-unit building in St. Louis Park being built by Big-D Construction; a 54-unit building in Minnetonka that was permitted by Frana Companies, and a 66-unit building being developed by IRET Properties in Monticello.

Because of that apartment construction, St. Louis Park accounted for the most permitted units (146) during the month, followed by Lakeville (94), Monticello (79) and Minnetonka (57).

As the luxury apartment boom has been focused on Minneapolis, the city has been the most active in the metro area for residential construction. But last month, because apartment construction has begun shifting to the suburbs, only 40 units were permitted in Minneapolis.

Meg Jaeger, president of the Builders Association of the Twin Cities and owner of a small custom homebuilding company in the Twin Cities, said the latest numbers are a breakthrough for builders. "Builders are seeing an increase in activity, but are still cautiously optimistic," she said.

High land and labor costs pose obstacles, she said, as do higher regulatory costs associated with new building codes, municipal fees and park fees.

Jaeger said there's been a notable increase in the number of millennials contemplating a new house and that's helping drive sales of the least expensive houses. At the opposite extreme, sales of luxury houses are also on the rise. She said that several builders have a backlog of customers who want them to build houses worth more than $1 million.

"We're seeing much higher demand than they did a year ago," she said. "Everyone is pleasantly surprised by what we're seeing."

Jim Buchta • 612-673-7376