In Rochester, locals fret over housing shortage, high rents and expected population boom

A projected worker influx. Apartment owners seeking more flexibility to rent their units. And increasing rents as property owners adapt to the market.

Rochester’s housing market is strapped as it is, but local officials are carefully watching for distortions in the market that could throw rents for Minnesota’s third-largest city out of whack next year as the city prepares for potentially massive growth amid an ongoing housing shortage.

“We are seeing more and more rents continuing to go up,” Olmsted County Housing Director Dave Dunn said. “We hear every day from clients that we provide rental assistance to that their rents are increasing.”

Apartment rents in Rochester are comparable, if slightly lower than, their metro-area counterparts in large part due to the area’s continuous growth. Mayo Clinic’s $5 billion downtown expansion is set to bring thousands of workers to Rochester over the next few years. Mayo officials and city staff estimate construction alone is bringing close to 2,000 workers to the area.

Those workers are bringing in decent salaries, often higher than the thresholds allowed at some income-controlled units.

In response, some apartments are trying to change how they rent.

Bryk on Broadway, a 180-unit complex, opened in March 2023 with financial backing from Destination Medical Center, among other groups, after it promised to offer income-restricted units to residents.

The project’s owners persuaded local officials shortly after the building was finished to loosen restrictions on some of its higher-end workforce housing units — those that could only be rented to people who make about or below 80% of the area median income (AMI), which is the standard for income-restricted workforce housing.

“There are no rental subsidies attached to those,” Dunn said. “It’s just the rent itself is lower.”

Area median income differs based on how many people are in a household. In 2023, 80% of Olmsted County’s AMI came out to just above $66,000 for a single-person household, and more than $94,000 for a family of four.

Bryk on Broadway officials at the time argued they couldn’t find enough renters for higher-end workforce housing units because everyone who had applied made more than the income restrictions.

Homestead Village, an affordable-housing complex in southeast Rochester, tried to make the same argument when it asked the Rochester City Council in October to ease restrictions on some of its apartment units, arguing that about a fifth of its units are vacant because applicants make too little or too much to qualify.

Council members ultimately rejected the proposal. But several expressed worry that the area wasn’t doing enough for lower-income residents, who make up about 30% of Rochester’s population.

“Every day we talk to people … who say, ‘I can’t afford the rents here,’” Rochester Mayor Kim Norton said earlier this month. “So the people that tell me, ‘I can’t rent’ — why aren’t you able to rent when there are people knocking on our doors saying, ‘I can’t afford your rents?’”

Norton recently led a community-wide survey on goals the city should work to achieve by the year 2050. The Vision 2050 survey results haven’t been released to the public, but Norton said the top priority by far for respondents was housing at all levels.

Property owners and managers in the Rochester area and beyond say they have little choice in setting rents as operation costs increase.

A recent report from the Federal Reserve Bank of Minneapolis outlined some of those concerns, from increasing insurance costs to trouble keeping staff as operations costs increase. Some property owners are keen to develop more apartment complexes — thereby offering more units and potentially bringing down rents as the supply keeps up with demand — but they’re having trouble securing financing at affordable interest rates.

“We hear a lot of concerns about kind of a perfect storm for producing new housing,” said Ben Horowitz, a policy analyst at the Minneapolis Fed.

Data on rental market fluctuations is hard to come by. Rochester property owners and managers often track other property listings in the community to get a sense of the local market, but there’s little centralized public data on rent shifts in housing like there are for home sales among real estate groups.

But Horowitz found that the Rochester area is arguably better for renters than other greater Minnesota communities, according to data compiled from real estate group Zillow.

Tracking rental data from summer 2023 and the same period in 2024, Olmsted County rents increased by about 3% on average, in line with metro-area increases. Other outstate counties where data was available show far greater rent hikes, with nearby Winona County at close to a 14% rent increase and Blue Earth County — which includes Mankato — at close to 7%.

When analysts see smaller rent increases as in Olmsted County, “we tend to think that, at a very high level, that means the area is seeing a reasonable amount of [housing] production relative to the demand,” Horowitz said. “The supply and demand are matching up maybe better than where you’re seeing higher rent growth.”

Though they welcome smaller market changes, local officials point out that a little rent increase doesn’t matter as much if rents are high to begin with. Olmsted’s average 2023 summer rental payments tracked by Zillow came to just over $1,600 a month, just below Hennepin County’s average rents. Winona County’s average in 2023 was about $940, jumping to about $1,070 the next year.

Norton said she’s heard from residents who rent that they are on the brink of being pushed out of their homes. And Dunn said rental assistance costs from the county continue to creep up, to as much as $900 on average for an apartment unit.

“Every time that happens, we have the ability to serve fewer and fewer people,” Dunn said.

Local officials also hope to find more ways to connect renters in need to apartments with vacancies. Rentals in the Rochester area rarely, lower prices, but they do offer rent deals for the first few months to entice customers. And some turn to short-term rental agreements for patients in town if they can’t fill units.

Officials say federal action is needed to simplify income-restricted housing to correct some of the distortions in the area’s rental market. Any action to help residents find homes is welcome, Norton says.

“It’s the one issue we hear about every day,” she said.