Pandemic hammers Twin Cities homebuilders as permits drop 42%

Homebuilders in the Twin Cities metro are still hammering and digging, but with every aspect of the industry affected by COVID-19, builders remain unseasonably cautious.

Housing First Minnesota, a trade group that represents area homebuilders, said that despite a shortage of existing houses on the market, permits to build single-family houses declined 42% during June. That was the second month in a row for year-over-year declines and nearly twice the decline compared with May.

"The housing industry is seeing the effect COVID-19 is having on new-home starts," said Gary Kraemer, a Twin Cities-based custom homebuilder and president of Housing First Minnesota, in a statement.

Although Gov. Tim Walz deemed the industry an essential service at the start of the pandemic, builders have faced a raft of challenges including mandatory social-distancing rules for job sites, rising costs and delays on municipal building inspections. And while record-low mortgage rates have helped fuel bidding wars in some parts of the metro, the prospect of a second wave of infections and the threat of a prolonged recession has many builders wary of maintaining deep inventories of unsold homes.

According to data compiled by the Keystone Report for Housing First Minnesota, 421 permits were issued to build 1,401 houses and multifamily units last month.

Of that total, 391 were for single-family houses and 1,010 were for multifamily units — a nearly 26% increase in multifamily units over last year. A single permit can be used to build multiple units; those multifamily units tend to vary dramatically month to month.

Nick Erickson, director of research and regulatory affairs for Housing First, said that in addition to adapting to new marketing and sales protocols that essentially banned open houses for a time, builders have been wrestling with how to comply with COVID-related guidance, which was revised Thursday and went into effect on Monday.

The Minnesota Department of Labor and Industry's updated guidance said in part that all general contractors must have COVID plans covering worksite activities and must ensure all subcontractors and any other entity operating on their sites have plans in alignment with one another. That includes requiring a detailed log of every visitor to a building site and daily worksite health checks.

Given the tight turnaround between issuance of the new rules and implementation, Housing First and a coalition of construction groups were able to delay enforcement until after the July 4th holiday weekend.

"We recognize the importance of following all COVID prevention measures and our members are happy to comply," Erickson said. "But there were a lot of implementation questions that needed clarification before enforcement could begin."

A recent survey of residential and commercial construction activity in the Twin Cities during May by Dodge Data & Analytics shows steep declines in both sectors so far this year.

It shows that the value of all construction during the first five months of the year was down 37% compared with last year with commercial/nonresidential construction declining 51% compared with a 26% decline for residential projects.

Jim Buchta • 612-673-7376