Pandemic made 'unusual' Duluth rental market

DULUTH – While home prices continue to soar in the region, the average rent for a two-bedroom apartment fell 20% in Duluth last year, in part due to fewer college students in the area and more people buying homes.

For the first time in several years, the city had a "healthy" rental vacancy rate of about 5%, twice what it was in 2019, according to the city's recently released housing indicator report. The resulting higher supply of rentals meant better deals for some renters — though on average rent increased 4% last year, and already the market is tightening again.

"It was such an unusual set of circumstances," said Jason Hale, the city of Duluth's senior housing developer. "Landlords are now saying they have no problem filling units. I think we're going to see continued pressure until we add more housing stock."

Local college enrollment was down by more than 1,100 students last year, the report said, and a number of students took local classes online while living in another city, resulting in "unusual vacancies in student housing; this is likely to stabilize in 2021."

Duluth landlord Barbara Montee said 2020 was a difficult year. "Last year I lost thousands of dollars on a house that students normally would rent and did not due to COVID, and none of the COVID support money is available for me," she said. "I rented out my guest rooms in my house to pay the bills."

More renters decided to try their luck in the buyers market last year as many figured: "If I have to be stuck at home all the time, now is the time to buy a home," Hale said.

That pressure from buyers and a severe shortage of listings has quickly pushed home prices to record highs. Last month the median sale price in Duluth reached $220,000, a 9% increase from May 2019, according to Lake Superior Area Realtors. For the first time area sellers were, on average, getting slightly more than their listing price — and often much more.

But help may be on the way.

Over the next 18 months, more than 500 new units will be added as a number of housing developments are completed around the city.

"Supply and demand isn't everything, but in this case, injecting 500 to 700 units will help relieve some pressure," Hale said. "These have been years in the making, and it's a culmination all at the same time."

In addition, a student housing project at Lake Superior College is expected to break ground next spring, and the University of Minnesota Duluth has a new dorm planned as well.

"That would be nice," said Montee, who notes that she is already seeing rentals go faster and that "students are hopeful again."

"I think we still have not seen the full effect of remote work on Duluth," Hale said.

While two-bedroom rental units saw the biggest average price drop in 2020, the average rent for one-bedroom apartments also dropped 17%, to $779. Other types of units saw rents increase.

Montee predicts as property taxes and insurance costs continue to rise, rent will keep pace.

Hale said many factors will continue to "play into this shake-up of the housing market."

"I don't know how long it will take for us locally, nationally and internationally to get our arms around the impact of COVID on the economy and housing," he said.