Rochester has a housing problem. Mayo Clinic may be the answer.

ROCHESTER – The housing calculus in this community doesn’t add up.

Thousands of new workers are set to arrive over the next few years thanks to a multibillion dollar Mayo Clinic expansion. But Rochester isn’t building nearly enough housing to keep up with its current growth, let alone the massive staff increase coming to Minnesota’s No. 1 employer.

That’s why public officials are increasingly calling on Mayo Clinic to ramp up support for housing as the region prepares for a glut of new residents.

“Mayo’s going to have to step up in ways that Mayo hasn’t stepped up before,” said Doug Baker, a Destination Medical Center corporate board member, at a meeting earlier this month. “The city’s going to have to step up, the county, the state. We are all going to have to step up to make this happen.”

Mayo officials said through a statement that the system continues to collaborate with area groups on housing solutions.

“‘Bold. Forward. Unbound. in Rochester’ will take shape over many years, during which Mayo will continue to explore opportunities for collaboration with our community partners in this space,” spokesperson Kristy Jacobson said, referring to the name of its expansion.

Mayo has funded housing developments in the past. The hospital system helped build homes throughout Rochester’s history, including a development through the Rochester Area Foundation more than two decades ago that resulted in hundreds of new single-family homes for workers. The clinic also has donated more than $13 million to a local housing coalition over the past few years for various housing efforts.

Of course, the housing burden can’t all fall on Mayo’s shoulders, officials say.

“It has a regional impact, and we haven’t really had a strong, clear message that we can take up as a region to look at the opportunities here and how we can gear up,” Olmsted County Board Chair Sheila Kiscaden said.

Rochester is one of the fastest growing communities in Minnesota. It’s already the third-largest city in the state behind Minneapolis and St. Paul, with tens of thousands of people expected to move to the area over the next two decades.

Rochester only built a little more than 200 single-family homes in 2023, about half of the city’s typical annual goal. City staff told the Rochester City Council in January Rochester would need to add about 1,000 new single-family homes every year to meet 2030 expectations.

But that’s been the case for several years as developers shy away from workforce housing to build higher-end homes.

A 2020 housing study found Rochester needed about 14,000 new housing units – a mixture of multifamily, single-family, townhomes and condo developments – to keep up with the city’s forecast 2030 population. That was before Mayo Clinic announced its downtown expansion effort to add two new medical buildings and various support and logistics sites west of its main campus.

Work on the expansion will start later this year, and officials estimate about 2,000 construction workers will be needed for the project. It’s also unclear how many staff Mayo will hire once the new facilities open, starting in 2029.

Rochester does better with multifamily housing as the city continues to add apartments at a steady pace. It still isn’t keeping up with demand, however. Rents are drastically increasing in some places, and tenants don’t have enough housing options to become homeowners.

“The bottom line is we need more housing,” Community Development Director Ryan Yetzer said. “All housing units contribute to the affordable housing issues.”

City officials are looking into numerous incentives to encourage more housing, from tax increment breaks on residential developments to pilot projects for free reimbursements and more affordable senior housing. Staff will present more ideas to council members later this month. They’re also looking into potential temporary housing for construction workers in case the market becomes too tight.

Rochester even has more than 5,500 acres ready for development on lots northwest and northeast of the city. But the city can only do so much, according to Yetzer.

“At the end of the day, we need some players to help us move the needle on housing,” he said. “We feel like we’ve prepared land and we’re ready for the housing. We just need a willing player and a willing seller to bring all that together.”

Some organizations have launched their own housing initiatives. The Coalition for Rochester Area Housing (which includes the city, county, Mayo and local nonprofits) recently launched a no-interest loan program for developers of affordable housing projects to build homes valued at less than $350,000. The coalition, which Mayo helped found, also tries to create or renovate homes on its own – more than 200 thus far since it started in 2017.

“We’re really looking for innovative solutions and looking to partner with builders, too,” Coalition Director JoMarie Morris said.

Developers still may not take the risk, according to real estate agents and builders. Material costs have gone up sharply in the past few years, even before the pandemic. Wages aren’t keeping up with housing costs, which is why more builders are taking on high-end projects.

“There are a ton of reasons why we’re so far behind,” said Patrick Sexton of the Rochester Area Builders Association. “Inflation, interest rates, effects of the mortgage meltdown and COVID, government fees, and land, material and labor costs all have played a part.”

At the same time, some real estate agents say the city is too strict in its efforts to promote single-family homes in the northern part of the city while ignoring land that could be developed on the southern outskirts. They also take issue with Rochester’s focus on promoting more multifamily housing near the downtown area.

Some apartment projects on the outskirts of town have, in recent years, run into trouble. A Texas developer’s plans for apartment buildings in northwest Rochester were shot down last summer after they tried to build on land already marked for low-density housing. The City Council sided with staff, voicing concerns over service sprawl and infrastructure demands.

Yetzer said developers still are interested in apartments, just not always in places city planners have marked out as part of a 2040 comprehensive plan.

“Hopefully, over time those things even out naturally,” he said.

Local real estate agent Jim Miner has tracked housing sales for almost two decades. He said Mayo’s housing forays were successful in the past — one project through the Rochester Area Foundation had contractors building homes “like they were going out of style.”

Miner also said he expects Rochester to continue adding only 200 to 300 homes a year – if that – in the foreseeable future unless a group like Mayo Clinic steps in.

“We are market driven, there’s no question about that,” he said. “It’s supply and demand. The supply is low and the demand is great, so prices will continue to go up.”