Nearly 20,000 new apartments have been built over the past two years, but construction is quickly tapering. This year, only 7,350 units are in the development pipeline, followed by 3,785 in 2025, according to new data from Marquette Advisors.

That flow of new apartments into the metro is easing at a time when demand — and rents — are on the rise.

“We’re already seeing some significant tightening across most Twin Cities submarkets,” said Brent Wittenberg, senior vice president at Marquette Advisors, which tracks more than 160,000 apartments across the seven-county metro.

Exceptions are parts of Minneapolis, especially downtown, and some southwest suburbs, he said.

The Marquette report does not reflect income- and age-restricted rentals, which are even harder to find with yearslong waiting lists.

Since the beginning of last year, developers have added about 4,300 apartments in the southwest metro and more than 2,300 in Minneapolis; those two regions account for more than 60% of recent construction and about half of all demand. Downtown Minneapolis is expected to see more than 1,600 new apartments by the end of this year, but none in 2025.

“The good news is,” Wittenberg said, “absorption is fairly robust in those areas as well — there is just much more new product in those parts of the market and it will take some time for that to absorb.”

Across the Twin Cities, the average monthly rent at the end of March was $1,490, a 3.6% increase over the same time last year. Rents were nearly flat in parts of the metro that have seen the most new construction, including downtown Minneapolis and St. Louis Park, but some increases topped out at about 10% in Chanhassen and New Hope.

Many parts of the metro are setting up for more substantial rent growth over the next year or two, Wittenberg said. With vacancies at less than 4% in many suburbs, he said, tenants can expect rent increases of 3.5% to 4% by 2025.

Wittenberg said he expects rent growth across the metro to be in the 2% range this year and slightly stronger in 2025.

“With many submarkets becoming undersupplied fairly quickly, the opportunity for owners to become more aggressive on rents continues to improve,” he said.

Already, rent gains in the Twin Cities are among the highest in the nation. In April, monthly rents in the Twin Cities rose 10.3% over last year to $1,665, the biggest increase among 33 of the nation’s biggest metros, according to a report released Friday by Redfin, which tracks median asking rents in newly listed apartments in buildings with more than five units.

Nationwide, the average rent was $1,648, up 1.1% compared with last year. Rents increased the fastest in the Midwest, which is still among the most affordable regions to live, while declining most in Sunbelt states where construction has been most robust.

Redfin attributes rising demand to higher mortgage rates, which have forced some renters to delay homeownership because housing costs are near an all-time high.

“I do think rising mortgage interest rates are making the rental market more competitive,” said Dan Hylton, research manager at Housing Link, a Twin Cities nonprofit that provides resources for those looking for affordable housing.

Rents remained “persistently stable” through the pandemic, he said, but have increased consistently over the last 15 months.

“There’s just not enough units of housing in general,” Hylton said, referring to both for sale and rental housing. “And those with lower incomes are the ones to lose out.”

As of March, he said, 96% of Minneapolis rentals on the market are affordable to a family making the seven-county metro area median income, which is $124,200 for a family of four, but none are affordable to those making 30% of that area median.

“Basically, the private market is simply not set up to serve those in that bottom 30 percent of income,” Hylton said. “And that puts a lot of perpetual strain on income-restricted units.”

Like would-be homebuyers who are renting instead of buying, developers are being thwarted by higher interest rates.

Cecil Smith, president and CEO of the Minnesota Multi Housing Association, said developers are eager to add more apartment projects to the drawing board but financing a market-rate apartment building has only gotten more difficult, putting many developers on the sideline. Higher construction costs and a more restrictive regulatory environment, including rent control, he said, have also made it more challenging — and expensive.

“Developers will always build if the have the capital, but they don’t have debt or equity capital,” he said. “There are a lot of headwinds for development.”