Why does Duluth have a housing shortage if the population is barely growing?

DULUTH – According to the census, Duluth barely grew over the past decade. According to the past year in the local real estate market, it's a region on the rise.

What gives?

Low interest rates, folks seeking scenic work-from-home enclaves and a lack of homes for sale are all driving up home prices in the area — the median sale price was $215,000 last month, 12% higher than last summer. But the very nature of the housing market has changed as well.

Part of it is a cultural shift away from large families, so that population growth is centered more around migration rather than births.

"I don't necessarily accept the narrative that Duluth isn't growing, given all the complex factors," said Noah Hobbs, lending director with One Roof Community Housing in Duluth. "We need more units in 2021 than we had in 1960," even though the city had 20,000 more residents 60 years ago.

That gets to the demand issue — more, but smaller, households are looking for homes in the area.

But they aren't finding many.

Since 2010, Duluth has gained a total of just 36 single-family homes, according to city data. Several years saw more houses demolished than built, a testament to a housing stock that is far older than the state average.

"That's our Achilles heel," said Shaina Nickila, president of the board of Lake Superior Area Realtors (LSAR). "It's that age-old question, do we invest in renovating old homes or do we invest in new construction?"

Hundreds of multifamily units have been added to fill in the gaps, and hundreds more rental units are coming online in the next several years.

The same can't be said of single-family construction, at least in Duluth city limits.

"I hope that will start to turn, and if we can get some new construction, that will help our inventory and stock of new homes and what we have to choose from," Nickila said.

The record median home sale price set in June, $249,900, dropped to $215,000 last month, according to LSAR data. Local real estate activity slowed a bit as frustrated buyers backed off, regrouped or maybe went on vacation, Nickila said, which reduced competition and helped keep prices lower.

"July is always a little quieter, and I do believe we are seeing some buyer fatigue — but I would not look ahead to any slowdown," she said.

Listings are still well below average for this time of year and were 23% lower than July 2020. And sellers continue to get more than asking price on average — a trend not seen in the local market before this summer.

Hobbs said thousands of people are trying to move to the area, and the disconnect between census figures — a snapshot of Duluth in 2020 — and the red-hot housing market that simmered last year and started boiling in 2021 won't be resolved until new population estimates come out.

"Are we really not growing? A lot of new units are coming online a year or two after the census," he said.

Those buying homes in the area are having the most luck in Hermantown, which added 807 residents in the past decade to reach 10,221 residents — an 8.5% population increase. Duluth, meanwhile, gained 432 people since 2010, an increase of 0.05%.

Hermantown has made its growth possible through an abundance of developable land and a development-friendly approach to encouraging growth, said City Administrator John Mulder.

"Certainly there is some opposition to growth, but we are trying to do that in a reasonable way," he said. "We're trying to allow people to develop their private land so they can have a return on investment and people can move in, and we have new neighbors, and we have more people we know building a sense of community."

Yet the median home sale price reached $387,000 in Hermantown last month, a 9% increase from July 2020 but a jump of 43% from July 2019.

While driven in part by increased costs for new home construction, that price spike keeps many Hermantown homes out of reach for most of the region's residents.

Affordable housing is in short supply across the country, and the latest report from Harvard's Joint Center for Housing Studies said current trends make for an uncertain long-term outlook.

"Falling birthrates, sharply lower immigration and higher-than-expected mortality rates have already left population growth at its lowest level in 100 years," the report said. "Although this slowdown may help to alleviate the current imbalance between housing demand and supply, it also has serious implications for the broader economy."

More immediately, "new construction can only do so much to ease short-term supply constraints," the report said. "To meet today's strong demand, more existing single-family homes must come on the market."

Yet that's the very thing keeping many from listing their homes in the first place — there's seemingly nowhere to move.

"I've got folks who are getting ready to sell but don't know where they're going next," Nickila said. "We're all just patiently waiting for the shift."

Brooks Johnson • 218-491-6496