Inventory is down, prices are up, record numbers of permits are being issued. What is going on with both single-family and multi-family housing in Minneapolis? Is this the beginning of a new growth cycle? If so, where will it lead?
New Activity for Housing Starts
According to recent reports, the increase in new permits over the same period last year represents a 15% increase over 2019, for both single-family and multi-family starts. However, based on statistics from the Minneapolis Association of Realtors, there has been a decline in housing inventory of approximately 15%. Housing First Minnesota spokeswoman Katie Elfstrom notes that more families are choosing to build new homes because there are fewer homes currently available on the market, particularly in suburban areas. This supports additional information shared by the Realtors Association in early February regarding record-high prices for homes sold in 2019. The annual median home price in the metropolitan area reached $280,000 last year, continuing an eight-year trend of price increases. In 2011, the average was at a low point of just $150,000, following a staggering drop of 35% from the pre-recession high of $230,000 in 2006.
The market rebound is viewed as a direct result of a better economy and record-low mortgage rates. The 2019 median price reflects an increase of nearly 87% in just nine years.
The housing picture in Minneapolis, however, isn't that clear.
Mixed Messages for Multi-Family Housing
Planned condo towers and multi-use projects have also been in the news recently, with brisk pre-completion sales reported at one new project in downtown Minneapolis. Eleven is a luxury development on the riverfront, a joint project between Ryan Companies US Inc, based in Minneapolis, and Arcadia LLC, headquartered in Edina. In mid-February, it was announced that more than half of the planned 118 units have already been sold. Prices begin at $900,000 for the luxury condominiums. Groundbreaking was last October for the $190 million project, with reported sales steady during the normally slower months of a Minnesota winter.
Principals also make clear that these reported sales are more than "reservations," noting that buyers have made substantial commitments, including purchase contracts and commitments that "would be hard to leave sitting on the table," as explained by Ryan Companies Director of Real Estate Development Carl Runck.
The developers spent an upfront $1.5 million on the sales center for the property, situated in the Mill District. The construction loan for the project, which also includes 17 penthouses at the top of the 41-story tower, and ground-floor retail and restaurant space, was reportedly “the largest construction loan ever secured for a condominium project in the state of Minnesota.” No dollar figure, however, was disclosed.
However, another developer nixed continuing plans on a luxury development across the river, noting that the time was not right for another million-dollar-plus condo tower in downtown Minneapolis. Alia, conceived by local developer Alatus LLC, was to have been a 40-story high rise with 214 condos, located across the Third Avenue Bridge from downtown. It was a project that had been on the drawing board for years, with approval finally granted following delays caused by litigation.
Another development currently underway in the urban core, the RBC Gateway Project situated at Nicollet and Washington, includes 31 high-priced condos in addition to a Four Seasons Hotel and office space. Renovation activity continues to provide new downtown living space, but there is little available that is considered affordable in the current market, posing a dilemma.
A spokesperson for Golden Valley–based real estate firm Maxfield Research and Consulting notes that the prices aren't too much of a stretch for local residents who choose to move downtown after selling suburban homes for a profit. But existing close-in housing doesn't meet the needs of an increasing number of new hires at local businesses.
Balancing Business Growth, Jobs and Housing
By all accounts, the strong business growth of the past few years will continue into 2020 and beyond for Minneapolis. Although some analysts see slower year-over-year growth ahead, very few expect a substantial downturn or a loss of jobs in the immediate future. Concern over providing housing for new arrivals in the city, however, continues to mount. One way that need might be addressed is through rehabbing of existing housing rather than building new. With construction prices still trending upward, and labor shortages continuing to plague the construction industry, simple home remodels continue to provide new opportunities. House flipping, while not a guarantee of profit, typically involves fewer trades, and requires less labor and less time than new construction.
That is also confirmed by new data from Hennepin County. With approximately 1,000 flips in the county in 2019, nearly one-third of those reported statewide, the numbers tell the story. Stats for the past two years are virtually the same:
- Minnesota's flippers earned a gross profit of just under $63,000 per project;
- ROI for an individual house flip was 35.2%;
- Only 175 days, on average, were required for a successful flip.
Data was provided by ATTOM Data Solutions, which pulled national information from sales deeds.
The Minneapolis 2040 Plan and the Immediate Future
Clearly, there is a market in Minneapolis for housing and a need for innovative solutions to the housing crunch.
The city has already taken the initial steps by becoming the first city in the nation to revamp residential zoning, allowing builders and developers to integrate smaller multi-family housing into formerly single-family neighborhoods. Developers have also joined forces with city officials and employers in an effort to supply housing—rental apartments as well as affordable condos and single-family homes—in neighborhoods adjoining employment centers. The bold Minneapolis 2040 Plan envisions a future of smaller communities that focus on integrating "people-friendly" services and live-work opportunity with environmental sustainability throughout the city.
Whether it's possible to enact the broad vision in time to provide immediate relief for spiralized housing costs remains to be seen. But the fact that city leaders recognize the need and have asked local residents to share the vision is encouraging enough at this point.
Solomon Greene, housing policy expert at Washington, D.C.'s Urban Institute, notes that there is "no silver bullet" to solve a situation that has been building for a long time. But, as he notes, Minneapolis is one of the most aggressive in the nation in its efforts to expand the city's supply of housing, both through greater density and new policies.
The praise is warranted—and time will tell where it leads.