May 15, 2024 - News

The cranes that dotted Twin Cities skylines are disappearing

Illustration of a construction crane hook with a downward arrow instead of a hook.

Illustration: Brendan Lynch/Axios

The Minneapolis 2040 plan that allows for denser housing is back, but don't expect to see the city start booming with apartment towers again.

Why it matters: The plan was just one of many factors that contributed to a spike in new housing construction that several experts have credited with keeping rents in the Twin Cities from growing as fast as other metro areas in recent years.

Stunning stat: For the past 16 months, wage growth in the Twin Cities has outpaced rent growth, according to Jay Parsons, a national rental housing economist who spoke at a Minnesota Multi Housing Association symposium last week.

  • For typical renters, that's meant their income has grown faster than their rent, a rare bright spot during a period of high inflation.

Reality check: While a handful of Minneapolis projects couldn't get permits due to the legal battle over the 2040 plan, the biggest factors driving a massive slowdown in new development are high interest rates and a glut of new properties in downtown and the southwest suburbs that still need to fill up.

  • Downtown was hot with construction from 2018 through 2023 and the last wave of new projects will add another 1,600 units this year and early next, according to Brent Wittenberg, an expert on the Twin Cities apartment market for Marquette Advisors.
  • That glut of new apartments will help drive the downtown vacancy rate to 9.1%, well above the metro rate of 5.1%, he said, adding that he's seeing strong leasing in downtown.

By the numbers: Minneapolis in recent years has issued construction permits for about 3,500 housing units annually, but only 800 between March 2023 and March 2024, according to federal housing data.

What we're watching: Because of that slowdown —which extends into much of the metro — Wittenberg expects rents to start rising to the tune of 3.5% or 4%, starting in the second half of 2025.

Between the lines: While a vast majority of the new apartments have been upscale and expensive, Parsons said they have filtered renters out of lower-priced units, creating vacancies in more affordable units.

What they're saying: Laura Russ, an executive with the nonprofit affordable housing developer Aeon, said at the symposium that the trend has forced her company to become more competitive for qualified renters because it's competing with more buildings.

  • "It's in many ways good for residents because it's giving them a lot more options," she said at the symposium. "Truthfully, before, I think we could rest a little too easy on our laurels and think, hey, if we have affordable rents, people will come to us. We are really having to up our game on the level of quality housing and our services that we provide to our residents."

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