Twin Cities expected to see steepest drop in new apartments
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The Twin Cities is expected to see the biggest decline in apartment construction of any major metro in the country, according to a recent report.
Why it matters: A recent building boom has helped the Twin Cities remain one of the most affordable places to own or rent, and an impending slowdown could threaten that status.
Stunning stat: Builders are on pace to break ground on about 5,000 apartments in the metro this year, compared to an average of nearly 13,000 per year between 2019 and 2023, according to federal building permit numbers analyzed by Axios.
Zoom in: While higher interest rates have caused a slowdown nationwide, there are several factors at play in the Twin Cities market.
- Developers overbuilt here, particularly in downtown Minneapolis and the southwest suburbs. Developers — and investors — will be reluctant to build more until the new units get filled.
- Some developers have warned that St. Paul's rent control policy and the threat of one in Minneapolis are scaring away investors (though advocates counter that the slowdown also reaches into the suburbs).
What we're watching: One local developer told Axios that the recent cuts to interest rates won't make a difference. Rents will need to increase significantly before developers are willing to spend more.
- Minneapolis-based developer Sean Sweeney posted in August that rents in the city would need to grow "15-20% to justify the cost of new construction."
- Rents will likely start rising to the tune of 3.5% or 4% in the second half of 2025, Brent Wittenberg, Twin Cities apartment market expert with Marquette Advisors, predicted during a May event.
The big picture: RentCafe, which is predicting a 42% drop in new apartments in the Twin Cities, is predicting a nearly 4% decline nationally.