The economics of building apartments in the Twin Cities doesn't work, and it could be a long time before it does.

Why it matters: The metro area is already undersupplied on housing. A staggering decline in multifamily building could drive up prices in the years to come.

By the numbers: After peaking at 15,500 in 2022, permits issued to begin apartment construction in the metro fell to 5,000 last year and are on an even slower pace this year, according to preliminary data from the U.S. Department of Housing and Urban Development.

Zoom in: Sherman Associates has been one of the most prolific local developers in recent years, building hundreds of units in Minneapolis and beyond.

• The company doesn't have a single project under construction right now, and as CEO Chris Sherman told Axios, his Minneapolis firm can't make it work without public subsidies.

State of play: The typical cost to build a midrise apartment building (think four to five stories) has reached $320,000-$340,000 a unit in the Twin Cities, Sherman said.

• Meanwhile, the average price paid for Class A apartment buildings was $223,400 per unit last quarter, said Heidi Addo, a broker who sells multifamily communities for Michel Commercial Real Estate.
• This massive gap is a nonstarter for most developers, especially merchant builders, who develop apartment communities, fill them up with renters and then sell.

The big picture: Rising construction costs, heightened interest rates and rent growth of just 1.4% are the primary causes of the slowdown.

Friction point: Sherman said apartment sales prices will have to eclipse $400,000 per unit before his firm begins building again, with the exception being projects that receive public subsidies, like the one they're working on in St. Louis Park.

• "The numbers are just upside down — and not by a little, but a lot," Sherman said.

What we're watching: Both Addo and Sherman believe rent increases are coming. Addo is already tracking major hikes in areas of the metro where few units have been delivered in recent years, particularly the northern suburbs.

• Sherman said the sweet deals renters have been getting — like free months of rent for new leases — will be drying up soon.

The bottom line: Real estate goes in cycles, and after a boom from the mid-2010s until the early-2020s, we're now in a down cycle.

• Renters should enjoy the (relatively) good deals while they last.

Go deeper on wha't's causing the slowdown

Minnesota is home to more people who speak Hmong or Somali at home than any other U.S. state, per capita, new census data show.

The big picture: Across the U.S., roughly one in five people speaks a language other than English at home — with each tongue offering insight into the colonial histories and immigration patterns that shape the nation.

Zoom in: With 207,300 speakers, Spanish was the most common non-English language spoken at home in Minnesota between 2017-21.

• That was followed by Hmong (71,410), Somali (64,480), Vietnamese and related langauges (21,170), German (17,740).

Between the lines: More than 62% of Minnesotans who speak another language at home also say they speak English "very well."

Explore the national trends

🎓 The University of Minnesota has proposed across-the-board cuts to academic programs and the biggest tuition increase in 14 years on the Twin Cities campus. (Star Tribune)

⛳️ The U also plans to sell the struggling Les Bolstad Golf Course, setting the stage for a redevelopment that could transform the city of Falcon Heights. (KARE 11)

🚸 Ramsey County officials plan to spend $730 million — which had been set aside for a now-canceled streetcar line through St. Paul — on making streets friendlier for buses, cyclists and pedestrians. (Star Tribune)

⚖️ Jurors convicted Derrick Thompson on charges stemming from a 2023 crash that killed five young Somali American women in South Minneapolis. (Sahan Journal)

Legislators return to the Capitol today for a "one-day" vote-a-thon to finish the state budget.

Why it matters: The narrowly divided Legislature has to get a balanced budget done this month to avoid a partial shutdown.

What we know: The session will begin at 10am, per a deal signed by Gov. Tim Walz and all four caucus leaders Friday. The list of over a dozen pieces of legislation on tap includes:

• Outstanding spending and policy bills covering areas such as schools, transportation and human services.
• A measure that will roll back state-subsidized health care access for undocumented immigrant adults.
• A $700 million capital investment package that earmarks about $270 million for roads, bridges and water projects.
• A bill containing regulatory and tax changes for data centers.

Friction point: Key elements and details of the special session agreement were negotiated behind closed doors over the last week, and some finalized measures still hadn't been publicly released as of Sunday night.

The fine print: Under the deal, the session must adjourn by 7am tomorrow — aka the end of the "legislative day" that starts this morning.

• That means lawmakers will have to plow through debate and votes on hundreds of pages of policy and appropriations in less than 24 hours.

Amendments to the bills will not be accepted, unless leaders sign off.

What we're watching

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Over 2,000 people flooded Lake of the Isles Parkway Saturday afternoon for Loti Pencil's biggest sharpening party yet.

• This year's gathering, which celebrates the sharpening of the dull point on the 16-foot-tall pencil sculpture, included two Swiss alphorn players, stage-diving human pencils that worship a giant sharpener and a Prince tribute in honor of the star's birthday.

Audrey's thought bubble: Last year's event drew around 400 people. While still a great time, this year felt like the first Saturday of the State Fair.

See highlights on our Instagram.