Housing construction in the Twin Cities metro rose nearly 17 percent in July, but most of that gain was apartments.
Homebuilders were issued 454 permits to build 1,293 units last month, according to data compiled by the Keystone Report for Housing First Minnesota, a program of the Builders Association of the Twin Cities.
Based on total production, it was by far the best July in at least a decade. Multifamily housing, mostly rental apartments, represented 65 percent of all construction activity during the month for a total of 851 units, a 32 percent increase over last year. The number of single-family permits, however, was down 5 percent compared to July 2016.
"Even with the slowdown in single-family activity this month, we expect to see continued growth in single-family construction in 2017," said Bob Michels, president of Housing First Minnesota. "We remain concerned that the labor shortage facing our industry will impact the housing market."
The decline in single-family construction comes after several months of annual gains, but both types of housing are extremely volatile from month to month. For example, just a couple big apartment buildings can skew multifamily construction much higher, while the opening of a large suburban development can radically boost permits for single-family housing.
With the supply of existing houses on the market running near historic lows, homebuilders are under increasing pressure to increase production, especially of houses that are affordable to first-time buyers.
In his periodic analysis of the local market, Herb Tousley, director of the Real Estate Programs at the Opus College of Business at the University of St. Thomas, said that while house listings have increased slightly, total inventory has consistently been 15 to 20 percent lower than a year ago and 20 to 25 percent fewer than two years ago.
"While the construction of new homes has picked up notably this year, we are still not building enough new homes to build our way out of the current short supply situation," he said. "It will take many more new listings to get the housing market more balanced in terms of supply and demand."
On the rental side of the market, apartment developers are shifting their focus from the urban areas of Minneapolis and St. Paul to the mostly developed suburbs where there hasn't been any apartment construction in two decades. For example, the Opus Group was issued a permit to build 243 units along Lincoln Drive in Edina, making that suburb the busiest city for the month with 436 planned units. Minneapolis was second with 172 units and Mendota Heights was third with 150.
Despite the decline in single-family construction last month, builders in the metro are still on pace to easily beat 2016. So far this year, builders were issued 3,416 permits to build 7,645 units, a 54 percent increase over the previous year.
Homebuilders across the country are seeing steady gains in new home sales, but builders are still holding tight when it comes to inventory. The latest national data, which was released last week for the month of June, showed 0.8 percent increase in single-family home sales. The median price of those sales was $310,800.
In the Twin Cities, the median price of new homes that sold during July was $390,380, according to the Minneapolis Area Association of Realtors. At the end of the month. there were only 1,736 new single-family houses listed for sale on the Regional Multiple Listing Service, just 3.3 percent more than last year.
