Rents are rising in the Twin Cities and are expected to accelerate in the coming months.
Metro rents rose 4.2% year-on-year in July, according to national research firm Yardi. In its year-end forecast, the group said that although the Twin Cities’ rent growth was the lowest among more than 30 metropolitan areas in the country, annual rent growth is expected to accelerate nearly fivefold by the end of the year.% .
Mary Bujold, president of Twin Cities-based Maxfield Research, said: “We are already [affordable] housing crisis.
Rents are trending higher as rising mortgage rates are already putting pressure on the number of people who can afford to buy a home. Rising construction costs are also making it difficult for developers to build affordable apartments.
Bujold, who conducts market research and feasibility studies for developers, municipalities and others, said Yardi’s 4.2% did not reflect the reality of what is happening in many suburbs. In those locations, renters are facing double-digit rent growth.
For example, in Woodbury, Bujold has seen a 10% rise in rent for new buildings. And solicitations for concessions and leases have completely dried up, she said.
“Things are leasing up dramatically—really fast,” she said. “People can’t get into the sale market.”
According to Marquette Advisors, the total number of rental housing units in the Twin Cities Metro, including both new and existing buildings, increased by a record 3,900 units in the first half of the year. That total, called absorption, takes into account people coming in and out of rentals, surpassing the previous record of 3,700 units set last year.
Twin Cities developer and rental property owner Curt Gunsbury canceled leases because mortgage rates were near record lows and many renters were planning to buy homes. or did not update. Even in Minneapolis, where rental demand has dipped the most during the pandemic, he sees stronger demand and fewer concessions.
“There is definitely a lot less rent-to-own transition among our residents,” he said.
His company, Solhem, is co-developing Fred, an $85 million apartment project on the site of Edina’s Pentagon Park.
The two-phase mixed-use project includes hundreds of rentals that are now gateways to Fred Richards Park. Mr Gunsbury said construction costs have long been a serious obstacle to building more affordable rental housing, and the situation is getting worse.
“Prices are quite unpredictable, except to rise,” he said.
The Mortenson Construction Cost Index, which tracks construction costs in Twin Cities and other major US markets, rose 11.8% to a new all-time high in the second quarter.
“The construction market, like many, continued to experience inflationary headwinds throughout the first half of this year,” said Clark Taylor, vice president of estimating at Golden Valley-based Mortenson.
These increases come at a time when home construction is trending downward and rising mortgage rates are holding back home sales.
According to Minneapolis Area Realtors, at the end of July, the Twin Cities Metro market had only 704 homes priced between $190,000 and $250,000, down 34% from last year at the time. All homes priced under $350,000 saw a double-digit reduction in listings.
When mortgage rates were at record lows, it was cheaper for many families to buy a home than rent it. For many, that is no longer the case. With rates nearly doubling since the beginning of the year, home prices have reached record highs and are losing affordability, especially for entry-level buyers.
Pending sales are down because fewer people are able to qualify for mortgages, but the list is also much smaller. That’s because so many homeowners with the lowest interest rates are unwilling to sell their homes and have to buy another one at a higher interest rate.
And the lack of that listing is forcing more and more would-be buyers to consider renting, putting pressure on a relatively stable rental market.
Average metro rents were $1,397 at the end of the second quarter, up 1.1% from the previous quarter and 5.8% higher than a year ago, according to Market Advisors. These figures do not include income-restricted housing and senior housing, which are already in short supply.
Q2 rents increased an average of 7.8% in Minneapolis and 2.9% in St. Paul. Even in the city, rent increases vary widely. Rents in the southwest Minneapolis neighborhood rose 8.7%, while a renter in downtown Minneapolis saw his rent rise 5.8%. Most suburbs saw rents increase between 5% and 5.8% over the past year, but some suburbs experienced double-digit increases.
Doug Ressler, business intelligence manager at Yardi, said rent growth in the Twin Cities over the past year has been the highest in the country as job growth, household formation and subway travel lagged other cities. said to be of a low standard. .
He said rent increases will continue to be substantial as the supply of rental properties tightens. And you may be starting a spiral that’s hard to break. Renters are more likely to renew in their current apartment than risk moving to a more expensive building.
“They’re saying, ‘If we stay here and update, maybe we can better manage the costs,'” he said. “Rentee stays in place and does not move”