The Twin Cities apartment markets continue to add more units, both in single family and multi-family, speculating that there will be continued demand for the foreseeable future. Of the apartments and homes being added nearly all have been luxury style in the A class markets. Of the apartments built 40% of which have been in either Downtown Minneapolis or St. Paul. As far as the single family homes I do not have a figure on that, but it seems that the majority of building has been in-fill houses in areas of Edina, Minneapolis, St. Paul, St. Louis Park and other 1st ring suburbs. The units that have been added as affordable housing have been a small fraction and have not kept pace with the units that are renovated and changed into higher income housing or built as luxury.
From my own experience and from the market research, tenants are paying well over 30% of their income in rent. A full 50% are paying over 30%, with 26% paying 50% or more of their income in rent. Rent has been increasing at an alarming rate since the great recession with little to no income growth, putting further pressure on the problem.
This is becoming an issue for those in the low income and even moderate income range. With less affordable housing to choose from, people are forced to over extend themselves. To further exasperate the problem the government has cut or limited many incentives for investor’s and developer’s to bring new affordable housing on to the market.
I have been looking at building an apartment complex on a vacant St. Paul lot and the only way for the numbers to work is to be able to charge $1.80-$2.00/sqft, which translates to around $1500-$1800 for a 2 bedroom unit. Charging an affordable $750-$900 for a 2 bedroom is a losing proposition when looking to build. Even when looking at the inventory on the market, the numbers just don’t jive on affordable housing if you are trying to also provide quality and safe housing.
I have to admit that I have been a part of the problem too. As a business owner we need to look at the bottom line, so when I purchased a house near St. Paul Academy for $135,000 it was clear that the most profitable approach was to knock it down and build a house that would sell for $625,000. Same goes for the many renovations on various houses and apartments that I have completed. This is a major issue across much of the US and we need to look at what needs to happen to be sure everyone has a place to live that they can afford. I am all for maximizing profit, but we also need to look at a sustainable future.
One piece of good news is the partnership with private and public funds to help with the affordable housing shortage. The NOAH Impact fund raised $25 million in order to acquire and preserve 1000 units of affordable housing in the Twin Cities. Freddie Mac also has promised to provide up to $100 million in debt financing for the affordable housing.
Check out the links below to find out more.
To your success!