Ramstad: No, there aren't too many apartments being built in the Twin Cities

Since becoming a columnist two months ago, I keep getting variations of this question: "Who's going to live in all the apartments now being built in the Twin Cities?"

I respond with an explanation about the longtime shortage of apartments here, the result of 30 years or so of not enough construction.

And I mention that perceptions tend to be quite localized. These days, there's more apartment building in the suburbs than in Minneapolis and St. Paul, a reversal from what was happening in the years just before the pandemic.

Jim Buchta, our lead real estate reporter, tells me he gets this question all the time, too. And so does Anne Behrendt, chief executive of Doran Cos., the Bloomington-based developer. "For many people, it seems like, wow, we're building a lot of housing," she said.

Behrendt said she thinks there is currently a healthy amount of apartment building in the Twin Cities. Indeed, apartments here remain more affordable than the national average and the occupancy rate is right around 95%, indicating a balanced market.

There has been some success recently building so-called income-restricted or affordable apartments. But, because new construction is expensive, these affordable options will always be in short supply relative to market-rate apartments.

Meanwhile, in St. Paul, where voters passed a rent control resolution in 2020, apartment construction has virtually stopped. As a result, the city will be in short supply for years. Minneapolis voters that year told their City Council to explore rent control, but the council has wisely steered clear.

In 2018, the Itasca Project, the group formed by CEOs of big local companies, outlined several goals to address fears that the Twin Cities housing market would become too expensive. Its housing affordability model, which the Federal Reserve Bank of Minneapolis portrays in a handy dashboard on its website, says the Twin Cities needs 18,000 new housing units each year.

In 2019, 2020 and 2021, builders exceeded that figure. Housing First Minnesota, the trade group of builders, in January reported that last year metro-area builders were issued permits for about 16,500 units, with about 11,000 of that in multifamily dwellings.

Amid all that, developers do worry about the region's slowing population growth.

Census data released last March showed Hennepin and Ramsey counties lost population, about 22,000 people, during 2021. The five surrounding counties jointly gained about 12,000 people. That means the metro area as a whole lost 10,000 people, a shocking development for the place long perceived as the main driver of growth for all of Minnesota.

The Met Council, which does its own estimate of population change, in May said the seven-county metro area gained about 22,000 people in 2021. The Star Tribune tried to explain the conflicting data at the time, chiefly citing changes in methodology by the Census Bureau.

Later this month, the Census Bureau will release preliminary data for 2022 and we'll learn whether that decline in 2021 was a blip or the start of a downward trend.

"If this is a statistical aberration and we return to some kind of normal historical trends on regional population growth, then those Itasca numbers are probably still right," said Cecil Smith, president of Minnesota Multi Housing Association, a trade group.

"But if this is the new state of affairs in Minnesota and we're actually one of those states that is contracting, then it calls into question all kinds of predictions that we had on housing and housing supply," he added.

Yardi Matrix, a research firm, estimates that demand for housing will decline in the Twin Cities this year and next year. "We don't see the jobs. We don't see the population growth," Doug Ressler, a Yardi analyst, said.

Higher interest rates are leading developers to become more cautious about projects anyway. They're more likely to go to a faster-growing market now. "Right now, that's one of the things Minneapolis is suffering from," Ressler said. "You don't compete well."

The rent control votes in St. Paul and Minneapolis in 2020 clearly hurt, too. Both cities have prevented the most onerous restrictions from taking place. But developers got the message they might not be able to make money here.

Smith said that at last month's convention of the National Multifamily Housing Council, "It only took two-and-a-half hours for Minnesota, not St. Paul, but Minnesota to be mentioned from the stage as one of the places not to do business."

I feel a twinge of disappointment when someone asks me whether there are too many apartments being built in the Twin Cities. It's a sign of low expectations.

But it's really disappointing when someone at a national convention warns people not to do business here.