Schafer: How long can the apartment construction boom continue?

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: August 10, 2013 - 4:02 PM

The real estate appraisal firm Nicollet Partners in Minneapolis tracks new and proposed apartment projects in the Twin Cities, and as of last week its pipeline report showed more than 7,000 units under construction and an additional 13,600 units proposed.

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theagonybhoAug. 11, 13 7:36 AM

Not very long, people who want a house have been buying the rental units are going to sit vacant if they keep building.

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atfateshandsAug. 11, 13 9:07 AM

The majority of these are high end units and are adding to the gentrification of Minneapolis.

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jd55604Aug. 11, 13 9:09 AM

"How long can the apartment construction boom continue?"......Let's continue allowing the government to keep interest rates artificially low, continue offering people with poor credit gov backed loans with 3% down and continue subsidizing the tbtf bank's losses when they make risky loans and we'll find out just how much we can re-inflate this new bubble.

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hjlazniAug. 11, 1310:48 AM

The article is long but misses some simple and salient information. The Developers provide pro forma to projection predicting firms to write recommendations of the efficacy of these predictions and their reports are a key part of the package of information give to lenders to determine if they will lend. Rental rates of $1.71 to $2.55 per sq. ft. are the rental rates documented on the report these days and are necessary to pay the loan payments and produce a 16% margin for the developers. If these rates can not be attained, the world comes to an end again. Are young professionals and empty nesters willing to pay up to $2550 per month for a small two bedroom or $2040 per month for a one bedroom?

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timandtiaAug. 11, 1310:49 AM

I have both rented an apartment and owned a house. Hands down, owning a house is much more reasonable. If people who want to own a house, just buy a smaller one that fits their budget. So simple.

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liberaleliteAug. 11, 1312:11 PM

This is the free market at work. Tens of thousands of people want to rent apartments in Minneapolis. Let's let the supply keep up with this demand.

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LauralundAug. 11, 13 1:13 PM

timandtia: Until the house needs a new furnace, a new roof, or a downed tree removed from the yard. Anyway, money's not the only consideration; some people don't want to or are not able to do yard work or snow removal, some travel or go out a lot and don't spend a lot of time at home, some feel safer living in an apartment than alone in a house.

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cecc0011Aug. 11, 13 2:44 PM

@Lauralund - not to mention owning a home of a given size, with certain finishes, and with a yard is only made financially feasible for many people by guaranteed low interest rates, the fed buying 80% of mortgage-backed securities (currently to the tune of $45 billion per month), and building infrastructure that isn't supported by the property taxes homeowners pay. Long-term continued drops in mortgage interest rates, alongside land-use regulations that ensure restricted supply in desirable areas, all help to further distort the market to make sure housing prices rise over time even if their inherent qualities/amenities/etc haven't. Many of these apartments are also going up in places where people only need one or no cars to access their daily needs - $7,000 to $10,000 a year that could go towards higher rents or other purposes. It's too bad that construction comes in such boom cycles like this - it would be better if there was a constant trickle of supply entering the market based on continued demand. You'd have all units spread out more evenly over a longer time-frame. This would ensure a more even spread of rental price options - as units get older, deteriorate slightly, and become less 'in fashion' (design, layout, amenities offered, etc), they drop in price relative to newer units. Having large chunks of seemingly identical apartments come on the market in a smaller window of time doesn't necessarily bring the nice even filtering process, in my opinion. Either way - people want to rent in such high numbers despite

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benleeAug. 11, 13 4:13 PM

How much of the new/under construction/proposed units are big Section 8 "affordable housing" complexes?

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msfb99Aug. 12, 1312:53 PM

I'm sorry older generation, but the younger generation wants to live a smaller more flexible life with less kids, more public transportation and green travel, and more freedom vs staying home and taking care of a house every weekend.

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