The Minneapolis housing boom, explained

Courtesy of Track 29 Apartments
The area along the Midtown Greenway has been completely transformed in the past decade — eleven separate projects, ten of which are residential, have been built along its Uptown stretch since 2004.

Minneapolis is hot! The Metropolitan Council recently noted that we popped back up above 400,000 residents after adding almost 9,000 people between 2012 and 2013. The area along the Midtown Greenway has been completely transformed in the past decade — eleven separate projects, ten of which are residential, have been built along its Uptown stretch since 2004. There are residential towers sprouting in Downtown Minneapolis, Loring Park, and the University of Minnesota area.

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Put another way, at any given point in 2013, on average there were thousands of more people living in Minneapolis than just a few months prior.

And there are tensions! At neighborhood meetings, and in CityPages listicle comment sections, and on Facebook pages, and on Facebook pages satirizing Facebook pages, and elsewhere. This new rental stock is no vintage 1980s Elliot Park studio apartment — it’s amenity-rich, it has high-end finishes, and it’s generally in very visible locations. It’s also more expensive than most existing rental stock, for reasons outlined below.

What’s getting built?

The one bedroom units at LPM Apartments, a 36 story tower opening soon down the street from my own granite-less one bedroom, start at $1700/month. Prices vary between projects, though. The new office-to-residential conversion in the Soo Line Building in Downtown Minneapolis has large studios starting at $1100/month, and Track 29 in Uptown has one bedrooms priced a little lower than LPM Apartments, with the cheapest renting for $1430/month.

Average rents have certainly increased, in part due to the addition of thousands of newer, more expensive units but also because even in the face of this building boom, rental vacancies are historically low. In other words, there’s demand. People want to live in Minneapolis. These new buildings aren’t technically overpriced–because they’re being occupied. If they were overpriced, they wouldn’t be filling up. Some anecdata: Last week while putting money on my laundry card in the office of my own mid-market apartment building, I found out that a new unit with a better view had just opened up, so I quickly ran upstairs to grab a check for the deposit. Turned it in and put my stuff in the wash. By the time I got my laundry out of the dryer, my current unit was taken by someone else. True story.

Who’s renting these places?

So who can possibly afford these apartments? There are less than 100 Daytons in the whole state!

Well, it actually makes quite a bit of sense. The Minneapolis-St. Paul metropolitan area is one of the wealthier ones in the country, but it’s also one of the more affordable. People in San Francisco or Manhattan would die to pay $1600/month for a one bedroom apartment. And much of our employment is made up of corporate, professional jobs. There are 18 Fortune 500 companies headquartered here–so we have about 1% of the total population but 3.6% of the biggest public companies. Several of these companies–Target, US Bank, Xcel Energy, Ameriprise, Thrivent, and Valspar–are located right in Downtown Minneapolis. Also, we’ve got lots of hospitals and their employees. And lots of lawyers.Thousands of lawyers.

Knowing this, it’s not really that hard to imagine situations in which many thousands of people can cobble together $1600/month to pay rent–in particular if you don’t have a car, though word on the street is that most of these folks do. The tens of thousands of TargetUS Bank, and Xcel Energy corporate employees in Downtown Minneapolis do okay. Two 25 year old roommates a couple years into working at Target can easily make $100,000 together, leaving something like $5,000 or $6,000 per month, after taxes, to manage to pay rent. Plus, I hear that of those thousands of lawyers, many of them will tend to marry each other, which creates even higher wealth households.

I’m not arguing that there are rich people growing on trees in Gold Medal Park, but that it’s important to keep in mind that in our relatively prosperous and stable metropolitan area of 3.5 million people, it’s pretty easy to figure out where ten thousand or so financially stable people may come from.

What’s with these rents?

In the current boom, the actual cost of construction in relation to advertised rents is a woefully undercovered topic. Based on hundreds of hours of message board reading, comment section perusing, and actual real life conversations in the past couple years, I’ve noticed that there’s a commonly-held misconception about the costs of new residential development.

A $1600/month one bedroom apartment doesn’t cost $800/month because of granite countertops and a dog washing station. It costs $1600/month because it’s expensive to buy a half block of land in Uptown or Downtown Minneapolis, tear a building down, dig a two story hole, pour three stories of concrete, and then build 250 apartments on top of it. The amenities and finishes are a relatively small part of the overall project cost. According to an estimate I got from a developer involved in several Uptown area projects, if you were to build a residential building with no common amenities and less costly finishes–my word was spartan–the most you could really expect to cut out of a project in today’s market is about 10% or 15% of the overall project cost.

In that scenario, a developer builds 250 units with no granite countertops and no dog washing station, and still needs to rent that one bedroom for $1400/month to break even. That’s not doable in our market–there’s plenty of comparable existing stock for considerably cheaper. The extra amenities are what makes new construction financially viable.

A different local developer gave me a general breakdown of project costs for your average Minneapolis residential infill development, and he mentioned a similar estimate for amenities and finishes but also broke out structured underground parking separately. Surprising no regular streets.mn reader but maybe some irregular readers, he pegged that at about a fourth of the overall project cost. Not insignificant.

Surprising to me personally was the revelation that there are, in fact, many people moving to Minneapolis from the coasts or Chicago who are excited to be in a city where it’s relatively affordable to own a car–and there’s an expectation that their new apartment will have structured parking.

What’s next?

The theory is that overall, new supply keeps rents lower, at least lower than they would be without that new supply. However, it’s important to note that this is more of a macro process. Adding 1,000 units to the market soaks up 1,000 units of demand in the market generally. It can work in the opposite direction in specific submarkets. If you live on an intersection where there were previously two vacant, weeded lots, and two buildings are built on those lots with a restaurant in one and a brewpub in the other, it’s likely that your area will get more desirable, more people will want to live there, and your rent will probably go up. But to be clear: More housing will decrease rents in the overall market as demand is satisfied.

And there are tens of vacant lots being redeveloped in specific areas. Just when it seemed like the residential boom was slowing down a bit, Mortenson finally broke ground on a 30 story apartment tower at Marquette and 4th Street last month, and Alatus announced plans for a residential tower in St. Anthony Main last week. There’s some evidence that vacancies in the Downtown Minneapolis submarket are starting to rise. Mayor Hodges wants 500,000 Minneapolitans in the near future. There are lots of vacant houses and vacant lots all over the city, especially on the Northside.

But most maybe importantly, gas is still more expensive than it was in the 90s and the Chili’s off the freeway exit is still kind of boring.

Note: One thing we should all do is stop using the word “luxury” to describe things that we’re vaguely familiar with or just heard about in passing. Luxury is a subjective word that has different meanings depending on who you’re talking to, and like some other words, it has lost a certain amount of meaning over the past decade. It’s started to sound silly most of the time. Do not do developers’ advertising for them. They have people to do that.

This post was written by Nick Magrino and originally published on streets.mn. Follow streets.mn on Twitter: @streetsmn.

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Comments (22)

  1. Submitted by Matt Haas on 07/11/2014 - 10:17 am.

    Don’t like “luxury”

    Then how’s about “gentrified”? As in Minneapolis seems intent on turning itself into a gentrified mess that all of us non-twenty something, blue collar, non corporate drone types will have no ability to afford, and no interest, to live in.

    • Submitted by Nick Magrino on 07/13/2014 - 12:15 pm.

      Gentrification

      Matt, here’s something I wrote a while back with some thoughts about gentrification:

      http://www.minnpost.com/minnesota-blog-cabin/2013/06/if-not-gentrification-what

      I’m still not clear what alternative to gentrification we have that would be better, in the grand scheme of things.

      And, to put it into perspective, there are many thousands of blocks in Minneapolis that have been untouched by recent redevelopment. If corporate drone type stuff isn’t your thing, it’s pretty easy to avoid. It’s not my thing either.

  2. Submitted by CJ Sinner on 07/11/2014 - 11:36 am.

    What about those of us *not* financially stable?

    Nick, I think we live near each other — I’m also right down the street from the new 36-story glass thing (that’s what I call it) in an old 1920’s “spartan” building and getting priced out. In fact, I’m planning to move to St. Paul in a couple months.

    I think you’ve answered a lot of my questions/gripes about all the upscale, amenity-heavy buildings going up, mostly about who can afford to live there and why they’re all so fancy.

    But, my concern comes in for those of us that are not in high-paying jobs, and even if we are, are spending so much of our income on student debt (for my husband and I, about the same as what we pay in rent every month) that we can’t afford to spend more than $1,100 or $1,200 on an apartment. And forget about saving for a house — or even wanting to own at all! (Yes, I am squarely a Millenial in this regard.)

    It seems like there are two types of buildings: High rent/luxury finishings, and “artist lofts” or “affordable housing.” But the latter comes with income requirements that are quite low (and those *should* exist for people that need them, don’t get me wrong!)

    But, as someone currently looking for her next apartment, there is a housing donut hole that a lot of people (I suspect) fall into, which is we make too much to qualify for affordable housing, but there’s a lack of reasonably-priced rentals with a few updates (like a dishwasher! In-unit washer and dryers!) but not the whole shebang. Where does one go to find that? (please don’t say the ‘burbs)

    • Submitted by Nick Magrino on 07/13/2014 - 12:24 pm.

      Donut Hole

      CJ, I understand the concern–I think I’m lucky that I’m in one of the very few buildings that does kind of fall into that donut hole. There’s not much space in the market between $600/month and $1600/month. I think people who are smarter than me would attribute that to the relative lack of development in the past couple decades, until recently. As a rule, new construction is expensive and older construction is less expensive. But we didn’t build very much in the past couple decades and so there isn’t too much housing stock that’s ~20 years old. Combine that with the sudden interest in living in Minneapolis, that mid-market housing stock is getting bid up too.

      That’s why I and lots of other people are clamoring for as much development as we can get at the moment–there are growing pains right now but it’s hard to see a ton of negatives in the long term.

  3. Submitted by Mike Schumann on 07/11/2014 - 11:39 am.

    Gentrified Mess???

    As neighborhoods are transformed, people who can afford it will move to the new trendy neighborhoods opening up housing opportunities in other areas to people who want a different lifestyle or are looking for a lower price point.

    This is not bad. In addition, these high end developments end up paying taxes that pay for schools, etc. in lower income neighborhoods.

    • Submitted by Pat Berg on 07/11/2014 - 04:19 pm.

      So just kick out the riff-raff?

      Here’s one example of what can happen – a 98 year old woman in San Francisco being evicted from an apartment she’s lived in for 50 years just because a developer wants to “upgrade” the property:

      http://news.kron4.com/news/woman-98-evicted-from-san-francisco-apartment-after-50-years/

      Sure, she’s fighting it, but why should she have to? She loves her home and she should not be forced to leave it. But that’s what happens when the rush to “gentrification” runs rampant.

      • Submitted by Neal Rovick on 07/11/2014 - 05:44 pm.

        And that is exactly why, at some future time, these tenants will find themselves at the short end of the stick with respect to their landlord–they own nothing, and have very few rights as compared to a property owner.

        Renting something that you love for 10 or 50 years means that you can occupy it until the next rent payment is due at the discretion of the owner.

    • Submitted by Matt Haas on 07/11/2014 - 09:31 pm.

      Except of course

      That these high class folks aren’t necessarily relocating from within the city. As another poster commented, “kicking out the “riff raff” indeed. It will be fun though, as most of these millennial folks have been postponing families, to watch what happens when they all do start up and having children. I wonder how hard it is to convert underground parking into a daycare?

  4. Submitted by Ray Schoch on 07/11/2014 - 06:01 pm.

    This is really depressing

    … for people in that very sizable “donut hole” that CJ Sinner mentioned, not to mention for this old geezer who just moved here 5 years ago to discover that *owning,* including taxes, insurance and maintenance, turns out to be far less expensive than *renting* in one of these amenity-laden boxes.

    On the other hand, if you’re a developer, or one of the 10% with the six-figure income (individual or combined), I’m sure it’s delightful. Of course, big, tall towers with lots o’ granite and other nice touches are not really for families with children, since there’s seldom a playground nearby, and it might not be used if there were one. Besides, many of the “finish upgrades” to these properties won’t hold up well to a couple years of toddler-dom.

    Much of this, as is the case with much of “gentrification,” has a lot to do with style and status, and very little to do with what others might call “value.” If you work downtown, you might not mind paying through the nose for that style and status. I get that. But it ain’t for everybody, and I’d guess a sizable majority of folks, especially families that don’t consist of two lawyers, will find that the amenities fade in importance as their lives and circumstances change. Downtown Minneapolis populated only by the well-to-do is just as susceptible to “The Bonfire of the Vanities” as is Manhattan, just on a smaller, more Midwestern scale.

    Wealth tends to turn people into snobs – there’s quite a bit of research on that, actually – so the character traits being emphasized here, by the writer, developers, and the clients of those developers, aren’t necessarily admirable ones. That doesn’t mean every eager new resident of one of these developments is evil incarnate, but it’s useful to remember that residential development never, ever pays for itself in terms of the services required to maintain it. The dollars that fill the inevitable gap come from other people of lesser means, and from businesses who’d prefer not to see their tax bills go up so that the contemporary version of what used to be called “Yuppies” can live in style.

    • Submitted by Nick Magrino on 07/13/2014 - 12:40 pm.

      Renting vs. Owning

      I dunno Ray, that depends. I’m a renter by choice, though I’m not paying rents anywhere near as high as some of the examples in the post. I could probably afford to buy somewhere in the City–like, south of Lake Street.

      I think a lot of twentysomethings like myself grew up hearing how buying a house was such a great investment and so on and so forth, and then saw lots of adults suddenly end up $200,000 underwater after six months of a recession. Without even accounting for the cost of buying a new roof or water heater or paying a sidewalk assessment, there’s a certain peace of mind you get being able to easily move every few years as jobs and lifestyle changes permit.

      And, in regards to your last paragraph, I wouldn’t lump new construction in Minneapolis in with sprawl. This isn’t 400 people on 200 virgin acres, or worse, 200 acres of scraped up agricultural land. It’s 400 people on an acre where the infrastructure is already there. The city will certainly come out ahead from this.

      • Submitted by Matt Haas on 07/13/2014 - 09:01 pm.

        Therein lies the rub

        I am only slightly older than you mid-thirties as opposed to your 20’s. I don’t wish return to the live every year, never know where my next paycheck is coming from, “careless and wild” youth. I have kids, I’ve been at my current employer 10 years. I am not coming to Minneapolis for any reason, its not my cup of tea, but my point was you cannot build a city plan on the backs of transient demographic trends. You twenty some things (pardon my sounding positively geriatric) will get old too, you’ll have kids (even the ones who say you never want them, trust me) and you’ll find that the all of this new development simply won’t suit your needs. I for one don’t put any faith in developers reading the tea leaves and planning ahead for this shift, so in a few shirt years this will all have to happen again. Its the same pattern in reverse in the burbs where a new senior housing development seems to spring up on every vacant plot. It all just strikes me as ridiculously short sighted and just further indication that the same predatory profit seeking that led my home to lose half its value is alive and well, and that we still refuse to learn the lessons of the even very recent past.

  5. Submitted by mark wallek on 07/12/2014 - 10:56 am.

    Continue creating a mess

    With all these high end apartments going up, I suppose our Northside will continue to be a dumping ground for all the sex offenders and section 8 renters, a fair number of whom disturb the evenings’ quite with obnoxiously loud lip flapping and wall rattling bass from hard to bust mobile units. How is it that a single family residential neighborhood now hosts so many renters in properties that are deteriorating before our eyes. Resident owners invest in their properties. Renters can be fine people, but who expects them to invest in the absent landlords property? Assets leave the neighborhood, and if I want to see a mowed lawn on any number of properties around here, I call 311 to get the process started. The problem is not going to be managed away, and city hall is clearly looking elsewhere to make their bone. On my block we have good renters and renters busted by the ATF(still in residence) and renters that my tax dollars carry. What we need are owners to maintain the properties, and that means resident owners. Maybe the Johnson and Blong can see to that after whatever it is they claim to be doing now. When Samuels was in, we knew something was going on, because he informed us and he was actually around. He’s missed tremendously.

  6. Submitted by Neal Rovick on 07/12/2014 - 10:20 pm.

    Can you say “wage slave”?If

    Can you say “wage slave”?

    If I were going to create a “wage slave”, I would burden them early with lots of debt.

    Then I would get them a job in an overcrowded job market with falling wages and benefits.

    And then I would convince them of the coolness of the latest trendy restaurant, bar, brewpub, electronic device, car, etc, and the necessity of having that thing, device or experience.

    Then, I would provide lots of ephemeral ways of spending their money–downloads, cable, internet, wireless, rent etc. All things that would be gone faster than the morning visit to the bathroom after a night at a trendy restaurant or bar.

    And make sure that their are no reserves, savings, ownership that could be changed into ways of fending off times when there is no job or when the unexpected happens, or just when you get too sick or old.

    Then you would have the wage slave of today, like a shark–they need to keep moving to survive.

    And like the old renter, they have no control.

    • Submitted by Nick Magrino on 07/13/2014 - 01:02 pm.

      Slavery?

      Sounds like most of these things are voluntary and so, you know, not necessarily comparable to slavery. The unemployment rate for the Twin Cities metro is four percent:

      http://www.startribune.com/business/265471401.html

      …which sounds pretty healthy to me, and is in fact right about what’s considered “full” employment:

      http://en.wikipedia.org/wiki/Full_employment#United_States

      …though obviously that’s debatable to some extent.

      • Submitted by Neal Rovick on 07/13/2014 - 07:09 pm.

        While there are certainly a number of highly paid jobs in the cities, there are many who are struggling.

        And even for those who can afford the latest and greatest (I was once told that “they wouldn’t settle for anything but the best”), there are few of those who have any reserves against a setback–whether unemployment, illness or other adversity.

        It’s all a choice, sure.

        But it’s a choice pushed by those who want every possible cent of your money.

        And what is better for them, what they are selling, they have an unending supply of what you will never own.

      • Submitted by Jon Lord on 07/15/2014 - 10:28 am.

        well

        part of that 4% unemployment rate is due to people retiring early out of need. Meaning they had been unemployed. They still live and rent in this uptown area. I know a number of them personally. They retired at the time out of desperation and now find themselves living on the edge. Even to the point where moving is an expense they can’t afford. There’s the deposit and maybe also the first and last months rent, not to mention hiring some company to help them move. If their rents go up due to the number of rental complexes driving up property values their only option is to turn to the county for aid in hopes that they can get it.

        And there are always those who stopped looking for employment, especially those who used to be blue collar workers and age is a problem in finding service work..

        Also what’s not taken into account are the numbers of support personnel, like computer programmers etc, who work on a contractual basis (read part-time). While working they are considered full time employed although it’s really part-time work. I known quite a few of those types too as they’ve passed through the building where I live. While they work they do fairly well, but are subject to sudden lay-offs that can stretch far enough into any savings they might have had that they find it necessary to move. Because (as others have mentioned) many will have purchased large LCD TV’s, and many other electronics, smartphones, tablets, and gaming machines and have a new car, that first lay-off is an economic shock. Their moving can be quite sudden. Yesterday they were my neighbor, today they are gone.

        That, of course, doesn’t apply to direct hires, lawyers, upper management, etc. Career jobs that aren’t subject to unemployment the majority of the time. But I just can’t see them wanting to move into a small one bedroom $1400 apartment in the uptown area…once the complexes are finished. Many of the apartment complexes are still in the building stages also and probably aren’t rented out yet.

  7. Submitted by Steven Bailey on 07/13/2014 - 09:12 am.

    Traffic a big downside to high density building.

    Minneapolis has fairly poor public transportation which means for most of the transportation needs of the average person they need to get into a car. The new apt living is not just a lot of people locating downtown but a huge influx of cars that will make congestion, parking and air quality much worse. It is very sad that Mayor Hodges wants to increase the population of Minneapolis to 500,000. The infrastructure can’t handle that without a lot of headaches and wasted time for everyone. Once the quality of life drops everyone will once again move out. A mini example of what congestion does is this weekend when no one I know who visits downtown at least once a weekend is going near downtown.

    • Submitted by Nick Magrino on 07/13/2014 - 05:47 pm.

      Transit

      I wholeheartedly agree that our transit planning leaves much to be desired:

      http://streets.mn/2013/11/27/embarrassed-by-the-bus/

      http://streets.mn/2014/03/04/lines-on-our-map/

      http://streets.mn/2013/06/03/an-island-of-urbanity-or-can-you-pick-me-up-maybe/

      However, the idea is that higher density creates neighborhoods that are walkable, and at least while we’re waiting for a better transit system, that walkability will decrease the need for car trips by itself. I don’t have a car–my job is a short bus ride away, my grocery store and gym are within walking distance, and Nice Ride fills in many of the remaining gaps. Of course many people don’t have that luxury, but the more density we have, the more likely it is that other people will be lucky enough to live that lifestyle.

      Also, it’s important to note that residential development isn’t necessarily a huge traffic driver, especially in urban areas where some trips don’t require a car. A 40 story condo tower in Downtown Minneapolis will certainly generate less auto traffic than a one story Walgreen’s in South Minneapolis.

  8. Submitted by Jon Kingstad on 07/13/2014 - 09:53 am.

    High rents

    The simple logic of supply and demand does not provide any adequate explanation for the existence and persistence of high rents. For many years there has been an oversupply, not to say, glut, of commercial office space available in the Twin Cities. That may still be today. By the logic of supply and demand, the rents for commercial office space ought to have been collapsing as landlords outbid one another for scarce renters. That has not happened. Or you see the construction of new strip malls while there are hundreds of vacant malls even nearby. Supply and demand does not and cannot explain that.

    A clue I think lies in the fact that real estate and real estate improvements are all underwritten by mortgages which are bundled into securities and, frankly, form the basis for the reserves of our banking system. Just as banks will not even contemplate renegotiating a mortgage loan for desperate homeowners, even when the vast majority of these loans are manifestly overvalued, they will not renegotiate mortgage loans on office buildings, commercial units or rental housing. The values of these mortgages are based on the initial appraisals and earning capacities of the properties which are based upon the rents staying fixed. The rents will not come down because the banks and banking system which controls the mortgages which financed them will not allow them to come down.

    Having a generous supply of well heeled renters who actually can pay the high rents is a plus but it’s not a prerequisite to maintaining these rent levels.

  9. Submitted by Ty Reed on 07/14/2014 - 12:24 pm.

    Corporate Drones

    And of course anyone who works for a corporation which brings thousands of good jobs to the Minneapolis economy is a “drone.”
    Well, this drone supports Minneapolis farmers markets, many local bars, restaurants, breweries and so forth. I also maintain a property-tax paying property and do my best to support and immerse myself in the local community; be it through biking and gardening events or neighborhood/city-wide festivals and get-togethers and so forth.
    I’m not asking for a gold star here, I would just ask that you don’t broad-brush everyone working for these companies as mindless drones……(CPU shutting down…..)

    • Submitted by Matt Haas on 07/15/2014 - 06:05 am.

      Not the critique you think it is

      The use of “corporate drone”, at least by me, is a reflection less about your personal behavior and more about the ephemeral prescence that folks like you are in a community. I don’t hold you at fault for that by the way, just the nature of the beast. No matter how much you try, someone who is changing location and employment yearly will not (nor can) ever be as fully invested in a place as someone who has put down roots and established some permanence in an area as their own.

      • Submitted by Pat Berg on 07/15/2014 - 10:30 am.

        Who in the heck are you talking about?

        Since when do people who work for corporations automatically change locations and employment yearly? Now THAT is a broad brush stroke!

        There are plenty of renters out there who have been many, many years at the same address. Please don’t lump them all in one stereotypical box.

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