For the third month in a row, single-family home construction in the Twin Cities has not kept pace with last year, but rental construction is rebounding.

Builders of the Twin Cities metro obtained 594 permits for new single-family homes in October, a 5% drop from the same month last year.

Multi-family developers, however, have withdrawn enough permits to build 1,178 units, a 90% increase from October last year.

“Homebuilders are seeing a slight slowdown in homebuyer activity, especially compared to what we saw last fall,” ToddPolifka, president of Housing First Minnesota in 2021, said in a statement. “As prices have increased due to supply chain issues, permit delays and overall regulatory costs, more and more potential buyers are being forced to sit on the sidelines.”

According to data compiled by the Keystone report for Housing First Minnesota, 646 permits have been issued to build 1,772 units. As is often the case with collective dwellings, a single permit can be issued to build more than one dwelling. These are mainly market-rate rentals in the suburbs, where developers planned to build 1,178 units.

One of the bigger projects is being developed by Twin Cities-based Timberland Partners, which last month got a permit to build a 246-unit apartment building in Eden Prairie called Paravel. The seven-storey building will be constructed by Frana Cos. and will become this company’s largest project to date. It is expected to be completed in 2023.

“We are still generally optimistic and positive about multi-family housing,” said Ryan Sailer, vice president of real estate development for Timberland. “We are seeing a good occupancy rate and good demand.

He said rental development was partly due to rising costs and the limited availability of new homes. Land, labor, and materials are all scarce, and the inventory of new homes in the Twin Cities is limited.

“All eyes are on rising interest rates, and we are feeling the effects of rising construction costs and labor constraints,” Sailer said.

Timberland, which has stakes in several other metropolitan areas, has strong rental gains and low vacancy rates in most of the Twin Cities. While renting in the urban core is generally milder than it is in the suburbs, there are signs of improvement.

In the subway, vacancy rates are falling and rents are on the rise, according to the latest rent surveys, while some homeowners in and around downtown Minneapolis and St. Paul are still offering concessions and , in some cases, modest rent discounts.

Sailer said that after opening another apartment building in Eagan in late 2019, that building is already almost fully occupied without having to offer rental concessions, including free rent. He said the company also recently struck a deal in Woodbury.

“Production is expected to increase next year,” he said. “But we’re all in the suburbs right now.”

For home builders, comparisons to last year are skewed by the pandemic, which pushed home buying and building from spring to fall. It also spurred demand for new, larger homes that had space for home offices and home learning.

From January to October, the total number of units planned is higher than last year. Despite last month’s drop, single-family home construction for the year so far exceeds the same period of 2020 by 23%.

For single-family construction, Lakeville continues to be the busiest metro city. Last month, builders got 68 permits there, followed by Cottage Grove with 41 and Blaine 39.

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