The Twin Cities is poised to see a significant drop in apartment construction, potentially the largest of any major metro area in the country, according to a recent report. This expected decline marks a notable shift from the robust building boom seen in previous years, raising concerns about how this slowdown could impact the region’s affordability and housing market stability.
Why This Matters
Over the past several years, a surge in apartment construction has helped the Twin Cities maintain its status as one of the more affordable places to own or rent a home. However, this forthcoming slowdown in development could threaten that standing. The slowdown comes as builders in the region face increasing challenges, including rising interest rates, economic uncertainty, and stricter rent control measures that are dampening investor confidence. The result could be a tighter housing supply, leading to higher rents and increased pressure on prospective homebuyers and renters alike.
A Stunning Statistic
According to federal building permit data analyzed by Axios, builders in the Twin Cities are projected to break ground on approximately 5,000 new apartment units this year. This figure stands in stark contrast to the average of nearly 13,000 new units per year between 2019 and 2023, signaling a significant decline in new apartment developments. This sharp drop could exacerbate the region’s housing affordability issues, especially as the demand for housing continues to grow.
The Factors at Play
Several factors are contributing to the slowdown in apartment construction in the Twin Cities. Nationally, rising interest rates have caused a pullback in development, but the Twin Cities faces additional, more localized issues. Developers may have overbuilt in certain areas, particularly in downtown Minneapolis and the southwest suburbs. Many of these new units remain unoccupied, leaving developers and investors hesitant to initiate new projects until occupancy rates stabilize.
Additionally, rent control policies in St. Paul and the potential for similar measures in Minneapolis have caused concern among developers. Many warn that these regulations could further discourage investment, despite advocates arguing that the slowdown extends beyond city limits and into suburban areas as well. Regardless of the exact cause, the outlook for new construction remains bleak.
The Outlook on Rents
Despite the recent rate cuts by the Federal Reserve, one local developer told Axios that this move alone will not be enough to incentivize new construction. According to Minneapolis-based developer Sean Sweeney, rents would need to increase by 15-20% to justify the costs associated with new developments. Meanwhile, Brent Wittenberg, a Twin Cities apartment market expert with Marquette Advisors, predicts that rents in the region will rise by 3.5% to 4% during the latter half of 2025.
This anticipated rent increase could put additional financial strain on renters, particularly as the supply of new apartments dwindles. According to RentCafe, the Twin Cities is expected to see a 42% decline in new apartment developments, compared to a nearly 4% decline nationally. If these predictions hold true, the region’s rental market could become even more competitive, with fewer options for those seeking affordable housing.
The Big Picture
As the Twin Cities prepares for what could be its largest decline in apartment construction in recent history, the future of the region’s housing market remains uncertain. While some developers are holding out hope for more favorable economic conditions, others are bracing for a prolonged slowdown. For residents of the Twin Cities, this could mean fewer housing options, higher rents, and increased competition for available properties.
The region’s ability to maintain its reputation for affordability may hinge on how quickly the housing market can adapt to these new challenges.
David Gooden is a real estate agent specializing in Eden Prairie condos for sale.