Best Summer in a Decade, Home Builders Enjoy Housing Boom

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The sounds of hammers, saws and pneumatic tools echoed all across the state this summer. Minnesota’s home builders just wrapped up their best summer in a decade, and the entire state is benefiting.

Just how good is it?

Single-family starts are up 13 percent this year. Through July, there have been 8,404 new single-family home starts in Minnesota, more homes in the first seven months than in any full year from 2009 to 2011.

First-time homebuyers and a tight supply of existing homes are helping to fuel this growth.

With the introduction of our more affordable entry-level brand, we have seen a significant increase in first-time homebuyers.
— Jim Slaikeu, Division President for DR Horton–Minnesota, which has experienced an increase in overall sales compared to this time last year

The southern Twin Cities suburb of Lakeville has seen the most single-family new homes in the state this year, with 368 new single-family home starts through August. Lakeville added 63 homes in August alone.

Greater Minnesota is feeling the housing boom as well, with new home starts up 10 percent statewide from this time last year. Of the 8,404 new single-family starts this year, 3,403 are in Greater Minnesota.

The Rochester-area leads Greater Minnesota with more than 296 single-family starts this year, up 15 percent compared to 2016.

We were busy last year and are even busier this year.
— Kathy Einck, Vice President and Co-Owner of Rochester-based Maplewood Custom Homes

Suppliers and Subcontractors

Builders aren’t the only ones keeping busy. Subcontractors and suppliers are benefiting from this
summer’s strong construction activity, too.

More new homes require more building materials. Just ask Arrow Building Centers, which has locations throughout western Minnesota and eastern Wisconsin.

Across the board, business has been good this year. Our organic growth has been on par with the growth seen by the entire industry.
— Ron Schumacher, President and CEO of Arrow Building Centers

Labor and Regulatory Pressures

One thing you’ll hear across the state from builders and suppliers is that the busy summer of 2017 highlights the labor shortage felt by the entire housing industry.

“Many of our trade partners are impacted by the labor shortage affecting the home building industry,” said Slaikeu of DR Horton. “External factors, such as the storms that impacted the Twin Cities this summer, also affect workforce availability. As demand continues to grow, the industry must continue to attract new workers.”

According to Project Build Minnesota, a coalition of groups aimed at growing the construction labor force, 79 percent of contractors and subcontractors cannot find enough qualified workers. The industry has responded by increasing wages in an attempt to attract and retain workers.

Due to this labor shortage, building costs are increasing rapidly and projects are taking longer to complete. The greatest threat to the Minnesota construction industry is the lack of qualified labor entering the market.
— Dennis Medo, President of Project Build Minnesota

In addition to increasing labor costs, home prices are climbing upward due to Minnesota’s regulatory environment.

Everyone wants to build safe homes that are affordable, but we’re beyond the point in Minnesota where you can build affordably.
— Dan Severson, President of Rochester-based Dan Severson Builders

New Laws Helping Industry

Minnesota’s home builders are getting some added lift thanks to new laws that passed this year.
Legislation was signed into law that removes barriers to condo and townhome development and encourages more multifamily starts.

The new law, authored by Rep. Dennis Smith (R-Maple Grove) and Sen. Kari Dziedzic (DFL-Minneapolis), reduces the legal risks associated with multifamily projects.

In July, Twin Cities multifamily construction rose 30 percent over the previous year, accounting for 60 percent of all new home activity that month.

Twin home construction is also starting to return, now that the legislature moved to have the building code reflect the BATC v. DLI court decision from 2015 and removed mandatory sprinklers from twin homes. The bill was authored by Rep. Tama Theis (R-St. Cloud) and Sen. Rich Draheim (R-Madison Lake).

Without the added burden of sprinklers, the cost to build a new twin home has been reduced by about $10,000.

We didn’t build any twin homes when sprinklers were required.
— Ron Weyer, Project Manager of RW Builders of Princeton
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All that has changed for RW Builders. The company has started building a 50-unit twin home project in Princeton marketed to seniors.

Looking Ahead

Given the strong start to the first half of 2017, Minnesota will see more homes built this year than in any year in a decade. In the first seven months of 2016, Minnesota’s home builders built 7,621 single-family homes. In total, 13,612 single-family homes were built last year, just shy of the 13,837
homes built in 2007, the last full year before the housing crash.

Should home builders finish the year with numbers similar to what they did in 2016, Minnesota could see its first year above pre-crash levels for new residential construction.