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The number of new apartment buildings is at an all-time high around the Twin Cities, but those seeking a new home may be left out in the cold.

Young mothers like Trish Betrish can only look up at the luxury high rises in downtown Minneapolis and wish she could afford a place to live.

She works nights at Wal-Mart and has spent the last year couch surfing with her toddler.

“Housing is the number one thing in my life,” said Betrish.

It is not much better in the suburbs, where Ali Henin and her newborn are living in her parents' basement in Apple Valley.


Working as a waitress, she is priced out. She found rents around her parents’ home to be at $1,600 to $1,800.

“I have so many friends who live with their parents because of this exact reason,” she said. “It’s unfortunate. No one’s life should be on hold.”

HIGH DEMAND, HIGHER RENTS

During this decade, the Twin Cities population grew 8 percent to 3.1 million people. However, housing only grew 5.4 percent or 63,604 units.

In 2018, there were 6,500 new market rate apartments built in the 7-county metro area, but only 300 new affordable units.

This year, there will be 1,800 affordable units built, but that is still only half of what is needed.

According to the Metropolitan Council, Minneapolis is behind only San Francisco and Atlanta in the gap between housing and population growth.

A “healthy vacancy rate” is considered five percent. However, in the metro it currently fluctuates - depending on location - between two and four percent.

That demand pushes up cost, with rents going up three times faster than inflation.

Mark Wright is Director of Research for the Minneapolis Federal Reserve.

“In terms of the market in the Twin Cities, we know we’re getting a lot of young people moving here straight after college and they tend to gravitate towards apartments,” Wright said.

“We’re building a lot of [apartments], but we may not be building enough to keep up with the people who are moving here,” he said.

RENTS VARY AROUND THE METRO

At the Hello Apartments in Golden Valley, they follow the trend of smaller apartments, but with more amenities: pool, party rooms, lounges and the gym.

Built and managed by Saturday Properties, the occupancy rate is what marketing director Brodie Rucinski calls “jam-packed.”

A two-bedroom goes for about $1,900 to $2,000.

According to Dougherty Mortgage, a two bedroom rents for $3,337 in Uptown, $3,083 in downtown Minneapolis, $2,649 in downtown St. Paul, $2,430 in the first ring suburbs and $1,930 around the University of Minnesota.

According to the Minnesota Housing Partnership, 23 percent of Twin Cities renters are spending half their paycheck on rent.

In 2018, there were 6,500 new market rate apartments built in the seven county metro, but only 300 new affordable units. This year, there will 1,800 affordable units built, but that is only half of what is needed to keep pace with demand.

AFFORDABLE HOUSING

Developer Devean George is one of those leaving his mark on the affordable housing sector.

He’s planning to build an affordable housing complex which will consist of 65 units in North Minneapolis, across from Penn Commons, which he built a few years ago.

When he talks about affordable housing, he said he is referring to “working class people.”

Rents, for the most part, are kept under a $1,000 in an area where the vacancy rate is around zero.

“You can’t build them fast enough for the demand. We have a waiting list a mile long,” said George who runs George Group North.

Before making deals, George was making baskets, spending eleven seasons in the NBA, including three championships with the Lakers.

He knows North Minneapolis well.

“That’s the house I grew up in, my dad still lives there,” he said as he pointed to the house.

The developer needed $1 million from the city, tax credits from the federal government, revenue bonds from the state and foundation help.

“I need other people to come in—city, county, state...The Pohlads have been good,” he said.

There is no shortage of players in affordable housing. A recent conference brought together developers, bankers and state leaders to discuss the complexities of financing these projects.

The vast majority of new apartments under construction are for families making $65,700 a year or more (80 percent area median income for a family of four).

But, the greatest need is for those families making less than $42,900 (50 percent area median income, family of four).

“You look at the number of jobs to increase the fastest, those are entry level jobs making minimum wage,” said Anne Mavity, Executive Director of the Minnesota Housing Partnership.

“We need to understand we all have skin in the game," she said. "If our businesses can’t grow, if kids can’t learn in school, if folks have trouble maintaining their health, it impacts all of us."

“Subsidies of some form or another can help get the cost down,” Mark Wright from the Minneapolis Federal Reserve said. “But state and local budgets are getting tighter and tighter each year, and I don’t think there’s enough money in the budget to subsidize our way out of this problem.”

Part of the solution, experts agree, is changing building and zoning requirements, that can add 10 to 15 percent to the cost of a project, by allowing some building components to be pre-fabricated and built off-site.

“NATURALLY OCCURRING” AFFORDABLE HOUSING

“We hear a lot about how a lot of apartment construction is at the middle to high end, luxury range and a lot of people have expressed concern about that," said Wright. "One thing I think is important to stress the single biggest contributor to affordable housing is naturally occurring affordable housing."

That concept of naturally occurring affordable housing refers to older apartment stock - built in the '60s, '70s, and '80s - that becomes more affordable over time.

The problem is older properties, like the Crossroads in Richfield, are being purchased, rehabbed and turned upscale. The phenomenon is even referred to as “upscaling.”

Apartment buildings have also become a hot commodity for pension and insurance funds, and other investment groups looking for tax shelters. The data show that every building sale drives up the rent.

According to data from the Minnesota Housing Partnership, while on average public investment creates 1,600 to 2,000 affordable housing units every year in Minnesota, about 2,000 units of naturally occurring affordable housing are lost through gentrification, or upscaling.

“You add all this up we are barely staying even and actually taking steps backwards in terms of the loss of affordable housing," Mavity said. "Even while our population is growing. And we need to build just to keep up with the growth, let alone maintain what we already have. So, it’s a challenge."