Greater Minnesota housing problem: too much risk
The deck is stacked against the development of housing for the workforce in greater Minnesota.
Private developers prefer to build in the Twin Cities and other large communities.
They see higher risks in greater Minnesota, largely because many of the areas short of housing rely on one or two major employers. If one closes to cuts back, it may be hard or impossible to collect enough rent to make a profit.
Nearly all apartment construction needs government involvement or private funding in all but a few areas outside of the Twin Cities.
"We have not been able to do market-rate housing in greater Minnesota except for a couple of markets since 2005 or 2006," said CEO Rick Goodemann of the Slayton-based Southwest Minnesota Housing Partnership.
The problem is that a developer who doesn't receive a subsidy often needs to charge monthly rents that most workers cannot afford. In Worthington, for instance, Goodemann said a two-bedroom apartment may rent for $680 a month, while without any subsidies it would rent for $1,200. Officials elsewhere tell similar tales.
With a gap like that, banks and other potential financing organizations cannot get involved in a money-losing endeavor.
'It really is a market failure," Goodemann said.
New housing is vital for economic growth, added President Warren Hanson of Greater Minnesota Housing Fund. "We have companies all over the state who want to grow."
The financial gap between what can be collected in rent and what is needed to make a housing effort profitable helps exaggerate a greater Minnesota workforce housing shortage, meaning there are more jobs in many communities than houses for workers.
"We have shortages in nearly every employment center in southern Minnesota," Goodemann said, with similar issues common in all parts of the state and elsewhere in the Midwest.
Some larger Minnesota cities such as Mankato, Rochester, Duluth and St. Cloud have a few successful privately funded apartment complexes, he said.
Construction costs are rising. Besides normal inflation, stricter building codes add costs.
State Housing Commissioner Mary Tingerthal said one advantage in greater Minnesota is that land usually is cheaper than in the Twin Cities. But transportation often makes materials cost more. And laborers may get the same pay as in the Twin Cities.It is not just the expense of housing that creates the greater Minnesota problem. Some greater Minnesota contractors, such as those in plumbing, heating-air conditioning and excavation, went out of business in the 2008 recession.
Also, many construction workers head to the Twin Cities, where there is more steady work, and to the more desireable business construction, which often provides longer-term employment than building homes.
Housing developers report there are times they cannot find contractors at any price.
Goodemann said he is working with an architect who is looking at ways to build apartments simpler and cheaper. New apartments also are getting smaller in an attempt to save money.
Still, he added, his organization wants to build durable housing, which is more expensive. "We are part of the problem."