Despite several new apartment buildings bursting onto the local scene in 2019, a recently released report finds that Duluth's rental housing market continued to tighten.

The City of Duluth Housing Indicator Report shows that the overall vacancy rate for local rental housing in 2019 was just 2.6% — the lowest rate the city has seen all decade.

One might presume the low vacancy rate would drive rents higher, but Jason Hale, a senior housing planner for the city of Duluth, said that hasn't necessarily been the case.

"Rents have sort of stabilized. Landlords have seen a price progression over the last several years, and I think they've realized rents are largely at the peak for what they can command," he said. "I know it's really tight, but there still seems to be enough mobility options. So, there's a limit for everything price-wise."

The report showed the average rent for one-, three- and four-bedroom apartments actually dipped slightly, while the cost of studio and two-bedroom units rose a bit. The biggest rent increase occurred on the low end of the market, with the average monthly cost of a studio apartment climbing 9.4% — from $576 to $630 in 2019.

In 2019, the average Duluth rent was $937 for a one-bedroom apartment, $1,200 for a two-bedroom apartment and $1,212 for a three-bedroom apartment.

Some of the city's most vulnerable renters were priced right out of the market, as evidenced by the fact that 14% of housing vouchers allotted by the Housing and Redevelopment Authority of Duluth went unused in 2019. The previous year, 5.8% of housing vouchers were not used.

HRA Director Jill Keppers explained that the U.S. Department of Housing and Urban Development, which oversees the voucher program, lowered the established fair-market rents for Duluth.

"Which we found shocking, considering all the new apartments going up and the high rents that we see," she said.

Keppers suggested the downward adjustment in fair-market rents may be an anomaly.

"I think it's because HUD has a gap, like they're always a couple years behind in the data that they use," she said. "So, we're hoping they'll go back up."

It's certainly not the case that vouchers are in low demand. Keppers said the current wait time for a Section 8 housing voucher is about two years.

"We probably have a hundred vouchers out on the street looking at any given time. So, we really want people to be successful, and we're just crossing our fingers that HUD will bring those fair market rents back up this fall, so we change those payment standards as soon as possible," she said.

Hale said there's a bit of a market disconnect with the voucher program.

"When landlords can charge more and get more in rent, and the vouchers only provide 'x' amount of dollars as a reimbursement for let's say a studio or a one-bedroom or a two-bedroom unit, there's a discrepancy between what the voucher will pay and what the landlord believes they can get in market-rate rent. So, if the voucher's not paying enough, there's not a lot of incentive for them to accept a voucher," he said.

About 40% of Duluth households live in rental housing, and 60% live in owner-occupied dwellings.

The median cost of a house in Duluth increased by 7% from $185,000 in 2018 to $198,000 in 2019.

Meanwhile, the median household income in Duluth rose 4.7% from $47,227 in 2018 to $49,441 in 2019. Duluth average household income continues to lag behind the state average, with local families pulling in 27.7% less than the rest of Minnesota.

Hale acknowledged that finding affordable housing continues to be a challenge for many Duluth residents.

In all, Duluth added 493 housing units in 2019. That's the biggest net gain in the past decade, with only 57 of those units being single-family homes. The most significant movement continues to occur with the additions to the local rental housing market.

Ideally, Duluth would build on its strong construction numbers for 2019, said Hale, noting: "Prior to this whole pandemic happening, we were hoping to push the momentum forward. But I think there's been a bit of a paradigm shift."

"We have several projects that are underway. So, for example, the Board of Trade has 84 units; Cove Apartments has 47 units; Decker Dwelling has 42 units. So, we have several projects that are in progress at various stages of development.

"We also have projects that were in the cue and being worked on, and they're in various stages of pausing or kind of pumping the brakes from the developers' perspective because of COVID," Hale said.