(Hint: We asked this same question five years ago.)
6,000 new housing units in the last five years (an all-time high).
50,000 new residents by 2040.
One question that will define the future of Rochester.
In the business ecosystem of Rochester, a once infrequent visitor has become a regular: Cranes, standing over the skyline, are pulling new buildings up from nothing.
In the last five years, it seems cranes are more common than crows in the heart of the city. Since 2015, a significant amount of this new construction has focused on large, multifamily apartment buildings, and it has continued at a pace unlike anything Rochester has seen before.
After five years of sustained, fast-paced building in the multifamily housing market, Rochester and its many onlookers are beginning to wonder: How long can the apartment building boom continue?
‘A lot of buzz, a lot of excitement, a lot of momentum.’
The change in Rochester’s residential building market was not a gradual effect; apartment construction came on hard and fast. Mainstays in Rochester’s housing and real estate industry noticed, and adapted, just as quickly. Much of the activity coincided with the early years of Destination Medical Center (DMC), the state’s $5.6- billion economic development initiative that is focused in Rochester.
Nick Pompeian has been involved in real estate in Rochester for years through Realty Growth Inc. and family holdings. Along with his father, Ed, the Pompeians sold the land for a 300-plus unit apartment project, The Berkman, developed by Bob Luxe and Alatus.
“I remember maybe four years ago, once the whole DMC thing really took off, there started to be … we’re not talking just local interest, we’re talking international interest. It was very exciting,” Nick Pompeian says. “There definitely was a lot of buzz, a lot of excitement, a lot of momentum.”
‘An all-time high in new apartment units.’
Building reports from the City of Rochester show just how quickly the market changed.
From 2002 to 2006, there was modest multifamily building, with new building permits reaching up to 34 issued in a single year, and a as many as 271 new units coming into the market. The valuation of those projects never totaled more than $58 million in a single year, and for four of those years never topped $27 million. The national economic recession slowed new development to a near halt.
And then, suddenly, in 2015, new multifamily building permits shot back up to 33 new permits issued. The planned projects included an astounding 1,156 new units and projects valued at more than $142 million.
The frantic pace of apartment and multifamily building that started in 2015 has continued, with the five-year period from 2015-2019 representing an all-time high in terms of new units and the valuation of new projects.
‘50,000 new residents by 2040’
Housing is at the center of conversations all around Rochester, in local government, businesses, and in community organizations. It’s a complex issue, but a few trends are emerging that are open to interpretation.
Cynthia Steinhauser is Community Development Director for the City of Rochester. She takes a data-driven approach to planning, and there are strong indicators in the data that building growth could continue – projected job and population growth, healthy commercial sales growth, and more.
“If we think about where we need to be, we’re anticipated to grow in population by 50,000 new residents by 2040,” Steinhauser says, referring to a Rochester-Olmsted Council of Governments report projecting growth from 2010 to 2040.
“Those people need to live somewhere,” Steinhauser says. “That development and that kind of building to support that growth needs to happen now. In talking to the development community, they’re still seeing a lot of interest in multifamily.”
‘You’re going to see continued growth.’
While the last five years have added significant stock to Rochester’s apartment and multifamily housing units, there is likely still room for more, one local builder said.
Mike Paradise is president of Bigelow Homes, a custom builder of single-family homes based in Rochester. For an 18-month term ending just over a year ago, he sat on the Governor’s Task Force on Housing.
“I think you’re going to still see some more building because we’re in a growing community,” Paradise says.
Destination Medical Center adds a unique element that no one else in the state—and few in the country—can claim, and that’s years of projected job growth.
“With those forces in play, you’re going to see it. You’re going to see continued growth and continued building,” Paradise says.
Exactly where that growth will occur and what types of housing will result is a question of supply and demand. Paradise suggested the recent apartment building boom was in part attributable to Rochester’s market catching up to demand.
“I think Rochester probably was short on apartments and multifamily in the past, and that’s because we really built a lot of housing, ownership options, because we could. It was inexpensive,” Paradise says.
Single-family building in Rochester was inexpensive once, but that’s not the case any longer. Apartment building in the last several years has added more housing units than single-family construction. Much of that growth in apartment units has been at market-rate rent levels, and the community now has begun to grapple with the question of affordability.
One person keeping a keen eye on the city’s housing continuum is Steve Borchardt, Rochester Area Foundation housing coalition director. Borchardt has studied local market analyses as he and the coalition attempt to understand and influence a changing market.
“We’ve always been able to take housing for granted,” Borchardt says. “But now, the market isn’t able to produce housing at all price ranges.”
Since 2014, the Rochester market has added about 6,000 new housing units of all types, according to Borchardt’s data. Just under 1,150 of those units are “affordable housing,” by state-defined measures based on area median income.
‘We can’t find housing’
While it might not seem like an urgent issue to Rochester residents or those already working in the area, affordable and workforce housing development is a critical element for continued job growth and economic stability, keys to the overall health of the community.
Ryan Nolander, president of Rochester Area Economic Development, Inc., says workforce housing is a priority for potential employers looking to expand in Rochester.
“The major thing we’re hearing is ‘We can’t find housing,’” Nolander says.
Nolander and Rochester Area Economic Development will look to create connections in the community to help development activity, including with Rochester Area Foundation’s Housing Coalition, among others.
“The number one priority right now in the housing world has got to be how do we find affordable housing for those workers that we all need,” Nolander says.
‘We’ll get creative. As an industry, sooner or later, we try to meet what the need is.’
Creating affordable housing isn’t easy, but it’s a challenge that all sectors of Rochester’s community are studying, from builders and developers to policymakers. There’s a shared sense that whatever happens next in the multifamily housing market, affordable units have to be a part of it.
Borchardt sees openings in the market for creativity. With all parties studying how to make affordable housing work, a solution is bound to break through.
“All the developers in town are asking that same question,” he says. “They’re doing the same analyses, studying the inventory gaps.”
The question will be whether the City of Rochester is ready to allow building that fills those inventory gaps, Borchardt says. Emerging development concepts in other American cities—like pocket neighborhoods and manufactured homes—are pushing the typical boundaries of building codes and using new materials to keep costs down.
“Frankly, I think it’s kind of an exciting time,” he says. “There’s stuff popping up around the U.S.”
Builders are already exploring creative options, Paradise says. That includes a new type of multifamily building that could add an influx of four-, six-, or even eight-unit buildings in neighborhoods where density hasn’t existed before.
“You might see a couple of older houses come down and a six-plex go up. We’ll get creative. As an industry, sooner or later, we try to meet what the need is,” Paradise says.
‘We still anticipate a very healthy market.’
The influx of market-rate units to Rochester’s apartment stock has some in the industry feeling that a modest slowdown in building might be on the way.
Pompeian predicts a period of “wait and see” in the Rochester market for multifamily housing.
“I think it’ll be interesting to see how the market absorbs everything,” Pompeian says. “I do think that we will begin to see a little bit of a slowdown. Probably not an absolute halt—I don’t see that happening—but I do see maybe not as much happening in regards to the apartments.”
Nolander could see things going either way—continued building at a fast pace, or a slowdown—but he leans toward the latter, he says.
“I think you’re going to see a lot of people still taking a look, but they might pump the brakes a little bit just to see these projects start to lease up before they get too far out ahead of it,” Nolander says.
Whatever comes next, the city will try to be prepared for it, Steinhauser says, but the data points toward more building in Rochester’s future.
“I think overall,” she says, “we still anticipate a very healthy market as it relates to this kind of activity and development.”
While apartment buildings took off, the market for new single-family homes dwindled in Rochester. From 2002 to 2006, new building permits for single-family homes twice reached nearly 1,000 permits in a single year and maintained valuation of more than $100 million every year in that span. Valuation of new single-family building permits has not reached $100 million again since that last year, 2006.
While the economic recession in the middle of the last decade suppressed growth, single family home building simply has not roared back the way apartment construction has.
That effect, however, may have been contained to Rochester as builders moved to areas with more demand.
Mike Paradise is head of Bigelow Homes, a custom home builder, and while the disparities in single family and multifamily building permit trends are a concern, they don’t tell the whole story, he says.
“If you’re looking strictly in Rochester, yes, permits are down,” Paradise says. “Overall for our company, no, we’re about the same or up a little bit because we build in other communities.”
And while Paradise and other builders have been able to keep up business by moving into other areas, the apartment trend isn’t a long-term concern. In fact, it might be an indicator of future success.
“People say ‘Well gosh, look at the thousands of new apartments, aren’t you upset?’ And I say, well, no, those are thousands of potential clients. You’ve identified the fact that they’re living and working in this area. And the fact that they’re in that price range where they’re paying $1,400 to $1,500 a month or higher, that tells me that there are ownership options in the near future.
“So, as a builder I look at it and say, that’s going to be some great opportunity,” Paradise says.
Can big apartment projects fit in?
Pompeian was involved in one of the most significant market rate apartment building projects in Rochester, “The Berkman.” It is one that has set the stage for the type of development the city might expect in the future—big, bold, high density projects. Pompeian contends it was also a project that strived to meet the community’s expectations for fitting in, though not every nearby resident might agree.
“I think it proved that you can do these larger-scale, more urban developments if it’s done properly and you do what you say you’re going to do,” Pompeian says.
The project drew some serious criticism, and Pompeian won’t deny that, but he does maintain that the project won over many city residents. It’s a project that he remains deeply proud of.
“Sometimes you have to do things because you feel it’s the right thing to do,” he says. “We feel that there was a need for that kind of next level. And obviously Bob and Alatus wouldn’t have done this if they didn’t feel that way. … And time will tell. But you have to believe Rochester is ready for something like this and this was needed.”
The city is adapting to these types of developments and opening opportunities for more development to take place that fits the city’s long-term plan. Rochester’s community development staff are rewriting the zoning code to be clearer and more concise, and they have added incentives for development in new zoning districts, including one that prioritizes development along transit lines.
The experience of residents in these projects —both large and small—is another area of focus for the city, Steinhauser says.
“I think the other consideration, there’s the market, there’s regulatory environment, and then there’s the experience. As these projects come on board, what’s the experience that these residents will have? Not only in the building itself but in the environment around them. Rochester is being very intentional about that,” she says.