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Housing needs outgrowing market pace

Bigelow Lennon Construction workers Zach Baker, left, and Korey Bradford lay flooring on a new home in the Hadley Creek subdivision in northeast Rochester.

The creation of new houses in Rochester is on the decline.

"If you look at new housing permits from last year to this year, there’s over a 20 percent decline in new housing starts for housing ownership of all single-family homes, including townhomes," sad Rick Dold, Rochester Area Builders’ government affairs consultant, during the organization’s recent membership meeting.

On Monday, the Rochester City Council saw some of the results.

Dave Dunn, Olmsted County’s housing director, said only 63 new homes are available on the market, according to a recent search of the Realtor.com website, and only 14 are priced under $400,000.

None are available for less than $300,000.


He said it falls short of what's needed as Rochester faces expected growth.

"The number of new houses being built in Rochester and all of Olmsted County isn’t the number we need," he said.

However, Council Member Michael Wojcik pointed out that houses are only part of the potential housing solution. Multi-family options, including apartment buildings, are important to consider, especially since new home prices are unlikely to drop without government subsidy or policy changes.

"I struggle because no one has shown me how to do them affordably without a fire sale/land sale prices or something," he said, pointing to increasing property prices in the city.

Dunn agreed, but noted that the market continues to lag, with an overall apartment vacancy rate at 4.7 percent.

A vacancy rate of 7 percent to 8 percent signifies a healthy rental market, one that is able to provide room for rental choice, Dunn said. Market-rate apartments fare the best in Rochester, with a 5.7 percent vacancy rate.

With rents from $1,100 to $1,400 a month for one-bedroom apartments, he said it shows the city’s new apartments are being filled.

As with new home prices, he said apartment rents, which range from $1,300 to $1,800 for two-bedroom units, don’t appear to be inflated.


"Those aren’t rents because developers are trying to get rich or because people are greedy," he said. "Those are the rents that are necessary in order to make the numbers work on projects."

As a result, making housing affordable by federal standards generally requires some government support.

Since 2015, approximately 15 percent of the 5,000 to 6,000 apartment units that have been planned or developed in the city have been considered affordable by federal guidelines, and that can still push rents well past $1,000 for two-bedroom apartments.

Dunn said those units, which typically require renters to meet income guidelines, face a tight market with a 1.7 percent vacancy rate.

Dunn said the Olmsted County Housing and Redevelopment Authority is doing what it can with the levy that was first imposed in 2016.

"We provide housing stability for 3,500 residents in Olmsted County," he said, noting efforts to reduce pressures on the housing market by helping rehabilitate existing homes, building and operating supportive housing and leveraging outside funds.

He said the $2.5 million in levy funds collected this year helped leverage $26.9 million in other funds, Combined, they provided 70 new housing units and preserved 153, while helping house 3,328 clients.

With plans to increase the levy to $3.5 million next year, Dunn has said the county agency will be able to increase efforts to create new affordable housing to diversify the market.


He noted Monday that waiting for the market to fill the need likely achieve the city’s goals and needs.

"As a community, we can no longer take housing or affordable housing in general for granted," he said. "For a long time, the thought was the market would take care of all this — just give it time and the market would take care of all of this.

"It’s not happening."

He said growth will require new ways of thinking and new collaboration to develop a variety of housing types.

"As we look at creating a community that we strive to be, we need all those options available," he added.

Council members indicated a desire to see work continue to address housing needs throughout the city.

"We haven’t solved it yet," Council President Randy Staver said. "But I hope we are making headway."


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