Yes Vacancy

Jon Krause

For the past few years, the search for rental housing in the Twin Cities has been a frustrating game of musical chairs: not enough to go around. Recently, though, there have been signs that the market is becoming more hospitable to renters.

"Especially since last October, it's easier to rent and the prices have been more affordable," says Deb Marsh, the coordinator of customer service and communications for housing and residential life at the University of Minnesota. "Before, it might take a week or more for people to find a place. Now it takes two or three days," adds Marsh, who connects students with apartment units within three miles of the University's main campus in Minneapolis. "Landlords are dropping rents down $50 to $100, because they're not getting the calls. Usually they advertise for places six months out, but today, for the first time since I started working here two years ago, I got a call from a landlord of a housing complex saying they had immediate vacancies."

Marsh's anecdotal experience is borne out by a quarterly report issued by the Minneapolis-based real estate counseling firm GVA Marquette Advisors. According to the most current Apartment Trends report, vacancies for rental housing in the Twin Cities metro area jumped to 4 percent at the end of 2001--up from a rate of 2.5 percent the previous quarter and 1.8 percent a year ago. The report cites a slowing economy and the addition of new housing complexes as reasons for increasing vacancies. But in its "market overview," GVA emphasizes that the higher number of vacancies is being fueled by openings in high-end housing complexes in suburbs such as Maple Grove, Eden Prairie, and Minnetonka. "The demand for affordable housing remains strong," the report maintains.

That's an understatement, says Angie Bernhard, research and policy director for the Minneapolis-based Family Housing Fund, which helps provide housing for the seven-county metro region. "The cheapest unit in the GVA report is a $569 monthly average for studio apartments," Bernhard notes. "You'd have to be earning $11 an hour to afford that studio, and obviously if you have a family, that studio is not an option. The average rent for a two-bedroom in the GVA report is $913. You'd have to be earning about $17.55 an hour to afford that."

Pointing out that a recent housing report issued by the state's Office of the Legislative Auditor shows that half the jobs in Minnesota pay less than $13.50 an hour, Bernhard asserts that most families will continue to have trouble finding affordable housing that fits their needs. "We are pleased to see the vacancy rates going up, even if they haven't reached the five-percent rate that most people consider to be market equilibrium," she says. "But the reality for many families isn't much different. Before, lower-income people couldn't even find an apartment. Now they might be able to find one, but they still can't afford it."

Some landlords, however, contend that the rise in vacancy rates marks the beginning of a process that will result in lower rents throughout the metro area. "Especially in the western and southern suburbs, there are some huge vacancy numbers right now," explains Craig Miller, founder of the Camden Landlord Association in Minneapolis and owner of hundreds of units in the metro area. "Those areas won't stay self-contained, because people move to where rents are cheaper."

Along with more apartment vacancies in the outer suburbs, Miller says he is seeing more one- and two-bedroom units opening up as students and young professionals feel the economic crunch and either move in together or return to their parents' homes. Affluent homeowners who chose to keep their starter homes and become landlords are getting pinched as well, Miller says. He suggests that these signs herald a correction in the present overinflated real estate market. "A building in south Minneapolis that used to sell for $20,000 to $30,000 per unit has been going for $50,000 to $60,000 per unit," says Miller. "It's hard to make debt payments on that higher-priced building if the vacancy rates are high. So either rental prices will go down or landlords will go bankrupt. And even if they go bankrupt, a sharp operator will walk in and buy it for a lower price and start renting it at a lower rate."

Miller foresees that trend colliding with the current residential construction boom, which was spurred by the belated response of nonprofit and local-government agencies to the recent housing crisis. A glut in housing, he says, would cause landlords to cut back on building maintenance and become more tolerant of problem tenants, diminishing the value of their properties and opening the way for neighborhood gentrification by real estate speculators. "The local government agencies want to build more housing. I would argue that it may be too much too late, and will aggravate the problem," he says.

But even Miller agrees that a deflated housing market won't necessarily lower prices enough to address the needs of impoverished families, particularly new immigrants who arrive in the Twin Cities without adequate resources to get established. According to Minneapolis Deputy Mayor David Fey, a former member of the city's affordable-housing task force, these families account for a large percentage of the population growth in the inner city. "We've got a lot of low-income immigrants, who tend to be larger families in need of larger housing units," says Fey. "The housing we have built in the city recently doesn't begin to offset all the units we have lost [through demolition] over the years. Add that up and we've still got a significant housing problem."

The problem comes home to roost at social-service agencies such as Centro, a community center on Chicago Avenue in Minneapolis that serves the region's Latino population. "Housing is still a big problem," says Marlon Ferray, the agency's director of community programs. "There is a need for large apartments because we have so many large families coming in, but the economy is so bad that most of the people we see work part-time, or they don't work at all. Yes, we get more notices now saying that apartments are available--before, we didn't get any. And yes, sometimes single guys can get together and get an apartment, when they advertise, say, for a one-bedroom for three people. But that still leaves a huge group of people. And we still have a big problem finding them a place to live."

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