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Report: Shortage jacking up Minneapolis house prices. Realtors: ‘Duh'

If buyers can't find houses they can afford in Minneapolis, they'll keep renting... and then they'll leave.

If buyers can't find houses they can afford in Minneapolis, they'll keep renting... and then they'll leave. Carlos Gonzalez, Star Tribune

There’s been a development in Minneapolis’ reckoning with its affordable housing problem -- that problem being, specifically, that there isn’t any.

The 72-page report released Tuesday by Gov. Mark Dayton’s housing crisis task force can be summed up in roughly one sentence: A tight housing market leads to higher demand and higher prices.

The report described a bleak picture for Minneseota’s housing. A healthy housing market is supposed to have a vacancy rate of about 5 percent, and enough available homes to last four to six months. The Twin Cities area has a vacancy rate of 2.2 percent, and only has enough homes on the market to last two months.

Renters are forced to scramble and snatch at the first home they get their hands on, and the demand is jacking up the price tag. The number of Minnesotans spending at least 30 percent of their incomes on rent stands at 554,000, a 58 percent increase from 2000. Home prices in the state are up nearly 9 percent in the last year alone, and they’re now 26 percent more expensive on average than home prices in neighboring states.

Minneapolis, specifically, experienced a dramatic drop in the housing supply and apartment vacancies around 2010 and 2011, followed by a sharp uptick in home prices and rent around 2012 as in seen a chart from the report pulled out and highlighted by Bill Lindeke for streets.mn.

The solutions the report offers are equally simple, at least on paper: hold onto the homes we already have, especially any remaining affordable ones, and build 300,000 more by 2030. There isn’t much detail included on how (or where) this would be accomplished, but Dayton has called for both state government and the private sector to make a concerted effort. Affordable housing, the report says, needs to be a priority from now on.

Most real estate agents in the Twin Cities could've told you that. Erica Blanchard, a realtor who works with buyers in Minneapolis, really started noticing the shift about two years ago.

“The last few springs have been nuts,” she says. Blanchard never failed to get multiple offers on a listing, and anything in the city under $300,000 was snatched up in an instant. Buyers usually had to bid well above the asking price -- sometimes by as much as $30,000 -- just to get in the front door.

That’s great for sellers, but not for Blanchard's buying clients, who were often buying their first house. Trying to, anyway.

“A lot of first-time home buyers can’t compete with that,” she says.

It’s becoming increasingly difficult for that crowd to locate a place they can afford. Blanchard used to work with price points like $150,000, which was tough to find a few years ago; now it’s impossible.

“A lot of people are getting priced out of Minneapolis as a result of this,” she says.

Realtor Rhonda Greshowak says conditions for people who already own homes in the city haven’t helped the situation.

“I think current homeowners have a lot of fear,” she says. They’re staying put rather than selling their homes, mostly because then they would be forced to brave this market, and find some other place to live. She predicts things will get worse before they get better.

There’s always building more housing -- but that’s easier said than done.

If regulations on minimum lot size loosened up, reatlor Thang Holt says, there could be plenty more potential space: smaller sites and smaller, less expensive homes.

“Either we’re going to have to build more homes and be more flexible with our building regulations, or prices are going to have to go down,” he says.

There is a general agreement that things will indeed get better. Interest rates are on the rise, which means the amount of housing people can get for their money will go down, and prices will have to fall, too.

But there’s no telling when that will happen, and according to Dayton, more than half a million Minnesotans are struggling to afford a place to live right now. If they can’t find them here, they’ll go looking somewhere else.