Housing Industry News Vol. 5 Issue 6 - December 2021 by Housing First Minnesota

VOL. 5 ISSUE 6, DEC. 2021

THE MINNESOTA HOUSING INDUSTRY NEWS SOURCE BY HOUSING FIRST MINNESOTA • HOUSINGINDUSTRYNEWS.ORG

Legislative Commission on Housing Affordability examines Minnesota's severe shortage of housing that is driving housing costs beyond the reach of many Minnesotans.

Housing Commission digs further into housing supply and affordability crisis The Legislative Commission on Housing Affordability convened in October and November to continue its work identifying housing supply and affordability issues that are concurrently bearing down on Minnesota, negatively impacting homeownership access. The commission, co-chaired by Sen. Kari Dziedzic (DFL-Minneapolis) and Rep. Jim Nash (R-Waconia), has been deeply engaged this fall as the impacts of the housing challenge have continued to compound. The October hearing featured a host of expert testifiers who shared their perspectives on the state of housing in Minnesota. The themes were consistent throughout: Minnesota has a severe shortage of housing that is driving housing costs beyond the reach of many Minnesotans. “I’ve got about 7,700 active listings in the 16-county Twin Cities region. I used to have 36,500 listings only 14 years ago. This represents a nearly 80% decline in housing supply from 2007. . . . We’ve only had population growth since then,” said David

Arbit, director of research and economics for the Minneapolis Area Association of Realtors®. The stunning lack of housing was a constant theme, as was the direct correlation to surging home values and prices. “When we look at home values in the Minneapolis-St. Paul metro area in September 2021, the average home value in the metro area was $349,000. This is up $43,000 on a year-over-year basis compared to where it was in September 2020 at $306,000,” stated Luke Bell, Zillow’s Midwest senior manager of government affairs and public affairs. “Since January 2000, when we started producing these estimates, this is the highest observed level of home values in the Minneapolis-St. Paul region,” Bell continued. The housing inventory challenge has been a long time coming, going back well over a decade. The cumulative impact of years of underbuilding has exacerbated challenges, according to experts.

“Since 2004, so looking at the past 16 years, there’s been a massive collapse in the number of building permits offered, bottoming out in 2009 and then increasing through a recent peak of 2019. But when we look at this overall, the number of new housing units is not keeping up with what is necessary to keep up with population growth or household formation,” stated Libby Starling, director of community development and engagement for the Minneapolis Federal Reserve. The interconnected challenge of extreme lack of housing inventory and upward pressure on home prices impacts the entirety of the housing market, but it is most glaring in the housing equity measure. While housing equity disparities between white and non-white homeowners are a national issue, Minneapolis-St. Paul ranks at the bottom when compared to the other major metropolitan regions in the United States. “Unfortunately, the lack of supply and

INSIDE THIS ISSUE

Plumbing Code effective in December PAGE 4

Q & A: Housing reform in the 2022 session PAGE 6

Builder of the Year named at the 2021 BIG Night PAGE 22

CONTINUED >> PAGE 7

Minnesota homebuilders have busiest year since 2005 even with strong headwinds Despite the numerous challenges to building homes in the current market conditions, Minnesota homebuilders are set to have the busiest year since the housing crash. According to the Keystone Report from January to November of 2021, Twin Cities homebuilders pulled permits for 6,757 new single-family homes.

CONTINUED >> PAGE 8

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PRESIDENT’S NOTE

Looking back and ahead Our industry has a lot to celebrate here in Minnesota. Despite massive supply chain disruptions, the continued presence of COVID-19, a labor shortage, a lack of available land and a regulatory environment that makes building difficult, our industry has powered through for the residents of Minnesota and will finish the year strong. But it’s never been more difficult to build or remodel. While that’s true, it’s also true that the power of homeownership has never been more apparent. These powerful and oftentimes competing forces will require our industry to continue to dig deep and innovate. We have a solid track record of overcoming challenges that should give us great confidence as we continue to face headwinds. As we saw in the housing crash 15 years ago, crisis and challenge open the way toward

opportunity and innovation. With cost pressures, changes in our labor market and a shift in the work-from-home culture–companies in our industry that adjust the most effectively will be in a better position to serve their customers and grow their businesses. Looking to 2022, we know it isn’t only our industry that will need to innovate and modernize. The myriad of housing regulatory agencies and local governments are increasingly finding themselves in this conversation as well, and we believe that drumbeat will grow loudly as we head into next year. The old way of doing things on zoning, approvals, permitting, stormwater and building codes simply isn’t working for the next generation of homeowners. The work of modernizing how we plan and approve homes isn’t easy, but it’s absolutely necessary to grow the opportunity for homeownership for everyone, everywhere. I know our industry will do its part. We look forward to finding partnerships from all stakeholders to move our state forward. Here’s to a successful 2022!

HOUSING INDUSTRY NEWS December 2021, Volume 5, Issue 6 PUBLISHER David Siegel David@HousingFirstMN.org EDITOR Katie Elfstrom Katie@HousingFirstMN.org GRAPHIC DESIGN Emily Doheny ACCOUNTING Janice Meyer ADVERTISING SALES Brad Meewes Kori Meewes Todd Polifka 2021 President, Housing First Minnesota

CONTRIBUTING WRITERS Katie Elfstrom Katie@HousingFirstMN.org

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Onward, Todd Polifka, Custom One Homes

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Housing Industry News is a publication of Housing First Minnesota. Housing Industry News is published and distributed six times per year to housing industry professionals and others associated with the homebuilding industry. Neither the advertisers, nor Housing First Minnesota, will be responsible or liable for misinformation, misprints, typographical errors, etc., herein contained. For address change information, contact Housing First Minnesota. Suggestions, ideas and letters are welcome. HOUSING INDUSTRY NEWS 2960 Centre Pointe Drive Roseville, MN 55113 info@HousingFirstMN.org www.HousingFirstMN.org Housing Industry News is published by Housing First Minnesota Entire contents copyright 2021 All rights reserved

Homeownership is all of it.

Home is a ﬁrst chapter. Home is where people grow and create their own story. Yet, first-time homebuyers are being priced out of our housing market at a record pace. We must address our housing crisis so that all Minnesotans have the opportunity to write their own first chapter.

HOUSING INDUSTRY NEWS

HomeownershipMN.org

Housing First Minnesota is the voice for homebuilders, remodelers and all who are dedicated to building safe, durable homes at a price Minnesotans can afford. Housing First Minnesota is dedicated to advancing the American dream of homeownership for Minnesotans and is the leading resource for housing-related issues in Minnesota. This advocacy work has never been more important. The housing industry remains under intense regulatory and political pressures that impact Minnesota homeowners’ ability to buy, build and remodel their dream home. Housing First Minnesota supports reasonable policies, regulations and protections, but our call for affordability for families is a voice that must be heard. Learn more at HousingFirstMN.org.

THE HOUSING BEAT

Across the country, there is much talk about housing HERE ARE SOME OF THE LATEST QUOTES ON THE STATE OF THE INDUSTRY:

The geographic shifts that are becoming possible in the era of remote working [are] really beginning to settle in. We really believe that we’re still in the early stages of all those shifts.” DAVID DOCTOROW MOVE, INC.

If a city’s housing supply can’t grow to meet demand, the natural result is that prices go up. Artiﬁcial caps then produce shortages and other distortions, such as dilapidated properties that landlords don’t have an incentive to renovate.”

In short, the economic, social and environmental costs of poorly functioning housing markets spill over beyond local boundaries to affect entire regions and states. State-level action has the potential to improve these outcomes." MICHAEL ANDERSEN SIGHTLINE INSTITUTE

WALL STREET JOURNAL EDITORIAL BOARD

Exclusionary zoning is a product of state law, and if we can get states to address that through funding incentives, I think that that could lead to some real change at the local level. Local governments have no inherent authority that’s not granted to them by state government.” PHIL TEGELER POVERTY AND RACE RESEARCH ACTION COUNCIL

A combination of local ﬁscal worries and the loud voices of a NIMBY (“not in my backyard”) minority have made many local governments ﬁnicky about growth." SALIM FURTH MERCATUS CENTER

To unleash residential development will require peeling back layers of regulations that have accrued over the decades. That could mean reducing minimum lot sizes, relaxing overly stringent construction and site requirements, easing design reviews, and rolling back some environmental controls, including certain provisions for wetlands and open space.” ALEXANDER VON HOFFMAN HARVARD JOINT CENTER FOR HOUSING STUDIES

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REGULATORY AFFAIRS

Multiple DLI technical reviews, Plumbing Code effective in December Two Technical Advisory Groups (TAGs) underway at the Minnesota Department of Labor and Industry (DLI) heard from legislators about three proposed bills that would directly impact housing affordability. At a Nov. 9 meeting of the Building Code TAG, legislators presented bills aimed at increasing housing affordability and access that would impact DLI and the State Building Code. Sen. Mark Koran (R-North Branch) presented a bill to change new-home permit fees to be based on square footage, rather than based on valuation. Sen. Rich Draheim (R-Madison Lake) presented an energy code payback requirement of five years; meaning that any new residential energy code would have to pay for itself in five years or else it would not be able to be enacted. Rep. Steve Elkins (DFL-Bloomington) presented a comprehensive Housing Affordability Act, which he hopes to introduce once a special session begins, or in the regular session in 2022. A second TAG is examining requirements around window washing anchor requirements. Like the Building Code TAG, this group is examining

legislation proposed in previous years that would change window washing anchor requirements in certain situations. Both TAGs aim to inform the legislative authors of how to improve their bills, not create new or amended building code requirements. Plumbing Code The new Minnesota Plumbing Code goes into effect on Dec. 17. The most noticable change is the removal of the dishwasher airgap mandate. Although not mandated, the airgap is one of two options that can be used in residential plumbing. The other option is the looped method, which returns to favor after being previously banned in lieu of the airgap. Minnesota’s 2020 Plumbing Code incorporates by reference Chapters 2-11, 16, and 17 of the 2018 edition of the Uniform Plumbing Code (UPC), and UPC Appendices A, B and I, with Minnesota amendments. The new Minnesota plumbing code can be viewed on the DLI website. Books are available for purchase from the International Association of Plumbing and Mechanical Officials’ online bookstore.

Study examined both the immediate impacts and long-term benefits of new home production in the FargoMoorhead region.

Study says homebuilding critical to Fargo-Moorhead economy Homebuilding has a significant positive impact on the Fargo-Moorhead economy, according to a study released in October. The study, prepared for the Home Builders Association of Fargo-Moorhead by the National Association of Home Builders, examined both the immediate impacts and long-term benefits of new home production in Cass County, North Dakota and Clay County, Minnesota. At its current production levels of 951 new homes at an average per-home cost of $330,826, new single-family construction creates an annual economic impact of $227.8 million in local income, $16.2 million in taxes and other revenue for local governments, and supports 2,893 local jobs. Multifamily construction, at 1,372 units with an average price of $142,151, creates $150.3 million in local income, $100.6 million in taxes and other revenue for local governments, and 1,866 local jobs. Beyond the annual impact of new construction, these new residents provide continued economic benefits for years to come, according to the study. These same single-family homes provide $42.2 million in local income, $9.7 million in taxes and other revenue for local governments, and 710 local jobs. For multifamily construction, the annual impact of these 1,372 units is $39.7 million in local income, $7.2 million in taxes and other revenue for local governments, and 666 local jobs.

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Legal briefs: solar installer sued, developer challenges North Oaks denial An investigation by the Minnesota Department of Commerce has led to criminal charges of theft by swindle against the owner of a solar installation firm. The complaint states the owner of Able Energy Co. would enter into contracts for residential solar installation without the resources to complete existing projects, let alone the new projects. The funds collected from these new customers would then be used for purposes other than completing the stated project, according to the complaint. Michael Harvey, owner and CEO of Able Energy Co., is accused of using company funds for personal purchases, including at retailers such as Cabela’s, C & R Guns, hotels and grocery stores. Harvey is also accused of transferring business funds to his personal account. “These transfers did not appear to take place on a regular schedule, but instead often occurred when Defendant’s personal account balances ran low,” the complaint says. “The combined effect of all these withdrawals often amounted to charges for non-sufficient funds as well as payroll checks that bounced and had to be reissued.” This is not the first instance of a solar contractor leaving projects undone in Minnesota. In September, the Minnesota Department

of Labor and Industry (DLI) revoked the license of Empire Solar Group, a national solar firm that declared bankruptcy a few weeks earlier. In October, DLI and Empire Solar Group’s trustees entered into an agreement to pay for the completion of unfinished projects. The issues surrounding solar installation have been a topic of growing concern among policymakers over the past few years. Both the Minnesota Legislature and DLI have discussed making solar contractors pay into the contractor recovery fund, allowing homeowners to complete the projects abandoned by solar installers. North Oaks sued over denial The private community of North Oaks is being sued over denial of a project that had obtained a recommendation of approval by city staff. On Sept. 9, the North Oaks City Council voted 3-2 to deny an application for 73 homes, a mix of twin homes and detached townhomes on a 32-acre plot. The suit is brought by the North Oaks Company, which is owned by the descendant of James J. Hill. The Hill family founded North Oaks and their company is charged with development of the private community. Project applicants have increasingly explored legal remedies for project denials.

North Oaks is being sued over denial of a project for 73 homes that had previously been recommended for approval.

Earlier this year, the city of Lakeville was sued over a multifamily project denial. Last year, the city of Plymouth was sued over denial of the development of the closed

Hollydale Golf Course. The Lakeville case is still pending, and the Plymouth suit was settled with the development allowed to proceed, with modifications.

Lead paint update: latest Minnesota proposal extends liability, enforcement parameters The Minnesota Department of Health (MDH) released the latest Lead Renovation, Repair and Painting (RRP) Rule draft on Nov. 16. MDH seeks to assume local oversight and enforcement over the EPA's RRP Rule, which is presently directed by the federal agency's Chicago office. New provisions added The latest version of the RRP Rule includes several new provisions for the retention of records by trainers and remodelers should a business cease operation. Under the new language, anyone required to keep records under the proposal must store the records for up to three years with a custodian. These firms must also inform MDH of their record custodian. These new provisions could open the door to clerical enforcement without ever actually visiting the job site and long after a business ceases operations. It is unclear what duties these custodians have under the rule, and what penalties they face.

The latest proposal reflects changes to minor items, but needs more work, according to Housing First Minnesota.

Other changes In the previous version of the rule, even a single window replacement would have caused massive sections of a multifamily building to be wrapped in poly. Under the new proposal, only sections within 20 feet of the work area must be covered in poly for exterior renovation work.

The new version clarifies a transition plan for the new rules, with EPA certification allowed to continue until its expiration date. At that time, a certified firm would need to get a Minnesota license. Unaddressed in this change is if renovators with EPA would be penalized before they need Minnesota certification. New language also clarifies the testing of integrated components with several different sections, such as trim and stairs components. Testing one section, such as an individual stair tread, is allowed, provided that all sections were installed at the same time. Industry responds The latest proposal reflects changes to minor items, but needs more work, according to Nick Erickson, director of research and regulatory affairs for Housing First Minnesota. “As far as improvements go, the positive changes in this rule were minor in scope,” said Erickson. “The best path is for Minnesota to adopt the federal rule as it sits presently, with an enforcement program that focuses on preventing lead exposure, not post-renovation clerical enforcement. Absent such a proposal, the department must let the existing EPA rule stand.” The comment period for the new rule closed on Dec. 15.

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HOUSING ON THE HILL

Housing reform in the 2022 legislative session

Q&A with an economist and policy expert on zoning reform Comprehensive housing reform is expected to be at the top of the Minnesota Legislature’s agenda in 2022. An exposé on zoning’s role in the housing crisis by the Star Tribune spurred the Legislative Commission on Housing Affordability to action. Housing Industry News reached out to policy-centric groups in Minnesota to see what they think housing reform will look like in the 2022 Minnesota legislative session.

John Phelan (JP) is an economist with the Center for the American Experiment.

Q. Across the political spectrum, there is growing support for housing reform. From your perspective, why is action needed?

JP: The Twin Cities has some of the highest housing costs in the United States. A while back, Census Bureau numbers showed that, outside coastal states like New York and California, Minneapolis/St. Paul had the most expensive housing costs among the nation’s 20 largest metro areas. Residents here pay an

average of 26% more than neighboring states. And there isn’t really a good reason for it. If you look at a place like San Francisco you can understand why housing might be expensive, geography pretty much fixes the supply, but the Twin Cities are surrounded by mostly buildable land. The main reason for our housing costs being so much higher than, say, Wisconsin’s, is government, with its excessive taxes, fees and regulations. This is a free market/small government/conservative/libertarian issue, and policymakers on ‘the right’ should be all over it. If they don’t offer solutions, people will turn to those who do, whether or not those solutions will actually solve anything.

supply curve, which is where ‘affordable’ housing will be found. Making it easier to rezone, so that, for example, land zoned for single-family housing can be zoned for apartments, would help here. Not that that doesn’t raise issues of its own, such as the Ford site development in St. Paul, where a dense development is being built in an area whose infrastructure could struggle to accommodate it. American cities have developed differently to denser, European cities, which urban planners often want to emulate. We see it with transportation–retrofitting a city to make it denser isn’t easy.

Q. Other than modest densiﬁcation, what do you think the Commission should look at including in the comprehensive housing affordability reform bill?

JP: You are right that zoning has dominated discussion and it is important to note that it is only one part of the picture when it comes to affordable housing. As I said at the start, a major reason for relatively more expensive housing in Minnesota is the excessive taxes, fees and regulations imposed by all levels of government. So, for example, we require stone on the fronts of starter homes, that numbers of wetland experts meet on site to verify that wetland boundaries are correct and that builders navigate duplicative stormwater reviews from both cities and watershed districts. All of these impose costs, and none are in any real consumer interest. We need to take an axe to regulations such as this.

Q. Zoning reform with modest densiﬁcation has dominated the conversation for housing reform. From your perspective, what will zoning reform do to increase housing access and affordability, and which provisions are needed?

JP: Zoning makes it harder for the housing market to work. By mandating that homes have to be a certain size or detached or whatever, it essentially amputates the bottom of the housing

Phelan believes zoning makes it harder for the housing market to work.

Join hundreds of local building industry professionals and REALTORS(R) as we gather in support of Minnesota’s housing industry. Housing Day at the Capitol serves as a way for you to get involved and hear from industry leaders and legislators on key housing issues at the Capitol. It is more important than ever that we work with lawmakers to remove the roadblocks that stand in the way of building new housing in our state.

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Housing Commission digs further into housing supply and affordability crisis

St. Paul Voters approved a policy that mandates rents not increase more than 3% annually.

Voters pass rent control initiatives, housing market braces for changes While voters in the cities of Minneapolis and St. Paul were clear in their support of rent control, what happens next in each city remains unclear. In Minneapolis, 53.21% of voters were in favor of authorizing the Minneapolis City Council to enact rent control if they choose to, while in St. Paul, 52.89% of voters were in favor of adopting a policy that mandates rents not increase more than 3% annually. In the hours following the election, confusion surrounding the policy was rampant in St. Paul. The ordinance includes a start day of May 1, 2022, but the St. Paul city charter requires any voter-approved ordinance to take effect immediately. Mayor Melvin Carter’s office, which supported the measure, published a website stating that the ordinance was immediately effective, but the website was later taken down. Carter also believes that the city has the capability to amend the language to exempt new construction from the mandate, but advocates are not so sure. “The thing I would say about making sweeping changes—we live in a city where six out of seven wards voted in favor (of rent stabilization),” Margaret Kaplan, president of the Housing Justice Center, told the Pioneer Press. “There are some limits on what they can do now, and on what they

can do in the future. They can make changes to the ordinance today that are not really substantive changes, like clarifications.” The debate on whether to include new construction will have a profound impact on new projects coming into the city. Ryan Companies stated that they have put three projects on hold, and other developers are also mentioning a concerning loss of major investors. On the other side of the Mississippi River, Mayor Jacob Frey has said that he voted for the ballot measure but as a supporter of local control, not necessarily rent control “in its classic form.” He has also said if a policy were to pass, he would want an exemption for new development. Councilmember Jeremiah Ellison helped craft the rent control ballot initiative and was also open to a more moderate policy. Ellison told the Minnesota Reformer that his priority is to protect renters from massive hikes. “You don’t draft a rent control policy because of the average rent increases,” Ellison stated. “You draft a rent control policy based on who’s being harmed by massive rent increases.” In the meantime, both mom-and-pop landlords and larger landlords are already raising rents or considering raising rents before the expected May implementation in St. Paul.

the lack of this missing middle has drastic repercussions for housing equity in Minneapolis-St. Paul,” stated Bell. “Both nationally and in Minneapolis-St. Paul, there is an enormous gap and it’s widening in household wealth between Black and white households. In the Minneapolis-St. Paul region, the Black homeownership rate is currently just 26%. This is the lowest Black homeownership rate we surveyed out of the 59 metro areas we looked at.” Looking forward, the challenges are not likely to be met under the current pace of housing construction, which is limited by the housing approval process. Data points to this problem worsening, not improving. "In terms of looking ahead into the pipeline, [this is] kind of like our sneak peek into the future of what housing is going to look like. The dynamics and trends do not really change, and, in fact, they’re actually expected to continue to head in the more expensive direction. We see a general shortage of lots overall and then those prices continuing to push up,” stated Danielle Leach, Midwest regional director for Zonda. “We’ve seen a continued decline in the availability of lots in the market, down to 13.2 months of supply, down from 23.6 months just one year ago.” Greater Minnesota housing issues While much of the housing discussion focuses on the Twin Cities metro, the region’s largest housing market, the commission also heard testimony discussing the challenges felt in Greater Minnesota during their November hearing. While the zoning and permitting costs are generally considered to be less onerous and expensive outside the metro, the building code and statewide regulatory pressures exist and create cost pressures that impact homeownership access. This is especially challenging for border communities, such as Moorhead. A similar house just across the river in Fargo is substantially less costly than that house would be in Moorhead, due primarily to regulatory costs. “We cannot spend our way out of this crisis. We need to reduce the barriers to affordable construction,” said Don Dabbert, Jr., a Moorhead-area homebuilder and member of the Home Builders Association of Fargo-Moorhead. The Greater Minnesota themes of affordability roadblocks echoed a consistent message heard by commission members over the two hearings. While industry critics have suggested that housing providers in Minnesota have been simply choosing not to build starter and middle-market homes, the commission hearings revealed otherwise, spotlighting a desire by builders to achieve lower-priced homes and an inability to do so due to zoning, codes and other regulatory factors. Sen. Rich Draheim (R-Madison Lake) said it is not an issue of whether or not the housing market wants to build homes at all price points, it is whether they will be able to. “The free market is there, and they want to build. The best thing we can do is get out of the way and let them build,” Draheim said. The commission’s work is expected to turn to affordability policy proposals as the 2022 legislative session approaches.

Housing First Minnesota honors 2021 Legislators of the Year Sen. Draheim and Rep. Quam honored as champions for homeowners Housing First Minnesota, the state’s leading voice for housing, recognized Sen. Rich Draheim of (R-Madison Lake) and Rep. Duane Quam (R-Byron) as recipients of Housing First Minnesota’s Legislator of the Year Awards. The honor recognizes legislators for their efforts in promoting housing affordability and homeownership opportunities for everyone, everywhere. “Every day we read a new headline about the struggles Minnesotans are facing with housing affordability and availability,” said David Siegel, executive director of Housing First Minnesota. “Sen. Draheim and Rep. Quam worked tirelessly during the 2021 session to support legislation that would help create homeownership opportunities for everyone in Minnesota.” In his second term, Draheim chairs the Senate Housing Committee and introduced some of the most comprehensive housing policy legislation in decades during the 2021 session. Additionally, he serves on the Legislative Commission on Housing Affordability. As a member of both the Local Government Division and State Government Committee, Quam diligently advocated for homeowners, leading the charge to find the balance between housing affordability and infrastructure needs. In part thanks to his efforts, impact fees that would have cost homeowners thousands of dollars did not advance.

Senator Rich Draheim (R-Madison Lake)

Representative Duane Quam (R-Byron)

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MARKET REPORT

Job openings across Minnesota reach record high

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Minnesota homebuilders have busiest year since 2005

The effects of the COVID pandemic are still being felt throughout various economic sectors. As many businesses attempt to return to normal operations, employers across multiple sectors are reporting noticeable worker shortages. Notably, employers are seeing the number of job openings vastly outpace the number of workers they have been able to hire. In its biannual Job Vacancy Survey, the Minnesota Department of Employment and Economic Development (DEED) confirmed these experiences. The overall number of job openings across Minnesota reached a record high in the second quarter of 2021. This report, conducted in the second and fourth quarters of each year, gauges demand for hiring and job openings across all economic sectors and industries. Employers reported an 84% increase in vacancies compared to the second quarter of 2019. This increase is the equivalent of more than 205,000 jobs across the state. Job vacancies in the Twin Cities metro area increased 81% since 2020. Likewise, Greater Minnesota reported an 88% year-over-year increase in job vacancies. Twelve of Minnesota’s 20 major industry sectors reached record levels of vacancies in the second quarter of 2020, according to DEED. Parts of the economy hit particularly hard by the pandemic accounted for a large portion of the job openings across the state. The food preparation and serving and the retail trade industries accounted for 30% of all open positions across Minnesota. There were just over 7,500 job vacancies reported in the construction industry statewide. The construction industry in the Twin Cities metro area reported almost 2,700 openings in the second quarter of 2021; this is a nearly 52% increase since the second quarter of 2020. However, the state’s unemployment rate continues to tick down from its pandemic-induced peak. Minnesota’s unemployment rate dropped to 2.5% in October. This is compared to the September rate of 2.8%.

The last time builders pulled more permits for single-family homes in the metro was in 2005. Metro townhome and small multifamily projects also saw a strong increase in production in 2021. According to the Keystone Report, multifamily projects for 16 units or less saw a 41% increase over 2020, with permits pulled for 1,514 units. Statewide homebuilders have pulled permits for 15,683 new single-family homes year to date, a 15% increase over this time last year. The increase in construction in 2021, still leaves the state significantly short of homes. According to the U.S. Census, statewide homebuilders have pulled permits for 15,683

new single-family homes year to date, a 15% increase over this time last year. The increase in Construction still leaves the state significantly short of new single-family homes. On top of this existing shortfall of housing construction, the lengthy development process in our state portends a severe lot shortage ahead, according to housing experts. For example, Zonda, a leading housing market data firm, points out that the number of vacant and developed lots (VDLs) fell to 11,949 in the third quarter of 2021. That’s down 18% from 2020 and far below the average of 16,238 VDLs available in the region. The strong demand for new homes is expected to continue as the existing housing market and overall region remains low in supply of homes for sale. Zonda predicts the lot constraints and other market challenges and slowdowns will put a damper on growth in construction for 2022.

Homebuilders in Minnesota have pulled permits for 15,683 new single-family homes year to date, a 15% increase over this time last year.

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Existing-home sales continue to rise nationwide

In October, the existing-home inventory shrunk 0.8% to 1.25 million homes.

Sales of previously owned homes rose again in the month of October, marking the second-straight month of growth in the existing-home market. According to the latest report from the National Association of REALTORS® (NAR), there were over 6 million existing-home sales across the United States in October. Regionally, sales decreased 2.6% month to month in the Northeast and increased 4.2% in the Midwest. In the South, sales rose 0.4% over the previous month, and in the West sales remained at the same rate compared to September. "Home sales remain resilient, despite low inventory and increasing affordability challenges," commented Lawrence Yun, NAR's chief economist. "Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment." The supply of existing homes continues to decrease nationwide. In October, the existing-home inventory shrunk 0.8% to 1.25 million homes. This is a 12% year-over-year decrease. The breakdown of buyers who are engaging in the housing market is seeing a shift. According to NAR’s report, investors are becoming a larger presence in single-family purchases. This group made up 17% of all buyers in October. This is up from 13% in September. Cash buyers, overall, accounted for 24% of all buyers in October in the existing-home market. Conversely, the share of first-time homebuyers in the previously owned home market is shrinking. In October, they accounted for 29% of all sales. This is compared to 32% a year ago. The median sales price of all home transactions in Minnesota was $308,500, an 8.2% year-over-year increase, according to the Minnesota Realtors®. Nationwide, the median sales prices of previously owned homes was up 13.1% at $353,900. NAR reports that October’s sales price increase marks 116 straight months of year-overyear increases.

HOUSING INDUSTRY NEWS

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MARKET REPORT

Housing market report

State of Minnesota

Twin Cities homebuilding continues to slow from frenzy

Moorhead

100 SOURCE: CITY OF MOORHEAD

15,683

Duluth

Year-to-Date Single-Family Construction Select Cities Through October 2021 SOURCE: U.S. CENSUS

SOURCE: U.S. CENSUS

St. Cloud

The pace of single-family construction in the Twin Cities continues to fall to an overall slower rate compared to the same time last year. Builders in the metro area pulled permits for new homes at a 5% lower rate than October 2020. Homebuilders are also reporting a slight slowing of the all-out frenzy of buying activity experienced throughout the pandemic. As labor, inflation and the cost of materials all continue to contribute to rising prices, buyers are beginning to drop out of the tight market.

SOURCE: CITY OF ST. CLOUD

Twin Cities

9,723

Mankato

120

SOURCE: U.S. CENSUS

Rochester

272

SOURCE: U.S. CENSUS

SOURCE: U.S. CENSUS. HOUSING FIRST MINNESOTA COLLECTED THE ABOVE PERMIT INFORMATION FROM AVAILABLE PUBLIC RESOURCES.

OCT. 2021

$340,000

$308,500

OCT. 2020

+7.9%

+8.2%

$315,000

OCT. 2020

$285,000

SOURCE: DEED

Y-Y Change

2020

$315,000

$284,000

Twin Cities Median Sales Price

Minnesota Median Sales Price

SOURCE: MINNEAPOLIS REALTORS®

SOURCE: MINNESOTA REALTORS®

Twin Cities Construction Employment Past 5 Months

United States

South - 87

West - 87

SOURCE: DEED

Midwest - 89

Northeast - 78

Regional Remodeling Market Indices, 2021 Q3 SOURCE: NAHB

The Overall Remodeling Market Index is calculated by averaging the Current Marketing Index and the Future Market Indicators Index. Any number over 50 indicates that more remodelers view remodeling market conditions as higher than the previous quarter. Results are seasonally adjusted.

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Minnesota Construction Employment Past 5 Months

HOUSING INDUSTRY NEWS

Employment Update Minnesota’s unemployment dropped to 2.5% in October, according to the Minnesota Department of Employment and Economic Development. This is compared to the September unemployment rate of 2.8%. The national unemployment rate also decreased from 4.6% in September to 4.3% in October. Construction in Minnesota recorded a 6.6% employment growth, or 8,852 jobs, since October 2020.

Material costs for new homes hit record increase in 2021 Lumber prices may have come back down to earth, but homebuilders continue to see rising costs across the entire homebuilding process. According to the National Association of Home Builders (NAHB), the price of all goods inputs to residential construction (including energy) has risen 14.5% thus far in 2021, eight times more than it did over the first 10 months of 2020. NAHB reports that the year-to-date increase is double that of the previous record yearto-date October increase (+7.1% in 2008). The data comes from the latest Producer Price Index (PPI) report from the Bureau of Labor Statistics.

Source: NAHB

The October PPI for softwood lumber did record its first monthly increase since May, rising 9.1% for the month. Even with the increase in October, the softwood lumber index still sits well below where it peaked earlier this year. The PPI for ready-mix concrete has risen 6.4% since January 2020 and 4.8% year to date, which NAHB states is the largest year-to-date increase in October since 2006. Gypsum products PPI increased 2.1% in October, the eighth consecutive monthly increase. According to NAHB, Gypsum products prices are up 19.0%, year to date, by far the largest October year-to-date increase since seasonally adjusted data became available in 2012. Steel Mill products have also seen a sharp price increase in 2021. According to the PPI, prices have climbed 145.6% since the start of the year.

HOUSING INDUSTRY NEWS

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INDUSTRY IN ACTION

The industry came together at Mystic Lake Center to celebrate, connect, and network at the BIG Night.

Builder of the Year named at the 2021 BIG Night Housing First Minnesota announced the recipients of its coveted 2021 Builder of the Year, Remodeler of the Year, Associate of the Year and other housing awards during the association’s biggest event of the year, the Building Industry Gala (BIG Night) at Mystic Lake Center in October. Mark D. Williams Custom Homes, Inc. was named the 2021 Builder of the Year, Alma Homes, LLC was named the Remodeler of the Year and Dakota County Lumber Company was named the Associate of the Year. Housing First Minnesota’s annual awards recognize firms that exemplify the highest standards in business conduct as judged by their peers and customers. “The housing industry’s work building homes for Minnesotans has never been more important,” said David Siegel, executive director of Housing First Minnesota. “Following the global pandemic, homebuilding has only grown more challenging. It’s important to honor those that are doing an exceptional job and going above and beyond to make Minnesotans feel at home.” Other top awards presented included the Housing Industry Leader of the Year Award, which was given to Gary Kramer of

Mark D. Willam's Custom Homes, Inc. pose with 2022 Builder of the Year trophy.

John Kramer & Son’s, Inc. for his dedication to go above and beyond to support the housing industry. Curtis Christensen of Lee Lyn Construction, LLC received the Robert L. Hanson Lifetime Achievement Award for industry service. Ron Clark Construction won the Bennie Award for the best new neighborhood for their Legacy Oaks Development in Minnetonka. GreenHalo Builds was awarded the Minnesota Green Path Leadership Award that honors leaders in energy-efficient building. In all, 15 Reggie Awards and 17 Remodeler of Merit Awards (ROMAs) were awarded this year. Builders, remodelers, suppliers and individuals in the homebuilding industry from across the state attended this year’s event with WCCO’s Jason DeRusha returning as the emcee for the event.

Real Estate Law at Every Level Megan Rogers represents developers and property owners seeking favorable government approvals including licensing, zoning and other regulatory matters. Megan also provides guidance on bond financing for multifamily projects and real estate transactions including residential and commercial sales and leases, easement agreements, title registrations, and lot splits. Megan Rogers | 952- 896-3395 | mrogers@larkinhoffman.com Jacob Steen advises and represents developers and property owners seeking favorable government approvals including zoning, environmental review, liquor licensing and other regulatory matters. Jake was previously a city planner for the City of Minneapolis where he worked extensively in the crafting and administration of zoning regulations and land use policy. He represents clients in performing zoning due diligence, obtaining land use and development approvals for clients and resolving zoning enforcement matters. Jacob Steen | 952-896-3239 | jsteen@larkinhoffman.com

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HOUSING INDUSTRY NEWS

INDUSTRY GIVES BACK

Remodelers town hall answers questions on new proposed RRP Rule

Parade of Homes entry from GreenHalo Builds, the 2021 Green Path Leadership Award winner.

Minnesota’s Green Path reaches 30,000 homes tested In its 10th year of providing Home Performance Reports (HPRs) in the state, Minnesota’s Green Path program crossed the milestone of energy testing 30,000 homes. Created by Housing First Minnesota in 2011, Minnesota’s Green Path is the leading energy-efficiency and green building program for the residential construction industry in Minnesota. As of November 2021, 33,000 homes have been tested and received HPRs that highlight the home’s RESNET Home Energy Rating System (HERS) index and air exchange measurement. The program was designed to appeal across a broad market by providing transparency and

independent veriﬁcation. It also offers certiﬁcation for improved energy efficiency and home performance. According to RESNET, which provides the HERS score for the program, the demand for HERS scores grew steadily in the first half of 2021. In the first six months of 2021, there were 150,894 homes rated and entered into the RESNET registry nationally. This is an increase from 145,961 homes that were rated during the same period in 2020. For more information on Minnesota's Green Path, visit MNGreenPath.org.

Two state agency efforts could fundamentally alter the remodeling and exterior contracting industries in Minnesota. Housing First Minnesota hosted a town hall in November to discuss how these initiatives from state regulators could substantially change home remodeling in Minnesota. Nick Erickson, Housing First Minnesota's director of regulatory affairs, was joined by Bill Gschwind of Construction Law Services to walk through the Minnesota Department of Health’s Lead Renovation, Repair and Painting (RRP) Rule proposal, as well as a climate change effort from the Minnesota Pollution Control Agency that could create inconsistent remodeling regulations across the state. Remodelers from across the state were able to ask questions about the potential new rules that would impact their business. Read more about the proposed rules on page 5. Want to learn more? A recording of the presentation is now available at contractorU.org

Remodelers from across the state attended the town hall to learn how new proposals could impact their business.

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INDUSTRY GIVES BACK

The home was built specifically for the Tillman and Poplin family, who recently relocated to Minnesota to be closer to family.

Military family receives the gift of home on Veterans Day On Veterans Day, two organizations focused on building homes for injured and disabled veterans gave an Army veteran couple the keys to a brand-new home in Prior Lake. Pulte Homes’ Built to Honor program partnered with Building Homes for Heroes, which both provide mortgage-free homes to veterans living with disabilities as a result of their military service.

Pulte Homes’ Built to Honor program partnered with Building Homes for Heroes, which both provide mortgagefree homes to veterans living with disabilities as a result of their military service.

The engaged couple, Sgt. Efferim Tillman and Spc. Jessica Poplin, met in the Army in 2011 and share a daughter and son together. The new construction single-family home is over 3,750 square feet with three bedrooms and two-and-a-half bathrooms. It was built specifically for the Tillman and Poplin family, who recently relocated to Minnesota to be closer to family. “We are grateful to Sgt. Tillman and Spc. Poplin for their service to our country and are honored to build them this home,” said Jamie Tharp, president of PulteGroup’s Minnesota division. “We hope that the home will provide their family with comfort and many happy memories together in this exciting new chapter of their lives.”

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HOUSING INDUSTRY NEWS

JL SCHWIETERS CONSTRUCTION 13925 FENWAY BLVD N HUGO, MN 55038

New home and ADU in Minneapolis to provide shelter for veterans

This is the Housing First Minnesota Foundation’s sixth Housing for Heroes build project for the Minnesota Assistance Council for Veterans.

The Housing First Minnesota Foundation, Lennar Minnesota and the Minnesota Assistance Council for Veterans (MACV) held a groundbreaking ceremony for the latest Housing for Heroes community build on Humboldt Avenue in North Minneapolis on Nov. 17. This is the Foundation’s sixth brand-new home that will be owned by MACV, and it will be the first with an accessory dwelling unit (ADU). The four-bedroom home with an ADU will help address a growing need for housing for veterans who are transitioning out of homelessness. The ADU will help MACV house veterans who need a bit more space and independence in their housing. “Projects like this take lots of funding and planning,” said David Siegel, executive director of the Housing First Minnesota Foundation. “This is the first Housing for Heroes build with an ADU. We want to thank all of our generous supporters who make these incredible projects possible.” Currently, there are 267 veterans on the state’s homeless veteran registry. Once this home is completed, it will provide veterans with stable housing and supportive services they need to transition into independent living. This critical housing program gives homeless veterans the support and confidence to find success once again. The Foundation’s seventh Housing for Heroes community build started construction in early December on Irving Avenue in North Minneapolis.

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HOUSING INDUSTRY NEWS

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MN CONTRACTORS & REMODELERS

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Administrative Provisions of the Minnesota Residential Code

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How to Deal with a Crazed Homeowner: Responding to a Homeowner’s Aggressive Threats and Tactics

Blower Door Testing and Common Air Sealing Issues Building Barrier-Free Bathrooms Building Blocks of Business Management Building Planning Provisions of the Minnesota Residential Code Code Administration, Framing, and Finish Applications of the 2020 Minnesota Residential Code Cyber Security for Builders: What You Need to Know About Cyber Security Threats and Social Media Attacks Exterior Envelope Energy Provisions of the Minnesota Residential Energy Code Exterior Water-Resistive Provisions of the Minnesota Residential Code Foam Plastic Insulation Provisions of the Minnesota Residential Code Footings and Foundation Provisions of the Minnesota Residential Code Framing Provisions for Floors, Walls, and Roofs of the Minnesota Residential Code

Insulation: Why – Where – What Legally Running Your Construction Business While Limiting Personal Liability Minnesota’s Wage Theft Law

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So, Tell Me About Your Problem House The Basics of Premanufactured Wall Panels

Remodeling Under the Minnesota Residential Code

The Exterior Wall Envelope: Cavity Wall Insulation

Success or Failure: Depends on Your Plan

The How and Why of Exterior Insulation

Certiﬁed Aging-In-Place Specialist Courses

Navigating the Permit Process

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