Minneapolis is hot! The Metropolitan Council recently noted that we popped back up above 400,000 residents after adding almost 9,000 people between 2012 and 2013. The area along the Midtown Greenway has been completely transformed in the past decade–eleven separate projects, ten of which are residential, have been built along its Uptown stretch since 2004. There are residential towers sprouting in Downtown Minneapolis, Loring Park, and the University of Minnesota area.
Put another way, at any given point in 2013, on average there were thousands of more people living in Minneapolis than just a few months prior.
And there are tensions! At neighborhood meetings, and in CityPages listicle comment sections, and on Facebook pages, and on Facebook pages satirizing Facebook pages, and elsewhere. This new rental stock is no vintage 1980s Elliot Park studio apartment–it’s amenity-rich, it has high-end finishes, and it’s generally in very visible locations. It’s also more expensive than most existing rental stock, for reasons outlined below.
What’s getting built?
The one bedroom units at LPM Apartments, a 36 story tower opening soon down the street from my own granite-less one bedroom, start at $1700/month. Prices vary between projects, though. The new office-to-residential conversion in the Soo Line Building in Downtown Minneapolis has large studios starting at $1100/month, and Track 29 in Uptown has one bedrooms priced a little lower than LPM Apartments, with the cheapest renting for $1430/month.
Average rents have certainly increased, in part due to the addition of thousands of newer, more expensive units but also because even in the face of this building boom, rental vacancies are historically low. In other words, there’s demand. People want to live in Minneapolis. These new buildings aren’t technically overpriced–because they’re being occupied. If they were overpriced, they wouldn’t be filling up. Some anecdata: Last week while putting money on my laundry card in the office of my own mid-market apartment building, I found out that a new unit with a better view had just opened up, so I quickly ran upstairs to grab a check for the deposit. Turned it in and put my stuff in the wash. By the time I got my laundry out of the dryer, my current unit was taken by someone else. True story.
Who’s renting these places?
So who can possibly afford these apartments? There are less than 100 Daytons in the whole state!
Well, it actually makes quite a bit of sense. The Minneapolis-St. Paul metropolitan area is one of the wealthier ones in the country, but it’s also one of the more affordable. People in San Francisco or Manhattan would die to pay $1600/month for a one bedroom apartment. And much of our employment is made up of corporate, professional jobs. There are 18 Fortune 500 companies headquartered here–so we have about 1% of the total population but 3.6% of the biggest public companies. Several of these companies–Target, US Bank, Xcel Energy, Ameriprise, Thrivent, and Valspar–are located right in Downtown Minneapolis. Also, we’ve got lots of hospitals and their employees. And lots of lawyers. Thousands of lawyers.
Knowing this, it’s not really that hard to imagine situations in which many thousands of people can cobble together $1600/month to pay rent–in particular if you don’t have a car, though word on the street is that most of these folks do. The tens of thousands of Target, US Bank, and Xcel Energy corporate employees in Downtown Minneapolis do okay. Two 25 year old roommates a couple years into working at Target can easily make $100,000 together, leaving something like $5,000 or $6,000 per month, after taxes, to manage to pay rent. Plus, I hear that of those thousands of lawyers, many of them will tend to marry each other, which creates even higher wealth households.
I’m not arguing that there are rich people growing on trees in Gold Medal Park, but that it’s important to keep in mind that in our relatively prosperous and stable metropolitan area of 3.5 million people, it’s pretty easy to figure out where ten thousand or so financially stable people may come from.
What’s with these rents?
In the current boom, the actual cost of construction in relation to advertised rents is a woefully undercovered topic. Based on hundreds of hours of message board reading, comment section perusing, and actual real life conversations in the past couple years, I’ve noticed that there’s a commonly-held misconception about the costs of new residential development.
A $1600/month one bedroom apartment doesn’t cost $800/month because of granite countertops and a dog washing station. It costs $1600/month because it’s expensive to buy a half block of land in Uptown or Downtown Minneapolis, tear a building down, dig a two story hole, pour three stories of concrete, and then build 250 apartments on top of it. The amenities and finishes are a relatively small part of the overall project cost. According to an estimate I got from a developer involved in several Uptown area projects, if you were to build a residential building with no common amenities and less costly finishes–my word was spartan–the most you could really expect to cut out of a project in today’s market is about 10% or 15% of the overall project cost.
In that scenario, a developer builds 250 units with no granite countertops and no dog washing station, and still needs to rent that one bedroom for $1400/month to break even. That’s not doable in our market–there’s plenty of comparable existing stock for considerably cheaper. The extra amenities are what makes new construction financially viable.
A different local developer gave me a general breakdown of project costs for your average Minneapolis residential infill development, and he mentioned a similar estimate for amenities and finishes but also broke out structured underground parking separately. Surprising no regular streets.mn reader but maybe some irregular readers, he pegged that at about a fourth of the overall project cost. Not insignificant.
Surprising to me personally was the revelation that there are, in fact, many people moving to Minneapolis from the coasts or Chicago who are excited to be in a city where it’s relatively affordable to own a car–and there’s an expectation that their new apartment will have structured parking.
The theory is that overall, new supply keeps rents lower, at least lower than they would be without that new supply. However, it’s important to note that this is more of a macro process. Adding 1,000 units to the market soaks up 1,000 units of demand in the market generally. It can work in the opposite direction in specific submarkets. If you live on an intersection where there were previously two vacant, weeded lots, and two buildings are built on those lots with a restaurant in one and a brewpub in the other, it’s likely that your area will get more desirable, more people will want to live there, and your rent will probably go up. But to be clear: More housing will decrease rents in the overall market as demand is satisfied.
And there are tens of vacant lots being redeveloped in specific areas. Just when it seemed like the residential boom was slowing down a bit, Mortenson finally broke ground on a 30 story apartment tower at Marquette and 4th Street last month, and Alatus announced plans for a residential tower in St. Anthony Main last week. There’s some evidence that vacancies in the Downtown Minneapolis submarket are starting to rise. Mayor Hodges wants 500,000 Minneapolitans in the near future. There are lots of vacant houses and vacant lots all over the city, especially on the Northside.
But most maybe importantly, gas is still more expensive than it was in the 90s and the Chili’s off the freeway exit is still kind of boring.
Note: One thing we should all do is stop using the word “luxury” to describe things that we’re vaguely familiar with or just heard about in passing. Luxury is a subjective word that has different meanings depending on who you’re talking to, and like some other words, it has lost a certain amount of meaning over the past decade. It’s started to sound silly most of the time. Do not do developers’ advertising for them. They have people to do that.
Did anyone really doubt that we have plenty of couples/roommate pairs making well into six figures that can easily afford these lu**ry rentals?
As a previous StreetsMN post pointed out, affordable housing is existing housing. Within a couple decades, many of these projects (the ones with slightly less durable luxury finishes, slightly less desirable locations/views) will become more affordable. The project debt will get paid off, the other initial costs amortized or written down. They’ll get rebranded without doorpeople and rooftop amenities and finishes will get replaced that aren’t as high end, and the cycle will continue.
A dollar is fungible, and a dwelling unit is (nearly) fungible. What passed for high end downtown even two or three years ago is no longer high end. It wasn’t high end two years ago, but they could charge like it was. The more we build and meet demand for our city, the more things will be better for everyone. Sure, it’s not a complete fix for affordable housing, but it’s part of the solution that costs us nothing. And the alternative that many propose – constraining supply – is not progressive and raises rents, decreasing affordability, over time.
Now if we could only decouple car storage and dwelling unit costs….
Just a point on many of these bigger units going up.. don’t most of them already charge a separate fee for parking? I know Blue charges around $100/mo for underground parking, and would assume other new ones do as well (though certainly there are plenty of 70s/80s apartments in our metro with uderground parking rolled into the rent). I would bet that these builders know that folks who can afford a $1,700/mo apartment will a) want to have a car (whether for work or personal freedom reasons), b) be able to afford owning one, and c) probably be willing to pay to park it.
I wouldn’t doubt that since our region is still very car-dependent (even living in Uptown, for example, the share of regional jobs accessible without a car is quite low), that eventually these places will bundle parking into the rent as they depreciate, giving them a perceived cost advantage vs likely new places. The key is to de-couple parking from development to allow smaller infill sites (especially with good design to the sidewalk) to be more financially viable.
I live in Track 29 and our parking garage is not near full. My wife and I are a one-car household and now that she is working downtown again it hardly ever moves. We pay $100 a month for that spot and I will admit that we counted ourselves blessed every single day last winter. Living in Uptown allows us to only have one car and in that respect we are saving $100 a month. (plus all the other expenses associated with owning a second car) I am positive that the $100 a month that residents pay to use the garage does not come even close to covering the extreme cost of building an underground garage – and the rest is baked in to everyone’s rent. I can’t wait to see the market tested with developments that offer less parking – I know that my building didn’t need to build as many as they did and rent would be cheaper if they hadn’t.
You make a very good point, one I didn’t account for – that $100 a month per spot (even if the garage is full) doesn’t cover the amortized cost of the underground parking, so you and everyone else are still subsidizing it.
Even still, it’s amazing how much $100/mo affects people’s decisions. A friend and his girlfriend (the ones at Blue) only paid for one car in the garage, while the other was parked on the streets since $200/mo was too much. I’d imagine that if the (highly desirable) on-street parking in Uptown were charged (even $0.25/hr on average, including overnight), they would have made a different decision on having the second car around.
“Did anyone really doubt that we have plenty of couples/roommate pairs making well into six figures that can easily afford these lu**ry rentals?”
While the new apartments with energy efficient appliances, granite, underground parking and amenities there is a HUGE missing factor. The rest of the apartment stock.
The older apartments have jacked up rates (even though some have 50 year old + wiring that can not handle todays electronics) and no amenities because of “market rate” So these same 6-700 sq ft one bedroom apartment with 20 year old appliances, linoleum floors, 4″ pastel coloured bathroom tile, no storage, or parking are jacking prices to the same $900-$1100 rates. It is just gouging and now seeing 4-6 people living in these apartments.
Bravo for those who were eligible to pull $75,000 in student loans to get that $45-50K job at Target/Wells Fargo that you speak of, however ..that is not the MAJORITY of renters in the city. Most renters have to choose between paying rent utilities and food…do a REAL story on that.
Those old buildings are $900-$1100 because there is still far more demand than supply. Today’s new buildings are tomorrow’s old buildings. Rent will not ease up until the vacancy rate starts stabilizing at a much higher level than it is now. We need more supply to make that happen. Either that or we can actively work to make Minneapolis less desirable. That could decrease demand too.
Absolutely correct. And while I do think that there should be a range of affordability in a neighborhood, I’m not sure why people expect to have baseline affordability in the hottest neighborhoods. $900/mo to live in a dated unit in one of the hottest neighborhoods sounds fair to me, and clearly there’s demand for that. If we allow supply to keep up with growing demand, prices for such units should go down, or at least not go up like they have.
A better investment for equity would be to start building more “better places” – neighborhoods with amazing transit, great placemaking, walkable services and conveniences.
Right now we have few truly great, walkable places. Demand for those places is higher than ever, so quality places are a “luxury good.” The solution is to build more quality places. Quality places should be our normal, and accessible to everyone in all income brackets. The solution is to build more quality places, and let the market meet the upmarket demand so it doesn’t raise prices downmarket as you’ve noticed.
I think one of the reasons that people expect baseline affordability in the hottest neighborhoods is that they were there when it was affordable. Maybe they were a musician that often played at the cheap music venue. Maybe they were a chef that worked at the neighborhood cafe. Maybe they were the grandfather who has picked up trash on his street for 40 years.
Each of them rented unable to afford purchasing a house. Each of their actions helped keep the neighborhood stable, improved it even. Suddenly their neighborhood becomes popular for its good music, good food, and clean streets. Developers (who for decades wouldn’t build there) come in and build new apartments and it raises the price of their rent in a dated unit. Quickly they can no longer live there. In essence the hottest neighborhoods didn’t used to be hot, but still had neighbors.
I agree with you that one of the best ways to increase equity would be to have more great walkable places so they are no longer a “luxury good”. To create even more equity we should also better distribute the benefits of creating great neighborhoods.
“Developers come in and build new apartments and it raises the price of their rent in a dated unit.”
That’s not correct causation. The reason why rent rises in a dated unit is because increase in demand for units outpaces the increase in supply. If the developer did not build new apartments, it’s very likely that there would have been an even greater increase in rents for the dated unit.
Your right that I suggested a direct causation is not there. The rapid pace at which demand rises in small areas suggests that there won’t be anytime in the near future with rent prices at pre-development (but inflation adjusted) levels. Additionally, developers have in interest in keeping demand high in order to keep rents high.
Even if equilibrium is reached, there is a time lag. If the time to equilibrium is too long, people who could only afford the lower rates will have to move anyway. The chances are slim for all those who left moving back when an equilibrium has been reached
Good points. We’ve also seen cases where landlords are more willing to let a small number of sit empty (for a few months – I doubt years) than to lose their pricing power for all of their units.
It would be interesting to see a study or data on rental rates and percentage change over time for Uptown and compare it to the larger Minneapolis and regional markets along with vacancy rates.
I rented in Uptown from about 2003 to 2007 and saw my rent increase annually by about 3% ($15-$25 annually). 2-3% rental growth is what investors shoot for so my unit in 2006 was $745 which was significantly more than I wanted to be at, but vacancy was low in Uptown. And at that point, there was no new rentals in Uptown.
Part of the apartment pressure was from condo conversions that reduced supply. But I agree that if a lot of higher end units (Class A property) come on the market that those older and less amenity property owners (Class B and C) may try and push their respective rents to see if the market will support it.
But it is a market thing where if people wouldn’t pay that rent, they’d drop the price or offer all sorts of concessions (free month rent) to get you in.
The policy issue is how do we create great communities and not push people out? In my opinion, the issue isn’t that the housing isn’t too expensive, rather it is that the wages too many our society are far too low. Construction costs can’t be cut down much further without cutting wages to workers, which is not desirable in my opinion.
I would love to see a study like that. On a related note, I keep seeing average rent price being thrown around, but I haven’t seen a non-anecdotal account of the change in rent price for apartments built before 2008. In other terms the difference between the median and mean rent.
I think your last observation is a great one. A living wage would go a long way towards creating more great communities.
I agree. Another thing to consider is the apartment buildings that have been converted to condos, torn down for new construction and foreclosed building currently empty. Yes, Uptown is considered a “hot neighborhood” but where do the servers, cooks, retail sales, and other lower income earners live? Now they are expected to drive across town to work?
Have there been any significant tear down of apartments?
A survey of 227 buildings demolished in Minneapolis/St. Paul found that buildings are often torn down within 50 years, regardless of material, because of changing needs and increasing land values as opposed to performance issues.
-O’Connor, J., 2004, Survey on Actual Service Lives for North American Buildings, FPInnovations
Well, okay, but that doesn’t really go to the question at all. Yes, we know buildings get torn down. But have there been significant reductions in housing stock resulting from the tear down of apartments?
Off the top of my head, I can only think of one apartment building that was torn down resulting in reduced housing stock in recent years (the building that used to be at Marquette and Alice Rainville, now a Westminster Presbyterian parking lot).
I’m not exactly sure what used to be where LPM is now, but even if that was apartments, they are obviously being replaced with a lot more apartments than were lost.
Are you aware of other apartments that have been torn down, or torn down and not replaced, with in the current cycle of the housing market?
Meanwhile, lots of new apartment units have gone up without displacing any existing units. Downtown has 222 Hennepin, Dock Street Flats, the Soo Line conversion, and the soon to open Nic and LPM. There are more that I can’t name in North Loop. And then there is everything along the Midtown Greenway in Uptown. At yet more along Hiawatha. That’s a lot of new stock of apartments that didn’t involve tearing any down.
I just have a hard time seeing the problem as a reduction in stock of apartments. On net, there certainly has been no reduction but instead a significant increase in supply.
Oh and also, I think its probably been years since apartments were converted into condos at any scale (like, probably more than 6 years). I recall reading about new projects going in the other direction in recent years, though (i.e., they were going to build condos but built apartments instead).
In Uptown, some housing units have been removed for the new projects. I can think of only one case where the redevelopment actually resulted in a reduced density, which was the Edgewater condos. The previous apartment building was a teens/twenties apt building with some charm, a lot of settling, and decent rental rates given its location adjacent the lake. it was torn down and replaced with high end condos.
Across the street, 1800 Lake replaced several duplexes/houses, one of which was somewhat of a party house.
All of the projects between Girard and Aldrich on the north side of the Greenway would have replaced industrial uses, though it’s possible one or two units (can’t quite recall).
Blue replaced a gas station, a warehouse, and several houses/duplexes (if I recall correctly). Lime was all commercial space. Murals was commercial. Lumen on Lagoon was a commercial building. The Uptown City Apartments (unsure of its new name) at Fremont replaced a Perkins, which had replaced a used car lot. Solhem replaced a commercial building.
2320 Colfax will replaced two lower-rent housing buildings and replace it with more expensive housing. The projects on the NE of Irving & Lake will also remove several apartments that are moderately priced.
Going forward if housing continues to be constructed, I’d expect to see more proposals that demolish existing market-provided affordable or moderate housing. It may be a more cost-effective way to assemble a site than trying to buy out existing commercial sites.
Will the Portico (a condo deal at the SW corner of James and Lagoon) come back into play at some point? Hornig had proposed that project for its properties many years ago but the market turned on them. It has a number of lower-rent (for Uptown) units there.
//end random thoughts on tear downs
Very good post.
Interesting to contrast this post and comments to previous posts where many commentators argued that more development at higher densities does not mean more cars in the areas (like Uptown) facing the greatest redevelopment pressure. Of course new development is aimed at higher income individuals, and those people have cars, even if they do not use them all the time. The result – greater auto congestion. It is unfortunate we do not have a regional transit plan to address this, or a city planning process to encourage more walkable nodes to enable a multimodal urban system.
Greater auto congestion isn’t a bad thing. It can be a bad thing for neighborhoods, in places which are designed to be car-first but then get congested, such as the Henn/Lyn bottleneck. But in places designed for humans first, congestion isn’t really a problem for a neighborhood. In fact it’s a good thing because it fosters more demand for walk/bike/transit.
I’d rather the people who have the money (and therefore cars) live in walkable places like Uptown, Loring Park, etc than elsewhere. Especially if they’re the type who work downtown and walkbikebus to work, meaning “they do not use them all the time.” Compare that to living in Minnetonka or Plymouth in some auto-dependent apartment (the likely scenario if we don’t allow development in the Uptowns of the world), they will almost certainly drive into downtown for work, drive into Uptown occasionally to play, and drive everywhere else.
The neighborhoods seeing development only have so many lanes. Short of the city/county/state deciding to raze buildings for more lanes, congestion can only get so bad. One would of course hope that increased population and trips-generated don’t cause city engineers to refuse to allocate space differently (ie can’t take away a lane for transit/bikes/sidewalk space), though it’s certainly happened before. At the same time, we’re seeing shifts – St Paul is re-opening the discussion on a 1-lane each direction University Ave by adding parking (potentially bike lanes) back.
Lastly, I think the Met Council and city DO have plans to encourage the type of development and infra that enable multimodal systems. Minneapolis’ comp plan directs denser development with a mixing of uses to transit corridors. They have a goal of protected bike lanes installed. Etc. Met Council has a regional rail and aBRT plan in place (funding and timeline TBD, of course). Turning down development that attract both people and businesses because they may bring cars with them in the short term is a bad idea.
Thanks for the interesting and informative article.
Thanks for writing this. Biking the Greenway yesterday, I was asking myself this question
There is one point that I wanted to address however. You state “The extra amenities are what makes new construction financially viable”. I want to push back on the “financially viable”. Rents are charged in order to pay for the capital invested in the construction (land and building) and then upkeep. The length of time expected by investors for paying back the capital costs could vary, and has historically over time. The shorter the payback period for capital costs the higher the rents must be. Conversely, the longer the expected payback period the lower the rents could be. Therefor what is “financially viable” is dictated by those holding the capital. The key point being that viability is not a natural condition of the market, but specific to the interests of those with capital. In fact those with capital are likely to want to leverage it as “efficiently” as possible, thus over time expecting shorter and shorter payback periods.
There’s a marketplace for capital as well. Except for government standards imposed on the industry, especially through underwriting requirements for government funded/insured capital, there’s not collusion in the market for capital.
I’d say it’s a natural condition for borrowers (developers) to wish for a shorter payback period more than the capital holders. Wouldn’t you want to have passive income and a cleaner balance sheet sooner rather than later?
Investors in a capital market view “efficiency” in terms of return and risk. The shorter the term, the lower the risk, and the lower the equilibrium interest rate for the capital.
There is definitely a marketplace for financial capital, so my argument is less absolute than I should have stated. However the long term trend seems to be towards concentration of financial capital so the results might be similar to collusion. More so for larger projects that need larger capital investments (LPM).
I’m not sure I agree that developers (of land capital) wish for a shorter payback period than the financial capital holders. In fact your last sentence seems to suggest otherwise. Financial capital wants shorter terms to minimize risk. I am including opportunity cost of a higher ROI somewhere else as one aspect of risk. Which also suggests that as the economy moves faster the long term risks become riskier, thus shorten the investment length that financial capital is interested in.
Natural condition is a strong idea. Many people choose 30 mortgages over 15 year mortgages because the monthly payment is higher. The same condition applies to developers. If we instead think of that mortgage payment as rent payment then similar conditions arise. The developer might want a shorter payback period but doesn’t have the cash flow to pay the higher payment unless the higher rents are charged. This goes back to my original argument that “financially viable” needs a time scale whenever used to at least make visible the underlying calculations.
What’s also interesting is that regardless of from where the pressure for quicker payback periods is coming, the trend is in that direction. High rents on new development. This seems bad for two reasons. The condition leads to a larger divide between current (pre-development) rent rates and those after development. This could be accentuating the differences between current (pre-development) residents and those after development.
Additionally, this process is bad for renters in general who must pay the higher rate. The benefits instead go to both types of capital (land and financial) who each accumulate some of the value.
Investors aren’t thinking in terms of risk alone, they are thinking in terms of the value of risk. Risk is a price component of interest rate, along with inflation and expected rate of return. If an investor wants a shorter term to minimize risk, they will command a lesser return on that debt (interest rate) because the risk rating is reflected in the price of money.
I agree natural condition is a strong factor, sometimes leading to unhealthy outcomes.
I don’t think the outcome for renters is necessarily that they pay a higher rate because of the preference of any party for a shorter term. If that was the case, another developer could undercut them on an identical deal, except for buying their debt at a slightly higher interest rate at a longer term. But with lower cash flow obligations, they could reduce rent and potentially have a higher margin than the incumbent depending on their investment horizon.
Not to get incredibly nerdy, but future expenses and liquidity of the capital is also playing a role. Any real estate investment is inherently illiquid, so it has to offer a better return than a liquid investment (like publicly traded stocks, bonds or treasuries) to compensate.
Real estate also functions on depreciation schedules. Before the building is started, the developer knows that it will need new HVAC in 25 years, a new roof in 30 years, etc. The building has to cost out to pay an attractive return to investors plus build a capital reserve for those future expenses.
What is the impact on Uptown of creating housing that is very expensive compared to substituting rental for owning a house? I suspect one of the impacts of the pricey rental boom in Uptown is going to be much more turn-over and less neighborhood continuity. The result may be a neighborhood attractive to 20 somethings (for only a few years) and not anyone else. Google says 30 year mortgage rates are 4.14%, so the monthly payment on a $300,000 mortgage is $1457. How long will people will pay $1400 a month to rent, if they can afford a $300k home?
More than 80% of people are already renters in neighborhoods like LHENA, so I don’t see how this could be much of a change from the status quo.
Matt, You are confusing the percentage of renters with the average tenancy of renters.
Many of the renters in LHENA used to be people who rented for a long time, they were families with school aged kids, service workers, middle aged professionals. There are a few renters left who are over 30, but not many. The ones that are left are mostly in units renting for below market rates. As rents go up on my block so does turn-over. Young folks move in, rent for a year or two and then decide they’d rather own a house in SE or on the Northside. That is a function of comparing house payments to rents.
I always wonder if I am part of a larger trend or an anomaly within my demographic – my spouse and I are dying to stay in LHENA but are not super interested in buying a historic single-family home. There is not much here for us to buy. We just resigned our one-bedroom apartment for another year but are kind of despairing over our options to buy in the near future.
Side note: I sometimes get some gruff when I say that we are just not interested in the work and investment that an old house requires. We want to own our home but our renting lifestyle right now allows us leisure time and the ability to pursue interests other than sump pumping the basement and mowing the lawn.
As a nearly-two-decade homeowner, and keen observer of the housing market (ownership and rental), there’s lots of (unpaid and often unfun) work to owning a home no matter the age. Steven’s math doesn’t include the value of your time, nor does it include the cost of maintenance from buying a lawn mower to replacing a roof.
You’re getting something of value when you rent, specifically in a carefree home, and less specifically leisure time — as you point out. I respect your very rational choice deeply.
The math also misses property taxes, insurance, likely private mortgage insurance (if the down payment is less than 20%, which many do). Reality of a $300k home with 5% down, $4k a year in taxes, $1,500/yr insurance, and $160/mo in PMI is a net monthly payment of ~$1,900. Before maintenance and upkeep.
Some people are willing to pay a bit more to get a bit more (and have an asset that may appreciate in value if kept well). But I think people looking for homes in the core of Uptown with better amenities or much more space than a $1,900/mo apartment fetches won’t find too much available. Hence, the tradeoff, space vs location.
My point was that people who rent in Uptown decide to buy elsewhere. You are right that P&I does not tell the whole story of house ownership. But the Minneapolis median home price (according to Zillow) is 186,900, so you can purchase in many parts of the City for much less than the cost of renting the new upscale rentals in Uptown. That is why I think residential turnover in Uptown is going to continue to accelerate.
Sure, some people do. But others either buy in Uptown or decide to prioritize location over buying. Location is our top priority. We actually did decide to buy (closing later this month), but only because we found the right place in the right location at the right price. We could certainly get a cheaper and a larger house elsewhere in the city or in a suburb — but that goes for both renting and owning. But while we’ve decided to join the rank of homeowners, I’d still happily choose renting in a location we like over buying in the wrong (for us) neighborhood.
I’m on record as being scared of buying property. I’m lucky enough that I probably could buy a house somewhere in South Minneapolis (like, south of Lake Street) but the whole thing seems like maybe it’s not a good idea. Every old (over 40?) person I’ve ever met thinks I’m crazy for renting “in this market” or whatever, but I’m 99% sure that if I bought a house (i.e. owed a bank $???,??? to pretend I owned something) the roof, water heater, and furnace would immediately need to be replaced, and there would be an earthquake, and so on.
There are a lot of choice renters out there. I kind of wish I had a garden, but I’ll stick with the 20th floor skyline view as long as I have someone else to snake the bathroom drain for free.
some people buy in other neighborhoods and then decide homeownership is not for them, and go buy a condo somewhere. All the people I’ve known who’ve done that picked a different neighborhood than Uptown, though, possibly for price reasons but maybe just because once they’d tried another neighborhood they liked it better.
Owning, like Janne said, is pretty time costly. I know our long term plan is *not* to be taking care of these trees/siding/sidewalks/roof forever. I’d pay a landlord a LOT to do all that. Much less the shoveling.
Remember when that LHENA Z&P person interrupted your comment lamenting the lack of 2-3 bedroom rentals and told you to just buy a house already?
I agree, so many of my friends have moved out of LHENA as their landlords have significantly increased rents. Most are now home owners as many have found mortgage payments are less the rent increases. The neighborhood used to have a very interesting punk subculture and as they have been priced out they have found other neighborhoods that owning a home is more practical and less judgmental than the current Uptown scene.
“There are a few renters left who are over 30″…
As an over-30 renter, does anyone have actual data on this?
Bill – do you live in Uptown? There are lots of over 30 renters, but they are disappearing in this part of town.
On my block most of the rental stock is over 80 years old, two buildings from the 60s. One of the 60s era buildings is condos, the other has lower rents, and most of the tenants are older. The block used to have a lot of older tenants, but as buildings have sold to new investors the older renters leave in the face of rents that often doubled overnight.
The three rentals closest to my home are all turn-of the century duplexes – two have been converted to triplexes. When we purchased in 1992 all of the residents in those buildings had been there for over a decade, now the only resident in those building that has been there for more than 18 months is our next-door-neighbor, who has owned her duplex for over half a century.
That’s kinda like data, but not. I was thinking like numbers and stuff like that.
Qualitative but not quantitative. It’s still data. Feel free to query the census data to make your own analysis – but I don’t think LHENA falls neatly into any census tracts.
Hennepin County census tract 1067 is bounded by Hennepin on the northwest, Lyndale on the east, and 28th Street on the south.
They only have the “housing tenure by age” tables for 2009-12.
In 2009, 79.5% of the tract rented their homes. 19.8% of the population were renters older than 35.
In 2012, 79.6% of the tract rented their homes. 20.4% of the population were renters older than 35.
there see, like that’s cool.
Thanks for the census tract reference. It captures well the LHENA situation without the luxury developments along the Greenway (which are below 28th street).
I went to the Census site and it is not easy to look at anything except 2012 (estimated) data, which makes it hard to make any conclusions about trends. The census table “Tenure by Household Type 2008-2012 American Community Survey” breaks out over 65 renters, which is an interesting tweak to your data above:
606 owner occupied
2363 renter occupied
renter householders include:
We would need to compare these numbers to 2000 or 1990 to see what the trends are with respect to the age of renters.
This data does not address at all what the trend is, if any, about the length of average tenancy in LHENA.
Clearly the over 30 renter is not in danger of disappearing from LHENA quite yet. (Although the over 65 renters are almost gone!)
“Plus, I hear that of those thousands of lawyers, many of them will tend to marry each other, which creates even higher wealth households.”
to which I reply..
“Lawyers should never marry lawyers. This is what is called “inbreeding,” which produces idiot children, and MORE LAWYERS….”
– actor David Wayne in the movie “Adam’s Rib”
I was given a tour of an old building in Saint Paul being converted into apartments. The common areas of the buidling were indeed grand and impressive, and the list of amenities was lengthy. The location was phenomenal. However, I was struck by how dull & boring the individual units were, and the craftsmanship inside the units left much to be desired. Materials appeared to be cheap (other than the granite, of course), and the units themselves seemed to lack amenities.
But this was a remodel of an old building, not new construction. I don’t have occasion to go in any of the swanky new places around Uptown or downtown MPLS (I guess I don’t have the right friends) and I’m curious if it’s a similar scenario there….
I’ve often felt that way about many of the boom-era “lofts” in the North Loop too. And, actually, I guess the last one I was in was more recent than boom-era, so maybe it’s continuing. That was was an actual conversion too, rather than a new construction faux-loft (which I tend to really dislike), making it all the more disappointing.
Someone must like them, because they’re certainly popular. I suppose you’re implying that they won’t remain so, and will eventually fall out of style and become vacant or underused?
I’m not implying anything of the sort. It’s just relevant to the conversation of why the prices are high if the finishes aren’t that great and craftsmanship is unimpressive. My anecdotal takeway from that experience is that the units aren’t any nicer than any other generic apartment complex, but the shared amenities and location are driving the price.
I’d argue that supply and demand drive the price, and both are largely driven by location and maybe newness of the property, more than anything else.
But that’s supposition on my part.
I think, unfortunately, that a lot of the new wood frame construction will not age well and the amenities that are justifying high rent can easily be rolled back once newer and more attractive options woo away the higher end renters. However, this is not necessarily a bad thing. What is new today will one day be old. The most expensive buildings built today will eventually (in the not too distant future) be considered affordable. If the quality of buildings is your main concern (speaking generally), the density and benefits that come along with it created by these new buildings will allow the construction of higher quality buildings to be justified. And those too will one day be old buildings. Minneapolis was gutted in the last century – cheaper buildings are necessary to rebuild the city’s value base (read: density) and to allow more permanent buildings to be possible.
And of course desirable locations will remain more expensive than the city as a whole. This is why it’s important to create more “places” – so that access to urban amenities isn’t restricted to just a few neighborhoods.
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One thing I always wonder about but rarely gets coverage (at least that I see – especially when the rising costs of college and increasing student debt is discussed), is the new housing around the U of M and the ‘luxury’ amenities they offer. I’d be interested to see the range of housing options & costs around the U, plus some insight into how rent is being paid (parents? part-time or full-time jobs while in college? student loans?). Maybe some analysis to how it compares now vs. 5-10-15 years ago. I know it’s not fair to say ‘back in my day’, because a lot has changed, even in 8 years.
I just browsed craigslist and found ads for 4 ppl in a 2 bedroom apt for $575 / month. Jeepers! Of course, it includes all the high-end finishes, the wifi & premium cable, plus fitness centers, in-unit laundry, balconies, free coffee in the lobby etc… Those are definitely luxuries. Plus location. But somebody gets used to that luxury in college, chances are they will expect it later on when they move away from campus. Plus, further into your 20’s, you might place more value on the luxury of privacy than you did in your college years…
One of the livability issues in LHENA in the last ten years had been how very rapid rent increases result in higher densities – apartments that used to have 2 people now have 4. Incomes did not go up as fast as rents – and rents do not go up smoothly over time.