Apartment Construction Boom (2011-??)

[FISHMANPET]

If the market wants to provide the parking, why do we need parking minimums?

[MNdible]

Well, that's an entirely different question, isn't it? I could take try laying out an argument, but I'm not feeling like wading into that particular morass right now.

[mattaudio]

It's weird to think that we "need" to mandate something that the market demands.

[FISHMANPET]

There's a part of me that wants parking maximums, to drastically reduce the amount of parking, to force people out of their cars. But that's not really feasible politically, so I'm not going to advocate for that anywhere.

But what's the rational for parking minimums? I'd say the point of any regulation is to compensate for the market being unable to compensate for externalities or in some way correct a market failure (tragedy of the commons, etc etc). But if the market is building all the parking it wants, why enforce that by law. Just let developers build as much or as little parking as they want. Unless you're trying to coerce people into their cars, but that's certainly not part of my agenda.

And we can say that nobody's pushing against the current minimums, but how can we know that. But what about the projects that aren't being proposed? I think we can all agree that it costs money to provide parking, and that cost can be significant. Here's an example done by the city of Portland that shows the ways in which parking can effect the price of units or the number of units offered: http://grist.org/cities/parking-rules-raise-your-rent/

Average rents here in MSP aren't as high as they are in the Pacific Northwest, which actually puts us in an awkward position. We've got a really low vacancy rate, yet current new construction is well above the Twin Cities average rental rates (though I'd be curious how new construction Minneapolis compares to the current Minneapolis rental rates). Anything we can do that makes it easier to build cheaper housing, I'm on board with.

[RailBaronYarr]

I'm not saying that there's no validity to the forces at work. I'm just saying that people here keep trying to prove that the parking minimums are driving up prices, when there's very little evidence that this is the case. People keep saying that the market doesn't want to provide these parking spaces, but it's pretty clear that the market does want to provide them.

And parking minimums that have existed over the past 60 years have had no effect on this now existent market desire (which I'd argue is still below the minimums not just in Minneapolis but other cities in the region as well)? It's a little unfair to take a snapshot of our current situation without context to what has caused that situation, regulation-wise. As FMP states, I'm not sure parking maximums are the answer either, as they could have some unforeseen consequences. But if Minneapolis has a stated goal of population increase as well as continuing to be affordable from a housing+transportation perspective, no parking minimums in only downtown doesn't seem to address the massive social engineering that occurred for as long it did the other direction..

[twincitizen]

Burl Gilyard at Twin Cities Business wrote a looooong piece about the ongoing apartment boom with quotes from a few developers. Looks like the Plymouth Building apartment conversion is officially dead, but it could still become a hotel. Overall things are looking good for continued development, but investors will probably get pickier on location, meaning downtown will probably continue to be a sure bet. Hines and Opus are in the early stages of working on their next big projects. The article notes three big proposals have yet to get shovels in the ground: 4Marq, 301 Washington, and Ryan Co's East Village. I can't be the only one on this forum who's worried about the whole Ryan project falling apart...those Wells Fargo layoffs can't be helping things.

What's Driving The Twin Cities' Apartment Mania?

[at40man]

I posted this pontification in the Penfield thread, but I think it deserves a thread of its own.

I do wonder about others my age moving into some of these new apartments in downtown Mpls and Uptown, not to mention the ones in college renting the new places popping up in Dinkytown.

Some of my colleagues pay more in rent for a "luxury" apartment in Uptown than I do for my nice 4 bedroom house built in the mid 90s! I am concerned that my fellow millenials have no issue racking up debt in other areas or forgoing saving money in order to pay for these places. If I were a renter, there is no way I could justify spending over $1000/mth. And that's stretching it...

I really do see the appeal of urban living (I used to live in Galtier Plaza as well as a converted loft in St Paul prior to the housing market crash - and LOVED it!) but I'm concerned my generation is biting off more than we can chew, helped along by developers/management who is more than willing to give them any and every amenity they (n)ever needed!

[VAStationDude]

A good rule of thumb is housing should be less than 28% of income. For this example lets assume rent is $2000 a month. Extrapolating those two assumptions to monthly income is $7150 of monthly income. Really, that's not a huge income for a couple especially if they can ditch one car and their Lifetime Fitness membership.

[FISHMANPET]

I think that's a pretty dumb rule of thumb because it doesn't take into account transportation costs. I think it should be looked at as housing + commuting expenses doesn't exceed a certain percent (probably higher than 28). Because as you say, a couple living here has the opportunity to ditch a car, and that can save thousands per year, making more expensive housing a much nicer proposition.

[MNdible]

And I guess I've heard 1/3 of your income. But remember, this is a big round number with lots of assumptions. For example, if you don't have kids, your other expenses will be less, so you can afford to spend more on rent and $12 cocktails. Transportation, as noted, is another expense that can vary widely.

[Viktor Vaughn]

I do wonder about others my age moving into some of these new apartments in downtown Mpls and Uptown, not to mention the ones in college renting the new places popping up in Dinkytown.

Some of my colleagues pay more in rent for a "luxury" apartment in Uptown than I do for my nice 4 bedroom house built in the mid 90s! I am concerned that my fellow millenials have no issue racking up debt in other areas or forgoing saving money in order to pay for these places. If I were a renter, there is no way I could justify spending over $1000/mth. And that's stretching it...!

I've no doubt that some millennials are unwisely stretching their budgets to live in these new apartments. Also, it does seem likely developers are collectively overestimating the market of those who are willing and able to pay $2/sq. ft. Real estate booms and busts and this time probably won't be any different. Really the only question is how long the boom can last, and so far all indications say we've got a ways to go.

I think its safe to say most of these apartments are not being rented by millennials, but older generations. To recklessly overgeneralize, I'd guess most millennials who are renting these places have financial help from their parents. Others are probably households of two professionals with no kids (as others suggested), they may not be stretching at all.

I'd predict though, these luxury apartments won't have much of a negative effect on the financial health of our generation. At least those living in apartments have flexibility. If you lose your job after a year or two, you can find a cheaper place or move in with your folks for a while. If a perfect job opportunity comes up on the other side of the country, you'd have the flexibility to pick up and move without taking a bath on a shortsale or even paying a realtor $14K out of pocket to sell a home with no equity. If you're out of work for several months and you own your home, you don't really have the opportunity to move in with your brother and live cheaper for a while, you're stuck paying the mortgage or damaging your credit.

Do you know what will hurt the financial health of our generation? Try a trillion dollars of outstanding student loans, easy credit with mafioso level interest rates, stagnant real wages, rising economic inequality, runaway healthcare costs, one half of one percent return on cash investments, a Wall Street out to loot your 401K, and politicians determined to deny you a penny of Social Security after you paid into the fund your entire working life.

[jennifat]

Do you know what will hurt the financial health of our generation? Try a trillion dollars of outstanding student loans, easy credit with mafioso level interest rates, stagnant real wages, rising economic inequality, runaway healthcare costs, one half of one percent return on cash investments, a Wall Street out to loot your 401K, and politicians determined to deny you a penny of Social Security after you paid into the fund your entire working life.

Bingo. I'm 28 and already feel stretched to the limit by these factors.

There's no way in hell I could ever dream of moving into any of these luxury apartments going up all over the Twin Cities.

[mattaudio]

There are plenty of millenials making good money who can afford these apartments. People may shell out $1500/month, but they're making $70+ a year. Granted, not the choice I'd make, but it's a fair choice.

The other factor that hasn't been considered yet is the total risk of ownership for this spending. If you are spending $1500/mo for an apartment, you're only stuck for a year if you lose a job. Less if you pay a penalty. This flexibility has a price that can be valued. On the other hand, when I bought a house four years ago, I was very conservative in my assumptions since I was taking on a 30 year note - I wanted to optimize my downside liability on my monthly cash flow as a hedge against future risk.

When adjusting for risk hedging rather than just looking at total cash flow liabilities as a proportion of point-in-time income, I'd say millenials signing 1-year leases on $1500/mo apartments is smarter financially than Gen X-ers buying McMansions for $400k+.

[at40man]

Well, being in my late 20s I fit into that bracket perfectly, and did the math a couple years ago as I was in the same situation you describe. Once taxes, benefits, etc. are taken out of the check, it leaves $1500 per bi-weekly pay period. I think it is prudent to point out that the average "young Target employee" or typical Business Analyst pulls in about 50-60k per year, not 70k+.

When I expense out my personal mortgage/insurance/property taxes for a year, it brings the cost of homeownership to about $1100 a month.

If we use $1500 as a baseline for rent in Uptown for a 1 bedroom apartment + den, and assume that includes a gym in the building, the value proposition just isn't there. It is still would be less expensive to buy the home and get an $80/month Lifetime membership.

If it's likely you don't know where you could end up in a couple years, then I would say renting makes perfect sense. But if you have decent credit and a good job, you get a helluva lot more bang for your buck when you buy a home - with the added benefit of your hard-earned dollars not swirling down the toilet if you play your cards right.

People can rent for different and quite valid reasons... but when I do the math, it just doesn't make much financial sense to rent these luxury apartments popping up everywhere. The millennials who move into these places are quite cash-strapped. Two of my friends who live in luxury apartments in Uptown are in debt up to their eyeballs, and they could easily save several hundred a month by finding a place that offers more bang for their buck. But they want to lead the lifestyle...

A lot of people dream of being rich, and desire the effects they imagine that wealth brings - fancy car, fancy home, etc. From what I can tell, people who have become independently wealthy generally do not lead extravagant lifestyles. They tend to be frugal and prioritize their spending to focus on the long view. They view money as a tool to get them to where they want to be. Fellow millennial Mark Zuckerberg could attest to this fact.

To blame one's financial problems on Wall Street, the government, or that ever-mythical "1%" will not solve the financial problems individuals face. That can only be done by taking responsibility for what we can control, and living a more frugal lifestyle to protect us from unlucky factors beyond our control.

[mplsjaromir]

What exactly are you concerned about?

Other people having bad credit? Institutional investors being burned by bad loans made to development companies?

I think its great either way these apartments are being built. A - There is enough money being made in this town to pay the rents these places desire. or B - No one can actually pay these rents and the owners are forced to lower rents.

Either way the places are built and the urban environment is improved.

[MNdible]

I'm all for home-ownership, but...

When I expense out my personal mortgage/insurance/property taxes for a year, it brings the cost of homeownership to about $1100 a month.

I call BS on this.

Assuming that you got a screaming deal on a house in passable condition, it's possible that the above is true, and if so, you're lucky.

But you're not factoring in the costs of deferred maintenance, and you're not putting any value on the time you spend to maintain and operate your home.

[twincitizen]

It also ignores locational preferences & benefits. Your $1100/month SFH is likely not located in the North Loop, CBD, or directly on the Midtown Greenway in Uptown. No matter where your $1100/month house is, you do not have access to the amenities at your doorstep (or within a 1/2 mile walk) that these locations provide. You likely have to own a car and drive to places more frequently than the folks moving in to these well-located luxury apartments.

If I didn't have to own a car and pay $85/month for car insurance (lowest rate yet in my life), ~$55/month for gas (one tank of primo), miscellaneous oil changes, brake pads, car washes, etc., I would get rid of it in a heartbeat and probably put that money directly into renting a better apartment. I don't make enough to rent one of these new places for $1400, but I might be able to reach for $950-1000/mo if the car was gone. Also if my parents were paying off my school loans instead of paying them myself, I'd have another $300/month to spend or save.

[at40man]

What exactly are you concerned about?

Other people having bad credit? Institutional investors being burned by bad loans made to development companies?

I think its great either way these apartments are being built. A - There is enough money being made in this town to pay the rents these places desire. or B - No one can actually pay these rents and the owners are forced to lower rents.

Either way the places are built and the urban environment is improved.

I am concerned because the people I know who live in them are going broke and are living beyond their means. I am concerned because I see what the typical millennial income is, and spending 50% of your post-tax income on rent alone is quite ridiculous. I have seen how millennial living in these places comes at the cost of saving for retirement, unexpected emergencies, and other needs.

I like that we are seeing our cities experiencing renewal! But it should be more sustainable. We've seen cycles of booms and busts and I vowed to insulate myself as much as possible.

When I expense out my personal mortgage/insurance/property taxes for a year, it brings the cost of homeownership to about $1100 a month.

I promise I am not BS'ing you. I live in the northeastern quadrant of the Twin Cities, about 4 miles north of the 3M campus where I work - check out the Zillow real estate values. I do have a car, but that has been paid off for a few years now, and since it is a Honda the gas mileage is good and maintenance costs low, plus I bike to work in the spring/summer. I invested in the stock market after it tanked in 2008, and sold my investment in 2011 for 5x. I lived like a college student prior to purchasing a foreclosed house that was in good condition in 2011. I rent the other bedrooms to two of my close friends, which also brings down that figure to 1100. Occasionally I have to commute to downtown Minneapolis and take the bus. I fully admit I had an ideal situation. Even if I hadn't, there is no mathematical way I could justify spending $1500/month on rent while working to realize my other goals in life!

There ARE reasonable rents to be had in Uptown. When I had been renting in Lowertown whilst in college the rental market was still pretty weak and I lived with friends so the costs were still pretty low to live in Galtier! I just don't think luxury apartments offer particularly good value, nor make much sense for folks my age who are renting them. It is all a numbers game, in my opinion.

[Viktor Vaughn]

To blame one's financial problems on Wall Street, the government, or that ever-mythical "1%" will not solve the financial problems individuals face. That can only be done by taking responsibility for what we can control, and living a more frugal lifestyle to protect us from unlucky factors beyond our control.

First of all, there's nothing mythical about the 1%. They are defined statistically by those earning the highest 1% of household income in the country, those with AGI north of about $350K. The top 1% have captured 95% of the income gains since the recession ended. Income inequality has now exceeded the levels reached during the guilded age. The gap in wealth between the old and young is larger than it has ever been.

I appreciate the sentiment to take personal responsibility, yet taken too far, it actually leads to complacency and shirking of responsibilities we have to one another.

Wall Street crashed the world economy with willful fraud a few years ago, yet they've completly evaded accountability. Statistics show that generations who start their careers during recessions, start at lower wages and may never recover throughout their working life PDF.

We are the first generation to start our working lives so deeply indebted due to a good faith pursuit of education. We were at the age to buy our first homes at the time the housing bubble was most inflated. We were the first generation to be hounded by predatory credit card lenders on college campuses.

We were told that if we got a good education, worked hard, bought a house and saved money we could live a decent middle class life. We were told the power of compounding interest would allow us to turn regular savings into a retirement nestegg. Well, have you calculated the power of compounding interest on a 1% return? You're actually losing principal due to inflation.

You can talk all you want about personal responsibility and changes you can control, yet that ignores the fact that the economy has been rigged to other's benefit at your expense. To close your eyes to these facts and accept them as something you can't control is avoiding responsibility.

I don't say any of this to try and make excuses for my situation. I was lucky and got a great professional job in my field a year before Lehman Bros collapsed, and managed to hang on to it during the recession. My student loans are on track to be paid off near the end of the decade. I didn't buy a house in 2005 when most of my peers did. I was lucky I didn't get bankrupted by hospital bills when I lacked health insurance.

Yet, none of us have to be personally affected before we recognize many of our peers are set up to fail by economic and political forces at work. All the pontificating about personal responsibility will not change the fact - that eventually - we're going to have to make some drastic structural changes inorder to allow those who work hard a chance to do well.

[FISHMANPET]

You can't really compare a house in the Northeast suburbs to an apartment in one of the most urban areas of the city. That's just... wow. Other than that they are both places to live, there's nothing in common between those two housing choices. I'm sure you could find a house out there that would cost $1500 a month, but the people in Uptown aren't making that choice.