Why is renting in Minneapolis so much more affordable than buying right now?
Even as it turns warmer, for sale signs are hard to come by in the Twin Cities, especially at an affordable price point.
Over the last few years, rising mortgage rates have contributed to the decline in housing affordability, while home prices have skyrocketed largely due to a lack of supply.
Rents have fared much better.
"What's interesting here in the Twin Cities is that the rental rate increase over the last couple of years, has only been about 1% per year," said Mike Kaeding, CEO of Norhart.
Norhart designs, builds, and rents apartments. Kaeding says compared to inflation, rents have actually come down, keeping potential homebuyers out of the market.
I think a lot of smart people are taking the time to rent now, position themselves well so that in a year to two, they can be better positioned to buy," said Kaeding.
The average monthly rent in the Twin Cities metro is now $1,669 versus an average monthly mortgage payment of $2,638, a difference of $969 or 58.1%, according to Bankrate.
That gap is up 4.3% compared to last year.
"It's simply financial. It's very hard to build at a lower price point because the cost of construction is pretty high," said Kaeding.
"For us to combat this we need to produce more units," said Elfric Porte, director of housing, policy & development for the city of Minneapolis.
Porte says the current conditions also create challenges for the city.
Since 2018, Minneapolis has invested nearly $365 million to expand housing options and address homelessness through a variety of projects.
More than half of low-income renter households in Minneapolis live in unsubsidized housing. The city has worked to preserve more than 2,800 naturally occurring affordable units allowing developers to acquire those properties.
"In exchange, those developers make those units affordable to households at 50 percent or 60 percent of the area median income for up to 30 years," explained Porte.
No matter your price point or location in the metro, Kaeding doesn't expect the wide gap between renting and owning to last.
"I don't see that continuing over the next year or two, so take advantage of it, while it's here," he said.
You can learn more about the city of Minneapolis' affordable housing efforts here.
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