When a town's economy surges, housing feels the ripple
Kathy Cobb - Associate Editor
Published October 1, 1994 | October 1994 issue
In the southeast corner of Minnesota, a Winona company looks across the Mississippi River to Wisconsin for expansionof physical space and work force. Up to 500 additional employees might be needed, and the company doesn't believe the local community can supply that many new workers, or housing for workers who might move to Winona for those jobs.
On Minnesota's western edge in Wheaton, population 1,600, a manufacturer of surge protectors for electronic equipment plans a 12,000 square-foot expansion. That expansion calls for an additional 45 to 50 workers, prompting construction of two condominiums and two apartment buildings to make room for workers, whose numbers have already doubled to 140 from the original 70 in January 1993.
Tight housing markets in South Dakota are producing near-term shortages of single-family homes in Brookings, Huron, Vermillion and Mitchell, prompting the state to initiate a program using federal Community Development Block Grant (CDBG) dollars to fund housing-related projects. In Sioux Falls, that city's growth has spurred a number of housing initiatives.
More jobs than people and houses is Pembina's problem, so business leaders and farmers in that northeastern North Dakota town joined forces to construct an apartment building.
On the Iron Range in northern Minnesota, rural towns are struggling to house tourism workers and college students. And the situation will likely only get worse once a promised airline reservation center begins operations in Chisholm and a new food processing plant opens in Hibbing.
For some Ninth District communities where housing stock is limited, a surge in economic growth has caused short-term housing problems. A home is not built in a day; and with the attendant issues of contractor availability, zoning, and labor and supplies, the housing market takes time to respond to big changes in demand. In the interim, local officials and business leadersconcerned about the continued growth of their communitiesare taking steps to address housing issues.
"Housing is very central," says Edward Goetz, associate professor in the University of Minnesota's housing program. "In an economically vibrant area, if there's not enough housing, causing housing inflation, that can be a stop on economic development."
Housing is becoming a major issue in non-metro business expansions, says Jennifer Engh, deputy commissioner of the Minnesota Department of Trade and Economic Development. "Manufacturing in the outstate regions is growing 17 percent to 18 percent faster than in the metro area," Engh says. Housing used to be in the social services realm, now "it's hot and heavy in economic development," Engh adds.
"When we met with the state economic development people five years ago, we talked about financing for businesses; then two years ago it was regulations and worker's comp; this year it's housing and labor supply issues," says Leon Heath, executive director of Minnesota's Northwest Regional Development Commission.
The University of Minnesota's Goetz thinks employer-assisted programs may be one way around the problem. In that case, employers would provide some kind of housing subsidy to their workers if they cannot attract the needed workforce.
New apartments ease housing crunch in northwest Minnesota
The Northwest Minnesota Multi-County Housing and Redevelopment Authority and 13 communities in the region are in the process of building 347 rental units, spurred in part by a pent-up demand for new housing and in part by business expansions in the region.
The $17 million project, which grew out of a needs study by the Northwest Minnesota Regional Development Commission, includes a variety of buildings: from a 96-unit senior citizen and general project in Park Rapids, population 2,863, down to eight general units each in Argyle, Shelly and Newfolden, with a combined population of just over 1,200.
The Housing and Redevelopment Authority's construction project began in May, with apartments in all participating communities scheduled for completion by January 1995. Thirty percent of the apartments have been pre-leased, according to Lee Meier, the authority's executive director. In Greenbush, where 12 units are under construction, "five to seven of them are spoken for and we barely have the roof on," Meier says.
Some of the 13 communities participating in the building project are home to commuters who travel to Warroad and Roseau, where Marvin Windows and Polaris Industries, a snowmobile maker, employ about 3,200 and 1,000 respectively. These towns appear to be the center of plant expansions in the region, but they are not alone. A pharmaceutical company in tiny Baudette, about 40 miles from Warroad, employs over 500 people. "That's in a county of 20,000and that's quite a bite," Meier says.
A similar story emerges about 100 miles to the southwest of Warroad and Roseau in Twin Valley, population 821, where a telecommunications firm headquartered in the Twin Cities has expanded and added 110 jobs to its base of about 300 employees. There are concerns that the company may be reaching the limits of expansion in town because of a worker shortage.
Thief River Falls is also experiencing a housing shortage, according Heath. With a population of over 8,000, the town is the largest in the area and home to Arctco, another snowmobile manufacturer, that employs over 1,000 and recently expanded operations. Add to that, increased enrollment at the local technical college, which had to refund tuition to some students because they couldn't find anywhere to live. And, Heath adds, when the economy took a dive in the early '80s, new housing construction was put on hold.
So, along with nine other communities, Thief River Falls is applying to participate in the second round of regional apartment construction financed through the Housing and Redevelopment Authority.
The authority's construction financing comes from essential function bonds, which provide a public agency, such as the Housing and Redevelopment Authority, access to tax-exempt financing to acquire or construct projects it intends to own and operate. The bonds ensure a lower interest rate on the financing, and because the owner of the project is a public agency, it will make payments in lieu of real estate taxes. The rents are market rate and there is no subsidy to the renters.
"Unless we get on the bandwagon, we might miss the whole turnaround we've been waiting for over the past 20 years," Heath says.
Pembina has more jobs than people and houses
You can find a job in Pembina, N.D., two miles from the Canadian border in the northeastern corner of the state, but chances are you may have to live somewhere else.
To remedy that situation, 16 local business leaders and farmers have invested in construction of a 15-unit apartment building in this community of 642. The push for more housing was based on the desire to keep Pembina's schools open by housing those who work in town. There are also fears that Pembina will lose population to surrounding dying communities that don't have jobs but do have ample, low-priced housing, says Harry Wood, president of H.A. & J.L. Wood Inc., an import broker and member of the apartment building investment team. "I didn't look at it as a financial investment as much as a community investment."
Pembina hasn't done enough to attract people, Wood says. "There's a good business base, but no growth." A small Canadian manufacturer that came to town in the early '60s has since changed hands and now employs more than 500. "But something is wrong when your number of jobs equals the number of people living in the community."
Construction of the apartments is about completed and eight were rented by the end of August. Although the apartments were built largely to draw new people to town, retired current residents have expressed interest. That's fine with Wood, who points out that by selling their homes, they will create other family housing opportunities in the community.
And that housing may be needed in Pembina next spring when the new Pembina State Museum opens. The museum is expected to contribute to a growing tourism industry and add jobs.
Sioux Falls keeps growing
By all measures Sioux Falls, S.D., is an economic development success story. Named America's best place to live and work by MONEY MAGAZINE in 1992, Sioux Falls can point to the following numbers that proclaim its success:
- New and expanding businesses have generated more than 2,000 new jobs annually over the past five years.
- Construction projects in 1993 were valued at $171 million, compared to $60 million 10 years earlier.
- In the last two years the city has opened up 4,500 acres, or eight square miles, for new housing and 1,500 acres for industrial use.
- In 1993, 652 apartment units were built, double the number built in 1992, while single-family homes topped the 500 mark in 1992 and 1993 and will do so again this year, compared to 300 five years ago.
- Not surprisingly, the city's population also increasedby about 10,000 in little more than four years.
While all these statistics bespeak prosperity, there are concerns about the impact of economic growth on housing. "People are coming into town with just their cars and their clothesno clue about housinglooking for work," says Steve Metli, director of the Sioux Falls Planning Department.
"There should be about 1,200 houses on the market at all times to equalize buyer-seller markets, but over the past two years it's been steadily between 200 to 280 vacancies," says Donald Dunham Jr., a local homebuilder and president of the Dunham Co. Although with the rise in interest rates, in early September there were about 500 homes on the market. And according to Dunham, there's about a 9-month supply of houses in the $130,00 to $220,000 range.
In the short-term, some Sioux Falls buyers are squeezed out of the market
Jerry Altman, a housing development consultant based in St. Louis and adviser to a local housing task force, says that it currently looks like there's enough housing in Sioux Falls, but not necessarily for all segments of the population.
Altman says the marketplace can't support housing under $100,000. "There is no way private developers could afford to build new housing for that moderate-income population," Altman says. He adds that subsidies of $30,000 to $35,000 would be needed to bring down mortgages.
Moving to an outlying community, where Farmer's Home Administration programs operate and where mid-priced homes are available is one option for those seemingly priced out of the Sioux Falls new home market, Altman says.
The city's business and housing expansion already reaches some nearby rural communities, says Sioux Falls Foundation president, Jim Holderread, who may suggest such a location to a prospective new business. And the Chamber of Commerce has a rural development specialist who works with smaller communities to help them manage their housing stock.
Another housing alternative is manufactured housing. Developer Dunham doesn't see the market coming around for lower-priced houses, and predicts that manufactured housing might replace traditional homeownership for some. "At about $40,00 to $50,000 per unit, on a foundation with a two-car garage and drywall instead of the traditional paneling, I see this as an ownership alternative that would cost the buyer about $300 to $400 per month," Dunham says.
Sioux Falls also has a tight rental market. To ease the crunch and keep apartment rents low is the goal of an equity fund established by five local banks and four businesses that has made it easier for developers to finance and build apartments under the low-income housing tax credit program.
But the most ambitious effort to create more housing comes from the Sioux Falls Chamber of Commerce, which established a task force representing the business, finance, non-profit and government sectors to analyze housing needs and assist in development of a community development corporation (CDC), known unofficially as the Sioux Empire Housing Partnership.
"Affordable housing is a major issue in the quality of life and continuing economic development," says chamber president Evan Nolte. "We need to address those housing issues now to avoid problems later." Larry Potratz, former executive director of the Housing and Redevelopment Commission, agrees. "The local communities that find a way to address affordable housing problems will be the growth communities of the future."
Housing construction stokes other industries
Although residential home construction is by itself one of the economy's smaller sectors, at 4 percent of gross domestic product in 1993, its impact on housing-related industries and on the nation's economy is far-reaching, as the following figures attest.
- 1.4 million housing starts are expected this year, including multi- family housing, 8 percent higher than last year.
- More than $150 billion will be spent on construction of single- family homes and more than $100 billion on remodeling in 1994.
- In 1992, more than 4 million kitchen sinks and 3 million bathtubs were produced.
- 80 percent of softwood lumber, 65 percent of structural panels (softwood plywood and oriented strandboard) and the majority of all millwork are used in construction-related activities.
- Factory shipments of residential lighting fixtures rose 14 percent from 1992 to 1993, to about $1.6 billion.
- In 1993, there were more than 1.1 million single-family homes built;
construction of 1,000 single-family homes means
- 2,097 worker-years of employment in construction and construction-related industries,
- $60.5 million in wages, and
- $33.2 million in combined federal, state and local tax revenues and fees.
The health of housing-related industries clearly is dependent on the strength of the home construction industry. The National Association of Home Builders predicts that total new home starts for 1994 will be about 8 percent higher than in 1993, and the best year for single-family housing starts since 1986.
Housing starts rose slightly in August, largely due to a 28.5 percent increase in apartment construction, but experts predict a slowdown in new home construction through the rest of the year. Construction of single-family homes dropped 2.7 percent, after a 3.1 percent gain in July.
Although housing experts predict a gap in new home construction needs between the baby boom generation and the smaller baby bust generation, homeownership potential lies with newly arrived immigrants and native-born minorities. According to the 1994 "State of the Nation's Housing" report by the Joint Center for Housing Studies of Harvard University, if these currently under-served households are provided opportunity to buy homes at rates comparable to native-born whites, the number of homeowners in the year 2000 could increase by 3 million.
The center's annual report also predicts that the baby boomers and elderly will continue to drive trade-up home demands well into the next century. And the center's report suggests that household growth will be higher than the earlier forecast of 12.7 million for the '90s.