The City Growth Domino Effect

June 25, 2015

For the last several years, Minneapolis in particular and Saint Paul to a bit lesser extent have experienced a construction boom. While our growth does not approach the explosive levels seen in places like Texas, it’s pretty substantial compared to our northern and midwestern peers. See the table below.

CityGrowth Rate Since 2010
Chicago+0.99%
Kansas City+2.40%
Madison+5.35%
Milwaukee+0.81%
Minneapolis+6.44%
Omaha+9.20%
Saint Paul+4.41%

Way to go Omaha, apparently! I’ve never been, but I’ve heard it’s pretty cool.

There are many reasons why the core cities in Minnesota are growing again after decades of slow population loss. Empty nesters downsizing! Millennials! The best park systems in the country! High per capita incomes! Matthew Yglesias has been saying it, and it seems people are agreeing.

The trendiest neighborhoods in Minneapolis have experienced the lion’s share of the growth. Shocking, right? The places where people like to hang out, the ones with the best access to jobs and amenities like lakes and bike trails, end up being the ones people want to live in. But as this boom has crept along, projects are popping up in other areas as well. Not with the same frequency, but enough to suggest a domino effect.

Boom Goes the Neighborhood

There must be some kind of way outta here, said the joker to the thief.

There must be some kind of way outta here, said the joker to the thief.

The high demand in neighborhoods like North Loop, Stadium Village, and Uptown has gradually extended to areas that border these places as well. It’s simple, really. As the hottest areas fill up, they increase the desirability of surrounding neighborhoods just by being proximal. Sustained growth makes developers and the banks that finance their projects, generally a cautious bunch, more willing to look at projects in the next tier of neighborhoods as well.

This next tier of neighborhoods getting new residents is almost more exciting to watch as an interested observer. Most projects are infill, meaning they are taking over vacant lots and surface parking or other low quality land uses. They strengthen neighborhoods and the city as a whole by knitting disparate areas together, a rising tide lifting all boats.

No project better encapsulates this domino effect than the 2700 University project which recently broke ground. Located in Saint Paul, the project sits along the border with Minneapolis. For most of my time in Minnesota, this stretch of University Avenue has been something of a no man’s land. Not quite close enough to the action in Stadium Village or Dinkytown to the west and bordered by an odd mix of office parks, light industry and a highway to the east, it was never going to draw the first wave of new development that followed the housing collapse in 2008. In fact, previous proposals from that era fell apart, and it’s been dormant since.

“We’re not in the North Loop and we’re not in Uptown, but I think we can compete with those locations by offering a similar product at a lower price.” — Ryan Cronk, VP of Development for Flaherty & Collins

While the area around 2700 University isn’t an obvious hot spot, it’s also an area with great potential. The nearest residential neighborhood is Minneapolis’ Prospect Park, a lovely, hilly, tree-covered area with loads of beautiful old houses and home to the famed Witch’s Hat tower. It’s the rumored inspiration for Bob Dylan’s “All Along the Watchtower” where it was visible from his former residence in Dinkytown. This also puts it near the incredibly ambitious Prospect North plan. The already substantial growth in the Stadium Village and Dinkytown areas was a catalyst for this project, but the completion of the Green Line light rail connecting downtown Saint Paul through the University of Minnesota and over to downtown Minneapolis is another. There’s a station directly across the street from where this building is going up, making you a short ride from either of the downtowns or the university, three major employment centers. If you’re not looking to spend Uptown or North Loop money, this is a pretty nice spot to be instead.

Downmarket Effects

The rapid growth of the hottest neighborhoods means that nearly every project that has come through in the last few years was labeled “luxury.” It’s another word that’s so bludgeoned with overuse as to be nearly meaningless. Yet it’s true that many (most?) of the newest apartment buildings targeted the higher end of the market, and upward pressure on market rates is real. Much of this was inevitable. Demand for new multifamily housing in Minneapolis and Saint Paul as well as its inner suburbs increased much more quickly than supply could possibly keep up. I can decide I want a new apartment right now, but it often takes years to bring projects to fruition.

Despite the increasing rents, it seems we’re a long way from any sort of crisis. If anything, the steady stream of new housing is helping to mitigate it. There’s an expression sometimes used to describe this effect: “Today’s luxury housing is tomorrow’s affordable housing.” A used car is less expensive than a new one, especially as new ones add creature comforts and features. This applies to housing as well.

It remains to be seen how much longer the construction boom will continue. Everything is cyclical so it’s only a matter of time before a slowdown occurs. In the meantime, projects like 2700 University and others including Five15 on the Park, Pillsbury A-Mill, Lake Street Station, and Mill City Quarter show that a variety of types of projects are getting built and in more and more parts of the city. Even when these target the market rate or higher, they create a downmarket effect that expands availability everywhere, which can only be good for all of us in the long run.

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* Photo of Witch’s Hat Tower courtesy of Tony Webster under CC 2.0.

 

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