Home construction around Rochester is a battle of supply and demand

“It’s really important if you want growth,” said Byron City Administrator Mary Blair-Hoeft. “It’s important to the business and the schools.”

Last year, the city on the western edge of Olmsted County issued 28 construction permits for single-family homes and four permits for multi-family housing amounting to 64 units. This year, the pace so far is similar, with Byron seeing permits for 31 single-family dwellings and three townhome permits of 10 units apiece, with more likely on the way.

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Byron’s success isn’t an accident, Blair-Hoeft said. The city plats subdivisions a couple of years ahead of when they’ll be needed so sewer, water and streets are in place before lots are sold and dirt begins to move. The city also has an inventory of lots for houses in prices ranging from the $200,000 starter home to homes in the $300,000 and $400,000 range.

“We have lots at various levels,” Blair-Hoeft said. “We like it if we can to have variety so we can fill the different needs of the different buyers.”

Around the region

Blair-Hoeft said there are currently 74 single-family lots in Byron – either sold or unsold – without building permits pulled yet and another 34 zoned for multi-family units.

“Some lots will sit out there a little longer, but that’s mainly due to the pricing,” she said. “Developers know which ones are the hard ones to sell, and they usually price them accordingly.”

Byron isn’t the only city fighting for more housing.

Down the road in Kasson, 30 new lots are being platted, 43 building permits were pulled in 2020 and another 24 have been pulled so far in 2021.

Between 2020 and so far in 2021, Eyota has issued permits for eight single-family homes plus four multi-family dwellings representing 12 separate units. Another 20 single-family lots are being created in one subdivision with another making room for 18 units mixed between single- and multi-family housing.

Eyota City Clerk Marlis Knowlton said those new lots are coming right in time, because the city does not have an empty lot at the moment.

Market hurdles

All those lots are a welcome sight, said John Eischen, executive director for Rochester Area Builders.

“We’ve had folks from the city of Lewiston reached out to us saying they need single-family housing down there,” Eischen said. “I’ve talked to Jimmie-John (King), the mayor in Stewartville.”

All around Rochester, Eischen said, cities are asking what they can do to get more housing construction.

Eischen said there are several factors that, despite an abundance of available lots for building and great interest rates, are keeping the home construction industry from going full throttle.

“Lumber prices are extremely high,” Eischen said. “Nobody has seen prices like we see now.”

In fact, on a typical three-bedroom, two-bath home, the lumber prices can add $30,000 to construction costs, he said. For multi-family housing, the additional lumber cost averages about $12,000 per unit.

And it’s not just lumber. Steel prices are up. The cost of appliances has risen, in part because manufacturers thought the demand would be down during the COVID-19 pandemic, but demand actually increased as people began taking on remodeling projects to make their houses more livable while they were stuck at home.

Jessica Markley, interior designer and marketing manager for Elias Construction in Byron, said her company has been swamped with remodeling and home addition jobs in the past year.

“As people stayed home a lot this past year, they focused on improving their homes,” Markley said. “We’ve benefitted a lot.”

Markley said the company needs to manage expectations of clients, letting them know the realities of a remodelling job compared to what they see on popular home fix-up shows on TV.

First, there’s the cost of materials ranging from lumber and siding to roofing and appliances.

Next, she said, it the supply chain. A good example, she said, is lighting, which has remained about the same on costs, but with so much being shipped from overseas, items can be delayed.

“Manufacturers didn’t anticipate needing as much supply due to COVID,” she said. “More than costs, we’re struggling with availability.”

Another commodity in short supply is labor.

“With the uptick and jobs, it’s even evermore apparent,” Markley said. “There’s been a decline in skilled craftsmen.”

Markley said one strategy Elias Construction has used is to give themselves more lead time on projects. This means getting decisions made early enough in the process to allow enough lead time for materials and components to arrive in time for project.

Whether it’s remodelling or new construction, Eischen said area builders have their hands full right now, and the problems with material cost and availability has only added to the work.

“We were in trouble before the pandemic hit, and that just increased the trouble,” Eischen said, referring to the need for more housing. “And as new home construction prices increase, that pulls prices of existing housing along with it.”