Duluth faces severe housing crunch as population inches up
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A recent study of Duluth’s housing market shows what many home buyers and renters in Duluth and many greater Minnesota communities are experiencing firsthand — the housing market is tight and increasingly expensive, whether you’re looking to buy or rent.
The report from Maxfield Research and Consulting shows the city needs to add nearly 9,000 housing units of all types by 2035 — nearly triple the number of units the same group estimated the city needed to add in its previous study conducted in 2019.
That’s because even as Duluth has welcomed several new housing projects in recent years, slow but steady population growth has continued to place pressure on the housing market. After remaining stagnant for decades, the city has added about 1,300 people in the the past five years, including about 800 households.
“It’s daunting,” acknowledged Tom Church, the city’s senior housing developer, following a recent presentation of the study’s results to a group of downtown stakeholders.
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Church said currently the city issues about 230 building permits a year. That will need to increase significantly to meet the study’s new target and to keep up with more expected population growth.
The study also identified an extreme shortage of available rentals. The vacancy rate in Duluth is under 2 percent. Church said a healthy vacancy rate is around 5 percent.
“It just means that there are not units for people who need them, and that has been true for a long time in Duluth,” said Church.
Church added that investing in badly needed senior housing would help free up existing single family homes. High interest rates have kept many seniors in their existing homes.
A key focus area for the city — and one emphasized by the study — is to build out large sites where it is possible to build large housing developments.
The city celebrated a groundbreaking last year of Incline Village, which was billed as an entire new city neighborhood on the former site of the Duluth Central High School. The development promised over 1,000 units. But the city recently canceled its agreement with the New York-based development company after it failed to meet several contract obligations.
“But there’s still potential for development there, regardless of who undertakes it,” said Church. “And so we need to figure out a way to take advantage of those opportunities.”
Duluth also faces additional challenges, said Mary Bujold, president of Maxfield Research. Lots of bedrock adds extra expense to builders. And the presence of the College of St. Scholastica and the University of Minnesota Duluth means many homes are used as student rentals.
“And so it’s been difficult, I think, to get that housing stock, that entry level housing stock, freed up to be able to put younger households and younger families into those units.”
With fewer available single family homes, prices have soared. The median price for a home in Duluth is now $292,000, up nearly 60 percent from from $184,000 in 2018. On average, homes are on the market for only six days before they’re sold.
New development in downtown Duluth could help slightly ease the housing crunch. A high-rise apartment building called Lakeview 333 plans to open next to the new Essentia Health hospital next month. The $100 million project includes about 200 apartments, about 34 of which will be fully-furnished and offered as short-term rentals.
On the other end of downtown, a former office building was recently converted to about 30 extended-stay apartments. Called Force on 5th, the fully-furnished units are geared towards people staying from one to six months. Rooms are also currently available on a nightly basis.
Developer Brian Forcier, president of Titanium Partners, spent $8.5 million to redevelop the building. He said he initially planned to offer the units as more traditional, long-term rentals. But he says the economics have changed.
“All of our operating costs have skyrocketed. Our cost of insurance has quadrupled. Our property taxes have doubled. So there has to be a way to pay the bills, very frankly,” Forcier said.
He anticipates renting to medical professionals who come to Duluth to work for a few months, and other professionals who relocate to the city for jobs but are having trouble finding an apartment or home.
Mayor Roger Reinert said that’s what happened when the new city administrator recently relocated from St. Cloud. Reinert said he was forced to live in a vacation rental for several weeks.
“So this really does speak to the critical need for us to be thinking about all the kinds of housing in all the neighborhoods at all the income levels that we need,” said Reinert. “Because we will not meet our meet our workforce goals, let alone our population goals, if we don't first meet our housing goals.”
