Ramstad: Affordable or not, housing can take years to build in Minnesota

Steve Furlong works in mortgage financing in Bloomington and, on the side, owns a few rental properties he uses to help people build credit and savings to be able to buy a house.

For years, his daily commute took him past a couple of vacant lots at Penn Avenue and 86th Street that he thought would be the perfect spot for some townhomes or apartments. Eventually, he bought the two properties and in fall 2019 told neighbors and city officials about his plan to build 15 units of affordable housing, the subsidized kind that can be sold or leased at below-market prices.

It was the start of an odyssey that has only now brought him to the point of going to market.

“The most important thing is finding a way to create more home ownership opportunities and working to bring everybody to the table, because it does take a village,” Furlong told me as I visited him at the site where he was putting up his first sign marketing what he’s calling Penn Lake City Homes.

“Now we’re working to market the site so we can get at least a handful of interested buyers before we sink $8 million into building it,” he said.

Furlong’s experience shows that, even with most of the people involved doing the right things at the right time, it takes huge amounts of patience and persistence to get new housing built these days.

That’s difficult because the state’s housing shortage is becoming more acute. There were fewer than 9,000 new housing units permitted in the metro area in 2024, about half the number the Federal Reserve Bank of Minneapolis estimates the market needs to keep up with demand.

This demand remains acute even though population growth and economic growth is slow in Minnesota. It’s a market distortion with roots in the 2008 recession, which was triggered in part by an oversupply of housing in other parts of the country. Housing construction plunged in Minnesota at that time and remained below demand ever since.

These days, zoning regulations and neighborhood debates tend to stand in the way of builders. Furlong brushed into neighborhood opposition for his project, though that turned out to be a relatively small bump. “For a developer, you just need to listen to the neighbors and hear what their concerns are and do what you can,” he said.

“We made extra effort to preserve the root structures on those oaks,” Furlong said, pointing to one end of the property. “It wasn’t as efficient, but we really we wanted to save those trees too, and as did the neighbors. So it takes a village.”

Instead, the pandemic and Furlong’s own personal schedule complicated things. The biggest obstacle, though, was a quirk of location that forced him to work with both the city of Bloomington and Hennepin County.

Because the city controlled 86th Street and the county Penn Avenue, the Bloomington City Council’s initial approval for the project in 2020 was conditioned on an agreement with the county for street access to the site from Penn. That took nearly two years, including a lawsuit, and was settled when everyone agreed that the Penn Avenue entrance would be limited to emergency vehicles.

“Working out site access with the city and the county took some additional time and engineering to comply with the watershed requirements,” Furlong said. “And then we went down a road with the builder for maybe nine months and we eventually found out they were not the right fit for the project.”

He began with the intention of building affordable housing, which typically requires lining up a variety of funding partners. The pandemic in 2020 forced him to delay his plans for a bit. When things got rolling again, inflation began to push up the cost of everything in construction.

“All the materials increased. Labor increased and the cost of financing is higher,” Furlong said. Material costs alone pushed the cost of a unit above the sales-price target that would have been considered affordable to a household earning 80% of the area median household income in that part of Bloomington.

He pivoted to a plan for market-rate homes in 2021 and mapped out 15 units to built in three phases. The cost of the project, estimated at $5 million in 2020, will now be around $8 million, he said.

Construction of the first phase will soon begin and Furlong said he hopes it will be ready for the first buyers to move in next spring.

“What this will do for the city of Bloomington is help people in the city recognize that on collector streets — and this is an intersection of collector streets — that higher-density housing is appropriate," Furlong said.

There was one more significant obstacle that stood in the way of construction: The site, on a high point between Upper Penn Lake and Penn Lake, had a large sandhill apparently formed by dredging decades ago.

“The best that we could figure out from historic aerials is it was flat at one time,” he said. “We think back in the 1940s they dredged Upper Penn Lake and dumped the soils here.”

Furlong excavated and flattened the hill last year. It was hauled away by dump trucks load by load — about 1,500 in all.