Study: Rochester area needs 18,000 homes over the next decade

ROCHESTER – A 2020 study showed this area needed about 18,000 new housing units over the next decade. Five years later, the updated housing study shows Rochester is steadily producing homes but the same needs remain.

An updated housing study released this week shows Olmsted County still needs about 18,000 new units by 2035 to take on promised growth in the area and ease the mounting pressure on local home and rental markets.

“There’s new challenges that we haven’t been facing that have come up recently in the last five years since the last report,” said JoMarie Morris, director of the Coalition for Rochester Area Housing.

An average of 425 single-family homes per year were built over the past five years, or slightly more than 2,100 homes. During the same time, more than 2,600 multifamily rental units were added.

Yet analysts with Maxfield Research and Consulting report the area’s housing market has only continued to get tighter. Rental vacancies hover between 2% and 3%, well below market averages, while the for-sale market has experienced “record-low supply” as more people come to the area.

The report comes as Rochester braces for massive growth over the next few years thanks to Mayo Clinic’s ongoing $5 billion downtown expansion, which has already drawn an estimated 2,000 construction workers to the area to begin demolition and prep work this spring. Once complete, Mayo is expected to hire a few thousand additional workers to staff the five new buildings.

The Maxfield analysts make a number of recommendations, including increasing the number of lots available for construction across the county in every city.

Area housing officials touted the report as evidence a number of their initiatives are working, from the city’s streamlined development and zoning code to Olmsted County’s ongoing senior housing and affordable home projects.

Morris said it was necessary to double down on a number of initiatives like the coalition’s focus on recent years on entry-level home developments. She noted construction costs have risen by 50% since 2020, while home prices in the last five years have shot up 63%.

“That’s leaving a lot of folks really on the sidelines of homeownership,” she said. “That’s one reason why we’ve really been focusing on getting our local developers involved in figuring out how we can provide more inventory.”

Officials said many of these projects are laying the framework for bigger gains. After the recession in 2008, annual construction was at an average of about 400 homes, down from the nearly 1,000 built each year during the 2000s. Home construction grew by the end of the 2010s and was on track to match previous growth before COVID hit.

“We’re starting to see people take on larger projects,” Rochester Community Development Director Irene Woodward said.

Woodward pointed to more than 2,500 rental units now in development, as well as recent works like a 400-home project the Rochester City Council recently platted, as evidence things will pick up over the next few years.

“We’re trying to get scale, and that’s where some of the incentives are,” she said. “I think we’re going to start to see some of those larger [developments] that used to happen probably about 20 years ago.”

Demand within the area is shifting: More single-person households are on the rise as folks move into the area for jobs without families or significant others. And aging baby boomers means a steady rise in demand for senior housing; the report calls for an estimated 5,900 units projected by 2035.

Housing officials plan to review the study’s findings and speak with local developers over the next few months to fine-tune future initiatives. Dave Dunn, Olmsted County’s director of housing and planning, said there’s more work to be done in affordable housing in particular.

Though the county has decreased its need for affordable housing units by 26% since the 2020 study, Dunn pointed out there are still gaps in federal housing subsidies based on how much a person makes compared to the area’s median income, which has caused frustration among apartment developers over the past few years.

“Our goal is that everyone has a place to call home in Olmsted County in order to live, work and thrive, and that’s what we’re trying to do,” he said.