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Rebuilding Minnesota's Recovery

By Marisa Helms

When the New York Mills Development Authority finished phase II of its Country View subdivision in 2006, 12 of 36 lots sold immediately, and city officials were feeling confident about their investment.

But then the market crashed, and buyers for Country View lots disappeared. “We never sold another lot until 2012,” says New York Mills City Clerk Darla Berry.

By February of this year, the city had sold just two more lots in Country View, still less than half of the subdivision. On top of that, the city was obligated to spend nearly $3 million in 2008 on a wastewater treatment plant to accommodate planned growth in Country View.

It all adds up to disappointment and nearly $8 million of debt. For a small, northern city of 1,200 people, “that’s a lot of debt,” says Berry.house blueprint image

Emerging recovery
During the recession, the plight of New York Mills played out over and over across Minnesota. Cities did the best they could to accommodate—and benefit—their growing communities, only to see their best-laid plans go fallow in a bad economy.

But, as the recession’s grip starts to loosen, Berry and city officials across Minnesota are cautiously optimistic about the emerging yet fragile recovery. A sample survey of cities indicates a modest to robust uptick in housing development along with a smattering of commercial and industrial projects.

Cities closer to the core of the Twin Cities began seeing more activity early on in 2012 than cities farther out. Blaine, Woodbury, and Lakeville, for example, have been bustling with building activity, especially since spring and summer 2012.

“Last year was a great year,” says David Olson, community and economic development director for Lakeville (population 56,000). “We saw the highest number of new single-family home permits since 2004. So, that was certainly the biggest story for 2012: the resurgence of single-family home development and construction.”

Olson credits a few factors to explain Lakeville’s upswing in development activity. The city’s proximity to the Twin Cities metro area (23 miles south of downtown Minneapolis in Dakota County), its good school district, and its proactive strategy to revive platted lots that had been sitting empty for years.

In 2011, the city started communicating with developers through a developer forum. Olson calls it a very successful process and one he recommends to other cities looking for ways to quickly revitalize development in their communities. “We used the recession as a period to review our processes and policies, and to make a number of revisions so that when development took off again, we would be ready,” Olson says.

The forum process also necessitated a closer look at Lakeville’s comprehensive plan. (Read sidebar to learn more about comprehensive plans.) So far, there hasn’t been a need to make major changes to the comprehensive plan, Olson says. But officials did make some minor adjustments to it in order to incorporate changes agreed upon through the developer forum.

Those changes included:

  • Streamlining some of Lakeville’s development review processes.
  • Reducing park dedication fees for new residential subdivisions.
  • Amending several provisions of its zoning code to accommodate smaller single-family lots, particularly in areas previously zoned for townhomes, a somewhat moribund segment of Lakeville’s housing market.

Townhomes take a dive
Townhomes are similarly not faring well in the post-recession landscapes of a range of other Minnesota cities, including rural New Prague, Blaine, and Forest Lake, a northeastern suburb of St. Paul.

According to Doug Borgland, community development director of Forest Lake (population 18,000), townhome values plummeted during the recession, and nobody wants to build them anymore.

And in the northern Twin Cities suburb of Blaine (population 57,000), bankrupt builders abandoned about 200 lots of mostly townhomes during the recession. Community Development Director Bryan Schafer says lingering market compression from the housing crisis means the townhome segment won’t be coming back to Blaine anytime soon.

“Townhomes were an alternative to single-family homes that were too expensive at one point,” explains Schafer. “And now single-family homes can be purchased instead because the prices have dropped.”

Good signs for new development
As developers have started buying up pre-platted lots left from the recession, Schafer says he’s been talking to builders about new land development. In a tight economy, that’s an indication of good things to come, he says.

“When you see developers get financing to plat new lots, that means everybody up and down the food chain of development agrees that things have turned around,” Schafer says. “It’s the best sign we’ve had in years, and I believe it’s time to get going.”

The construction industry is similarly encouraged and eager to get back to work. “We wouldn’t be surprised to see double-digit increases in starts this year,” says James Vagle, public policy director for the Builders Association of the Twin Cities. “Barring unforeseen problems, like an international or stock market crisis, we’re optimistic that in 2013 we’ll see continued improvement in home prices and demand.”

Builders in the post-recession economy are attracted to less speculative and more responsive projects, Vagle says. Communities with good schools are of particular interest to builders because schools are a major driver for growing families who may be looking to move to a larger home.

Graph: Number of Minnesota permits issued from 2005 to 2012

City flexibility may help
Vagle’s advice to cities as they get building again is to be mindful of the regulatory costs and processes attached to land development. The small central Minnesota city of Cold Spring has taken Vagle’s advice—and then some.

“The best way is to get out of the way, with as few rules as possible,” says Cold Spring City Administrator Paul Hetland. “We say: let the developers do what they want to do. Common sense and flexibility should rule the day.”

Hetland says no matter what the project, be it residential, commercial, or industrial, Cold Spring decided it would definitely be out of the “development game” moving forward. While some cities will help pay for the cost of a development up front in hopes that it will pay off in the long run, Cold Spring officials decided the city wouldn’t pay a penny toward any new developments. Cold Spring’s stance is not standard practice across the state.

But then this community of 4,000 people has been a bit of an outlier during both the boom and bust years.

As Hetland describes it, Cold Spring is still resting comfortably in a pre-recession bubble. The general conservatism common to the central Minnesota region has served the city well, he says, and is paying off today in high home values.

“Our boom in the 2000s was a controlled boom,” says Hetland. “There were business expansions, so the tax base was keeping up with the residential expansion. But we didn’t grow rapidly or beyond our capacity. This has proven in time to be a sustainable way for us to grow.”

Hetland understands the logic behind cities needing to invest in infrastructure improvements for developments during the boom years. However, for Cold Spring, that model doesn’t “make sense anymore in this climate,” he says.

Slow but steady for the future
As cities across Minnesota grapple with the best way to get moving during this budding recovery period, one thing is certain for John Harford with the Rochester-Olmstead County Planning Department: unbridled exuberance is a thing of the past.

“I have the sense that we’re never going to see the same level of development that we saw in the early 2000s until 2005,” says Harford, who has been tracking the progress of the Mayo Clinic’s “Destination Medical Center” initiative in Rochester.

“I think with the expansion of the clinic and other potential development in the county, we’re going to see steady growth,” Harford said. “But, we’re never going to see the same aggressiveness on the part of developers like we did prior to the crash.”

Marisa Helms is a freelance writer based in Minneapolis.

Read the May-June 2013 issue of Minnesota Cities magazine

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