Construction in Central Minnesota: What Goes Up, Must Come Down

by Cameron Macht - cameron.macht@state.mn.us
January 2009

What Goes Up… 
As has been documented several times, Central Minnesota has been the fastest growing region of the state for quite some time. From 1990 to 2000 the region’s rate of population growth was nearly double that of Minnesota’s (23.5 percent vs. 12.4 percent). Since the turn of the century, the region has grown almost three times as fast as the state (16.1 percent vs. 5.7 percent). The 13 counties of Central Minnesota welcomed more than 92,000 new residents from 2000 to 2007, jumping to 666,218 residents in total.

Central Minnesota had six of the eight fastest growing counties in the state from 2000 to 2007, including Sherburne (second), Wright (third), Isanti (fifth), Chisago (sixth), Mille Lacs (seventh), and Benton (eighth), as well as three others in the top 25: Stearns (17th), Kanabec (21st), and McLeod (25th). Pine County (28th) also exceeded the state rate of growth, while Meeker (34th), Kandiyohi (44th), and Renville (69th) lagged the state in population growth.

The region’s demographic expansion has led to increasing demands on each county’s housing stock. According to the U.S. Census Bureau’s Population Estimates Program, a housing unit is defined as “a house, an apartment, a mobile home or trailer, a group of rooms, or a single room occupied as separate living quarters, or if vacant, intended for occupancy as separate living quarters.” The state of Minnesota tallied 238,521 net new housing units from 2000 to 2007, an 11.5 percent increase, while the number of Central Minnesota housing units jumped 21.6 percent. Although every county in the region added housing units, the pace and scale of the growth varied widely across the region. For example, Wright County gained 13,569 net new housing units since 2000 (a 39.5 percent increase), while Renville County welcomed 67 units (a 0.9 percent rise). In other words, Wright County added more than 1,938 net new housing units per year and Renville County added about 10 (see Table 1).

Similarly, the rate at which new housing units were added varied by year throughout the region. Of the 49,769 net new housing units established in Central Minnesota, 39,107 were added in the first five years (about 7,821 units per year), with the remaining 10,662 units gained in the last two years (5,331 units per year). The number of housing units in Central Minnesota increased between 3.1 and 3.4 percent each year from 2000 to 2004, then slowed to 2.9 percent from 2004 to 2005, 2.4 percent from 2005 to 2006, and further slowed to 1.5 percent from 2006 to 2007. The number of housing units in the region was still growing, but at a notably slower pace.

…Must Come Down
As housing demand increased in the region, median sale prices shot up even faster. From 2000 to 2006 median sale prices for houses increased faster in 11 of the 13 counties in Central Minnesota than the state as a whole. Sale prices in the east central area went up the fastest, with houses in Kanabec County jumping 81 percent, followed by 61.5 percent in Pine County, and 51.7 percent in Mille Lacs County. The counties on the fringe of the Twin Cities metropolitan area had the highest housing prices overall and saw steady price gains (see Table 2).

From 2006 to 2007 median sale prices came down in six of the 13 counties, and the number of sales declined in all but two counties – Kandiyohi and Renville. Data wasn’t published yet for 2008, but “realtor data suggests the major impact of the current housing price slump began in 2007 and has continued to 2008.” [1]

Unfortunately, the region has also been hit hard by the foreclosure crisis. According to data and analysis from HousingLink, there were 38,077 mortgages foreclosed in Minnesota between 2005 and 2007. That translated into one mortgage foreclosed for every 54 households in Minnesota. If 2008 foreclosure projections hold true, approximately 28,000 more Minnesota mortgages were foreclosed by the end of 2008. This would translate into one mortgage foreclosure occurring for every 31 households from the beginning of 2005 to the end of 2008.

Sixty-four percent of foreclosures were located in the seven-county Twin Cities metro area, and another 19 percent were concentrated in 10 greater Minnesota counties (Chisago, Crow Wing, Isanti, Mille Lacs, Olmsted, Rice, St. Louis, Sherburne, Stearns, and Wright). The remaining 17 percent occurred in the other 70 greater Minnesota counties. In 2008 foreclosures were expected to hit Wright, Mille Lacs, and Isanti counties the hardest in terms of rates, but large numbers of foreclosures were also expected in Benton, Chisago, Pine, Sherburne, and Stearns counties.

From the Ground Up
To build all these new housing units the construction industry in Central Minnesota built up their payrolls, as reflected in data from the Minnesota Department of Employment and Economic Development (DEED) Quarterly Census of Employment and Wages (QCEW) program. From second quarter 2000 to the industry’s employment peak of 17,862 jobs in second quarter 2006, Central Minnesota added 3,825 construction jobs, a 27.2 percent increase. That was nearly three times as fast as employment growth in all industries in the region, which expanded about 10.2 percent during that time frame.

But from second quarter 2006 to second quarter 2008 much of Central Minnesota’s construction industry job growth has been torn back down. In the last two years construction employment has been scaled back 18.6 percent, or 3,328 jobs. That is still 497 more construction jobs than the region reported in second quarter 2000, but little consolation to the workers who have been affected by the downturn. The drop is further demonstrated in unemployment insurance initial claim characteristics for the construction industry which increased nearly 4 percent each of the last two years statewide, as compared to 6.9 and 8.8 percent in Central Minnesota (see Table 3).

In addition to jobs for employees, the construction industry is also filled with self-employed individuals or “non-employers.” According to data from the U.S. Census Bureau, 8,742 self-employed construction workers were active in Central Minnesota in 2006, with sales receipts totaling more than $590 million. Like housing units and construction employment, the number of entrepreneurs entering the construction industry leapt much faster between 2002 and 2005 before declining from 2005 to 2006. The total number of construction non-employers was 1,688 higher in 2006 than in 2002, but 70 fewer than in 2005 as eight of the 13 counties saw small declines in the number of construction industry non-employers over the year.

Residential Building Construction
The construction industry is organized into three main sectors: construction of buildings, specialty trade contractors, and heavy and civil engineering construction. Although utility system construction(including water, sewer, and power lines) and highway, street, and bridge construction are important to residential growth, the focus of this article is on residential building construction and specialty trade contractors working in residential settings.

During the first half of the decade, residential building construction and residential specialty trade contractors — including contractors for foundation, roofing, siding, masonry, framing, drywall, finish carpentry, electrical, and plumbing — saw exceptional job growth in Central Minnesota. At its peak in second quarter 2006, residential building construction employment had jumped 53.5 percent, and specialty trade contractors surpassed 10,000 jobs in the region. But from 2006 to 2008 more than one-third of the jobs in residential building construction and nearly one-fifth of the jobs with specialty trade contractors were axed, leaving the residential building construction industry with fewer employees than it had before the building boom started, and specialty trade contractors had just 9 percent more jobs than it had in second quarter 2000 (see Figure 1).

As noted, specialty trade contractors perform a wide range of activities within the construction industry, from pouring the foundation to shingling the roof and everything in between. In Central Minnesota there were 16 detailed industry classifications with disclosable employment information focused on residential building construction, with half concentrated on the exterior of the housing unit and the other half dealing with the interior of the building. Nine of the 16 specialties had more employees through second quarter 2008 than they had in second quarter 2000, but only one was still growing in 2008 — Other Residential Finishing Contractors.

New Single Family Housing Construction, the largest specialty in the region, peaked with 1,897 jobs in second quarter 2004 but dropped nearly 850 jobs since then to a level below where it was in 2000. In contrast, Residential Remodelers kept adding jobs until second quarter 2006 and is up 64.9 percent since second quarter 2000.

Residential Poured Foundation Contractors grew from 333 jobs in second quarter 2000 to 475 jobs in second quarter 2008 but actually crested with 879 jobs in second quarter 2005. Employment built up 164 percent at the height of the building boom in 2005, but by second quarter 2008 it was cut in half as the region’s residential growth slowed through 2008. Likewise, employment for Residential Roofing Contractors, Framing Contractors, Masonry Contractors, and Siding Contractors all peaked in second quarter 2004 or 2005 and have since shrunk to pre-2000 levels (see Figure 2).

On the inside, specialty trade contractors found similar conditions. The employment peak for this group held on two years longer than the exterior contractors, to second quarter 2006, and so the resulting drop has not erased all the job gains built up in the first half of the decade. In fact, just two of the eight interior specialties had fewer jobs in second quarter 2008 than in 2000 — Residential Electrical Contractors and Residential Painting Contractors — but the slowing market may continue to eat away at this industry employment.

The largest specialty, Residential Plumbing/HVAC Contractors, neared 1,450 jobs through second quarter 2006 before slicing 438 jobs in the next two years. All Other Residential Trade Contractors — asphalt, brick, and concrete driveway construction; fencing, flagpole, and playground equipment installation; and boat lift and swimming pool installation — also peaked in 2006 but is still up since 2000. Similarly, Residential Drywall, Flooring, and Finish Carpentry Contractors saw big gains in the first five years before dropping off in 2007 and 2008. One specialty, Other Residential Finishing Contractors — countertop and cabinet installation, closet organizing, and window shade and blind installation — reached its employment zenith in second quarter 2008 but is easily the smallest specialty in the group (see Figure 3).

Building for the Future
While the construction industry got reacquainted with the law of gravity concerning employment over the last two years, it is still an extremely important industry to the Central Minnesota economy. Not only does it provide more than 5.5 percent of total jobs, but it also is a strong foundation for small businesses and entrepreneurs. Nearly 17.5 percent of total business establishments in Central Minnesota – a total of 3,176 firms – are in the construction industry, as well as nearly 8,750 construction non-employers who are creating wealth for the region.

Despite the current slowdown these construction jobs are building for the future. The construction industry also plays a vital role by building the transportation infrastructure and the residential neighborhoods that make the region an attractive place for people to live, work, and do business.

 [1]McMurry, Martha. “Minnesota Housing Prices, 2006-2007.” Minnesota State Demographic Center. www.demography.state.mn.us/documents/MinnesotaHousingPrices20062007.pdf

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