“Anyone Know a Good Welder??”
I don’t know about the rest of the economy, but inflation is very much afoot in the upper reaches of the Twin Cities housing market — specifically, new homes.
Anecdotally, I’d estimate that prices for upper bracket new construction in places like Edina, Minnetonka, and select Minneapolis and St. Louis Park neighborhoods are up 10% – 15% in just the last six months.
Or, in the case of a new-to-market Edina home, up $100k in one week (the home was recently marketed as a pre-list at $1.5 million, then debuted on the market a few days later at $1.6 million).
That’s what I call one successful trial balloon.
(Very Successful) Trial Balloon
What’s behind the jump?
These five factors are cited most often:
One. Labor cost. It’s not just that new construction is booming locally.
Rather, it’s that the preceding crash decimated so many builders, who left the industry.
Combine that with the fracking boom in nearby North Dakota, and there is a true shortage of skilled workers.
Most in demand locally?
Excavators and welders (or so I’ve heard).
Two. Land cost.
As the building boom has taken hold in many high-demand Twin Cities neighborhoods, there are more 
“post-remodel” homes and fewer and fewer “pre-remodel” ones (OK, “teardowns”) per block.
As every good econ major can tell you (I qualify), shrinking supply and robust demand always, always, spells strong price appreciation.
As a result, the cost of teardowns has galloped from the low $200’s to $500k (or more) in some Minneapolis – St. Paul areas.
Given that land typically represents from 25% to 33% of the total cost of new construction, that translates into new homes fetching $1.5 to $2 million.
“Leftover Lots on Wetlands”
While the “leftover lots” characterization may be a bit harsh, it’s undeniably the case that more new homes are being built on marginal land that requires more site prep (Factor #3).
Testing the soil (and replacing a couple of tons if it’s bad); sinking pilings down 40′ or 50′; and adding elaborate drain tile and sump pump systems can easily add $100k to $150k to construction costs.
Four. New building requirements.
At least in Minnesota, new homes with over 4,500 finished square feet now require built-in sprinkler systems. Added cost: $20k to $40k, depending on the home.
Five. Changing Buyer Preferences; “Bells & Whistles.”
Upper bracket home buyers increasingly are opting for such upgraded finishes as insulated floors and 
interior walls; reclaimed wood beams; and lower levels that feel like they’re above ground, thanks to all the recessed lighting, high ceilings, and multiple egress windows.
Another trend catching on with Baby Boomers, who increasingly want to age in place (assuming they can afford it): a second Owner’s Suite, typically on the first floor with easy access to the Kitchen, Garage and Laundry.
Mix it all together, and what do you get?
Revitalized city neighborhoods, strong home price appreciation, and selected labor shortages (yup, shortages).
As the price of upper bracket new homes continue to rise, one other knock-on effect is foreseeable: larger, older homes in nicer Twin Cities neighborhoods that are too expensive to tear down will become more attractive as (major) remodels.
