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Christopher Bjorke, Forum Communications, Published August 05 2012

Grand Forks housing supply low, costs high

GRAND FORKS – A state still adjusting to rapid economic growth, North Dakota has had a transformation in its biggest housing markets.

The west has struggled to provide homes to newcomers and rebuild homes flooded in 2011. The east has seen a more moderate population growth, complemented by a steady housing expansion.

But then there is Grand Forks, where home building has been cautious and home prices are higher than in the Fargo metro area. A result has been what some call a housing shortage and mismatch of supply and demand.

Emily Wright, executive director of the Grand Forks Community Land Trust, said the problem is not enough homes.

“In Grand Forks, you’re going to get a smaller home, you’re going to get an older home and pay more for it,” said Wright, whose organization promotes affordable housing for moderate incomes.

Grand Forks vs. Fargo

The average sale price for single-family homes in Grand Forks and East Grand Forks in 2012 was $173,261, while the median price was $152,000.

Those numbers are slightly higher than prices in Fargo, where the average sale price was $164,237 and the median price was $144,000.

Outside of Fargo, the prices are higher in West Fargo – average $196,125, median $163,500 – and lower in Moorhead – average $145,934, median $133,533.

The median price is found by ordering all homes on the market by price and finding the price exactly in the middle.

But beyond price, the two areas have different housing supplies.

Fargo’s metro area is roughly twice the size of Grand Forks’, but the number of homes on the market is eight times what is available in Grand Forks, adding to a perception that the area has a housing shortage.

In July, 117 single-family homes were on the market in Grand Forks and East Grand Forks, while there were 487 in Fargo, 265 in Moorhead and 199 in West Fargo at that time, totaling 951.

Among those, 35 homes in Grand Forks and East Grand Forks were listed for less than $150,000 and 435 in Fargo, Moorhead and West Fargo.

New housing starts have been strong in the Fargo area, adding homes by the hundreds each year, while Grand Forks’ housing starts have hovered around 75 a year.

From 2008 to 2011, Fargo had 898 new single-family home starts, and West Fargo had 491. During the same period, Grand Forks had 297.

Market skewed

For affordable housing advocate Wright, the local housing supply is not serving the demand.

“It’s not a healthy level. It’s too low,” she said.

There is a particular lack of homes just above the starter-home level, she said, in the range of $200,000 to $300,000, for owners who want to move up from the their first homes. That also means owners stay in their starter homes longer, making them unavailable for renters who would like to own.

“A lot of people are choosing to be under-housed,” Wright said. “We need to be looking at filling that gap.”

Evan Andrist, 24, decided to buy a home after graduating from UND and taking a job as an environmental engineer with Bactee Systems Inc.

“I was tired of renting. It’s just a waste of money,” he said.

Working with some banker friends, Andrist was preapproved for a $200,000 mortgage but hoped for something more modest, in the $80,000 to $100,000 price range, what he thought would be “your typical starter home.”

“I found out very rapidly that is not a typical case for Grand Forks,” he said. “I didn’t find anything for $100,000.”

That is, he did not find anything he thought was acceptable for that price. Instead, he found old homes with maintenance needs beyond the simple fixer-upper.

“They were ideal for a college student looking for a cheap place to live,” he said.

He eventually settled on a 124-year-old house on Cottonwood Street for $155,000, which he shares with two roommates to help him afford the mortgage. The houses he saw were not what he expected, but he said he was satisfied with what he found.

Short supply

Real estate professionals acknowledge that the Grand Forks market has fewer homes and less construction compared to Fargo, but they are cautious when discussing the supply.

“I don’t know if I agree with the word ‘shortage.’ There are more buyers out there than in the past,” said John Colter, association executive for the Grand Forks Area Association of Realtors.

Steve Adams, sales manager with Prudential Crary Real Estate in Grand Forks, said builders in Grand Forks have tended to be cautious, but they have also dealt with higher infrastructure requirements in the city, slow population growth and barriers to expansion to the east and north of town.

“It’s just a different game,” he said.

Grand Forks also lost many of its older, affordable homes in the 1997 flood when whole neighborhoods such as Lincoln Drive were demolished, Adams said.

The smaller city also has a less active building community.

“We don’t have a lot of speculative building in Grand Forks,” he said.

Lack of land and a concentration of its ownership are some of the factors keeping a lid on new development, said City Council President Hal Gershman.

“We’re behind the curve; there’s no question,” he said.

Gershman said the city should look at what it can do to encourage development, such as its requirements for infrastructure and the amount of land set aside for parks. He also said the city should look at what incentives are available for builders and buyers, how it is advertising them and whether it could improve them.

Mayor Mike Brown has called for a commission to look at the local housing market and how to address unmet needs.

Grand Forks has grown south over the decades, but new neighborhoods have also developed west of Interstate 29, something the city should encourage, Gershman said.

“We have infrastructure, we have lots, but people aren’t looking that way,” he said.

Gershman has been a strong advocate of the city’s Bakken Initiative, an effort to market the area to companies and workers in the Oil Patch. Part of that plan is to attract Oil Patch workers with families looking for permanent homes in North Dakota.

Rent market

The Grand Forks rental market, too, is low on supply and high on price.

According to a housing study commissioned by the Grand Forks Housing Authority, the median gross rent, including utility costs, in Grand Forks rose from $477 per month to $632 per month between 2000 and 2010.

The housing study pegged the local vacancy rate for apartments at 2.9 percent for privately owned units in February 2012. It estimates that 2,700 renters earning less than $20,000 a year are living in apartments they cannot afford and the market needs 2,339 more units renting for $405 or less. It concludes that, based on growth in the student population, the market would need around 1,000 additional apartments renting below $525 a month by 2020.

“There seems to be a really big gap,” said Evan Nolte, viewing the market from the vantage of Virginia Beach, Va.

A 25-year-old Army veterinary technician moving to Grand Forks with his wife, he expected his $1,000 monthly housing stipend would get them a rental house with a yard for his dogs. What he found was a lot of unreturned messages left with landlords and no place to live.

“This is by far the most frustrating experience we’ve had,” compared to his past assignments.

Family housing at the Grand Forks Air Force Base, where Nolte will be stationed, has a two- to three-month wait list and 98 percent occupancy rate, according to base officials. Nolte plans to stay in temporary housing at the base and hopes his luck changes when he arrives.

“It’s not a lot of fun right now,” he said. “I was really looking forward to going to Grand Forks because of everything I’ve heard about it.”

The U.S. census estimated the Grand Forks metro area’s median rent without utilities in 2010 to be $567. By comparison, the median rent in the Fargo metro area was $552, according to the census.

The vacancy rate in March was 3.7 percent in Fargo and 4.1 in the metropolitan area, according to a survey for the Fargo Planning and Development Office.

“In certain areas of town, like downtown, there is a lower vacancy rate and higher rents,” said Jim Gilmour, director of planning and development for Fargo.

Fargo had around 600 apartment units built last year and will add about 275 this year, he said.

“Whenever the vacancy rate dips a little bit, construction picks up,” Gilmour said. “There’s a lot of diversity in our rental market.”

Builders in the Grand Forks area have been building apartments as well. In 2011, they started 241 new apartment units. Bev Collings of the Grand Forks Inspections Department said 144 units have been started so far this year.

Also under development is a 224-unit apartment complex with 600 total bedrooms to be marketed for students, though the project has yet to get final approval.

In rental market dominated by university students, many of the apartments are designed for two, three or four tenants, leaving a shortage of lower-rent one-bedroom units and efficiencies, according to the housing study.

A fair comparison?

Grand Forks’ housing market is different from Fargo’s, agreed Colter of the Board of Realtors.

“Is it a fair comparison? I don’t know if it’s fair or not,” he said. He acknowledges that people make the comparison, but the two cities have different populations and different factors affecting supply and demand.

“What people don’t understand is there’s no such thing as a national real estate market,” Colter said. “All real estate is local.”

The number of buyers could be driven by low mortgage rates or population growth. Colter said he did not know why the area had so many buyers now. As long that number remains high, so will demand.

“Anything in that $140,000 to $200,000 range is probably going to be pretty hot,” he said.

Christopher Bjorke writes for the Grand Forks Herald