Minneapolis: Supply-Demand Imbalance Lead to Low Forecasted Rent Growth

August 10, 2023

Bloomberg News reported on the Twin Cities impressive achievement of being the first major MSA to combat annual inflation and bring it below the Federal Reserve’s 2% target. With shelter costs making up roughly one third of inflation, lowering shelter costs is the key in lowering inflation. Minneapolis was able to lower shelter costs by making housing more affordable. They achieved this by reducing zoning restrictions and providing subsidies to enable more multi-family development. This surge in development activity changed the supply-demand imbalance that has plagued other cities, consequently resulting to a lower rent growth. Markerr’s machine learning approach to forecasting allows our model to adapt to the unique drivers of rent growth for each geographic granularity (e.g. multi-family permits being a substantial detractor for Minneapolis forecasted rent growth). Rent growth in Minneapolis is projected to be a +0.9% CAGR over the next 5 years which ranks last among top 100 markets. Additional details on key demand drivers like population growth and job growth are included on the following pages.

Analyzing Minneapolis’ Inflation Management: Interplay of Demand Drivers and Supply Surge

The analysis of Minneapolis’ economic landscape, as illuminated by the provided headlines, underscores a key lesson in curbing inflation: the strategic balance between supply and demand. Minneapolis has demonstrated that augmenting the supply side can be an effective strategy in managing inflationary pressures, with supporting data from Markerr highlighting this trend. Notably, despite facing challenges such as lagging employment growth, modest income growth, and a population decline, the city’s resilience in urban development, as revealed by the data, has led to a notable building boom. This approach, characterized by increasing supply while demand drivers remain restrained, has yielded promising outcomes. The takeaway here is that in periods of growing demand, a proactive response lies in bolstering supply proportionately, as evidenced by the data-driven insights from Markerr. This equilibrium allows for stability and control over inflationary tendencies, presenting a valuable insight for economic planning in the future.