Multifamily construction in the Twin Cities continues to drop off, although potential interest rate cuts from the Federal Reserve this fall could ease the financial burden for builders and buyers.

Builders pulled permits for only 92 multifamily units in August, a 75% drop in activity from the same time a year ago, according to Housing First Minnesota, a trade group for homebuilders. It's a familiar recent trend as developers struggle to finance market-rate apartment buildings while also grappling with high construction costs and more city regulations such as rent control.

Katie Elfstrom, vice president of brand marketing and communications with Housing First Minnesota, referred to that as "pent-up" or held-back activity on the multifamily front. Despite demand from renters and potential home buyers as well as willingness from builders, these forces are curbing future supply of new housing units.

Economists, though, expect the Fed to cut rates — which have remained at a 23-year high between 5.25% and 5.5% since July 2023 — by at least a quarter-point at its next meeting in mid-September. That could reverse the slowdown.

"The challenge facing our market is tight supply, especially at the lower price points," said James Vagle, CEO of Housing First Minnesota, in a statement. "There simply aren't enough homes being built to meet demand. Even with lower rates, affordability will continue to be an issue for many potential homeowners."

On the single-family front, Elfstrom said building is trending up because of the metro's housing shortage. Single-family building maintained a steady pace throughout August, despite high mortgage rates. Homebuilders pulled 586 permits for single-family homes in August, a 3% increase from last year and 30% more than in July, according to the report.

"Many potential buyers are waiting for the rate environment to be right before they jump into the market," said Art Pratt, board chair of Housing First Minnesota and president of construction operations for Pratt Homes, in a news release. "If the Federal Reserve cuts rates as anticipated this fall, the impact on all sectors of the housing market could be significant."

Some of top cities for building in August were Maple Grove, Woodbury, Ramsey and Cottage Grove.