DULUTH — You may need a bit of luck finding a local place to rent these days. In 2021, the vacancy rate for rental housing in Duluth dipped to 2% — the lowest level in more than a decade — according to the city’s latest annual housing indicator report.

For a bit of context: Most housing authorities consider any rental vacancy rate below 5% to be less than ideal.

But Duluth’s market for rental housing would have been even tighter had the number of undergraduate students enrolled at local colleges not contracted sharply. From 2019 to 2021, the total count of undergrads attending the University of Minnesota Duluth, the College of St. Scholastica and Lake Superior College has dropped by more than 3,100 students. That’s a 15.7% decline, perhaps most directly attributable to the disruptive nature of the COVID-19 pandemic.

As is often the case in economics, scarcity of supply has led to higher prices.

The average monthly rent for housing in Duluth, across all categories, has climbed from $1,125 to $1,320, jumping 17.3%.

While the leap in Duluth’s housing costs has been substantial, the report’s findings came as no surprise to Jeff Corey, director of One Roof Community Housing.

“It’s a super-tight market, and prices are escalating wildly,” he said.

That’s certainly the case for renters but also a shared challenge confronting would-be homebuyers, Corey said.

The median price of homes sold in Duluth rose from $205,000 in 2020 to $240,000 in 2021 — an increase of 17.1%.

Sellers and landlords clearly have the upper hand at the moment, according to Theresa Bajda, a planner for the city of Duluth who helped compile the housing indicator report.

“It’s really tough to find vacant units in Duluth, and there’s not a lot of options. Right? You almost have to take what you can get. You can’t really go shopping and consider five different options then take your pick,” she said.

Bajda said she thinks this year’s report paints a pretty accurate picture of the market, with about a quarter of all licensed rental housing units represented in a voluntary survey circulated by the city.

“The affordability crisis just grows,” Corey said.

Duluth’s rental landscape has been especially difficult for low-wage workers to navigate.

For someone in a $10-an-hour minimum-wage job, the average $868-per-month rent for a one-bedroom apartment in Duluth would consume more than 30% of their income, unless they worked at least 67 hours each week. Affordable housing is generally defined as housing that consumes 30% or less of a resident’s income.

Clearly, a number of people are being priced out of the market.

That’s especially the case for some local individuals and families in need of help.

While there’s often more than a yearlong waiting list for public housing or Section 8 housing assistance vouchers, recipients often find they are unable to locate affordable apartments in their price range. As a result, 14.8% of vouchers went unused in 2021.

“With a tight rental market, it’s all a matter of supply and demand,” said Jill Keppers, executive director of the Duluth Housing and Redevelopment Authority.

“So, when landlords can command a larger rent for their units, that’s often outside of the payment standard that a voucher can pay,” she said.

Those maximum payment standards are set by the U.S. Department of Housing and Urban Development.

In addition to tenants being unable to find appropriately priced housing, Keppers said landlords can be choosy in a tight market and might not be inclined to take someone on a voucher, assuming they might not be as reliable a tenant.

“We would love more landlords to participate in the Section 8 program, because it would give families a chance at housing stability. And most of the people we serve are in families,” she said.

To encourage participation, the Duluth HRA has created mitigation funds to help landlords should they run into trouble with a Section 8 tenant, as well as anyone looking to make a fresh start after a felony conviction.

Nevertheless, Keppers said the Duluth HRA has about 200 approved but unused housing vouchers.

“It’s a terrible story, as far as not being able to use our vouchers. It’s no good,” she said.

She said that because the local utilization of housing vouchers has lagged for a number of years, the Duluth HRA intends to file for an “exception” that could open the door to a higher level of rental assistance in the future.

While the immediate needs for additional housing, and particularly affordable units, is undeniable, Bajda said there are some encouraging developments that should be coming forward in the next few years.

Of the federal pandemic-relief funding the city has received through the American Rescue Plan Act, it has set aside $19.2 million to address the need for more affordable housing.

Duluth submitted a request for proposals that ended in January, and Bajda said six projects subsequently have been selected, and if they proceed, as planned, they would lead to the creation of an additional 396 units of housing, of which 394 would be classified as affordable.

“So, that $19.2 million of ARPA is really going to leverage somewhere around $96 million of investment to create those new units. Things like that are on the horizon and awesome,” she said.

Keppers said the Duluth HRA expects to put about $1 million of those ARPA funds to work on its Fairmount Cottage Home Village project, expected to create 18 tiny homes off South 71st Avenue West.

The HRA also has obtained state funding for Skyridge Flats, which will create 70 units of affordable senior housing at Harbor Highlands.

“But all this stuff takes so much time,” Keppers said.

Corey said One Roof hopes to begin construction of its 52-unit Brewery Creek project at the corner of Sixth Avenue East and Fourth Street in July.

The city also has launched a Housing Trust Fund to provide low- and no-interest loans to support infill housing and rehabilitation of existing units.

Corey referred to the city’s recent investments in affordable housing as “an enormous contribution,” and noted that Gov. Tim Walz also has proposed a budget that doubles the state’s investment in affordable housing, calling it “crazy good.”

“That’s the boldest thing to come from a governor in more than a decade, easily,” Corey said.