DEVELOPMENT
TEO NICOLAIS | NICOLAIS LLC
Limiting New Construction Will Reverse
Progress in Affordable Housing
T
he record-breaking amount of
new apartment construction in
the last several years has yielded
exactly what economists would predict:
rent growth has fallen from double digit
highs earlier this decade to below the rate
of inflation over the last 12 months. You
read that right: average rents are more
affordable today than they were a year ago.
According to the most recent Denver
Metro Area Apartment Vacancy and
Rent Report published by the Apartment
Association of Metro Denver and
conducted by the University of Denver,
rents have risen 2.4% from a year ago
while overall inflation rose 2.7%.
Better still for prospective renters,
concessions and discounts in rent - such as
one month free for a 12-month lease - also
increased from 5.4% in the first quarter of
the year to 5.7% this past quarter, saving
renters an additional $87 per month on
average. This is all welcome news for
renters who have felt the squeeze from
Denver’s lack of housing supply.
While these numbers are encouraging,
vacancy remains low across the metro
area. This means Denver has few empty
apartments for the 42,000 current Denver-
metro residents that the Colorado State
Demography Office estimates will turn
18-years-old in the
next year. These high school graduates
will be joined by the steady stream of
college graduates as well as people moving
here from other cities – all of which will
need housing.
Denver is building homes for those
groups and many others, but not fast
enough. In the first half of this decade,
as the economy struggled out of the great
recession, Denver built only 16,817 new
apartments; so far in the second half of
the decade we’ve already built 47,589 new
apartments increasing our apartment
inventory by an average of 3.2% per year.
In addition to strengthening Denver’s
economy by providing high-paying jobs,
the construction of so much new housing
has put downward pressure on rents and
kept average rent increases over the last
year below the rate of inflation.
40 | TRENDS AUGUST 2019
Unfortunately, growing frustration
with traffic and the pace of development
has led some cities – most recently
Lakewood – to place an arbitrary cap on
new home construction. These polices
threaten the progress Denver has made in
affordable housing.
Capping residential construction
significantly hinders a city’s ability to bring
sufficient housing supply into
communities where demand
is already high. Last
year alone, Jefferson
County’s housing
needs yielded
a 6.5 percent
increase in
the number
of new
apartments.
A one-
percent
cap will
therefore
almost
certainly
result in the
construction of
fewer new homes
than would have
been built without
the cap.
As we saw in the first half of
this decade in both the rental and for sale
markets, lack of new supply in the face of
increasing demand drives housing prices
up. And, with or without caps on new
home construction, demand for housing
is increasing.
State Demographer Elizabeth Garner
estimates that Colorado’s robust job
market will draw an additional 2.4 million
residents to the state by 2050. How the
population growth will affect housing
costs depends on how much new supply
Denver builds.
If Denver fails to build enough housing,
Denver residents will once again find
themselves in frenzied bidding wars
against newcomers to the city as well as
succeeding waves of native high school
and college graduates vying for the limited
supply of homes. And those bidding wars
will push housing prices up.
A damaging ballot initiative was
recently introduced that would cap new
home construction at one percent of the
existing housing stock in the 11 front range
counties: Broomfield, Denver, Adams,
Arapahoe, Boulder, Douglas, Elbert, El
Paso, Jefferson, Larimer, and Weld. The
new home construction cap would be fixed
at 1% for 2021 and 2022 and could
only be modified thereafter by
another vote.
To be clear: this ballot
initiative does not
limit the number of
people being born,
turning eighteen,
or moving to the
state; it only limits
the number of
homes over which
everyone in the
housing market
must compete.
If this policy
drives housing prices
up as economists
predict it will, reversing
it will nonetheless be a
long and expensive process
involving a second referendum –
and all the while Denver residents will
have to endure an excruciating housing
shortage. It’s not too late to avoid this
outcome.
As Denver’s residential construction
industry continues to pour new supply
into the market, renters will continue to
see more rental housing options at every
income level. It is imperative that our
state allow the market to work and avoid
making decisions that will negatively
distort the rental housing markets in
their communities.
There is a great need for more
housing for every income level in Denver.
Communities must work together to
ensure that Denver residents – current
and future - have an abundance of housing
options.
www.aamdhq.org