ECONOMY
Housing Affordability
Colorado ' s Atmosphere of Legislative Uncertainty Will Hurt Housing Affordability
By Teo Nicolais
This past summer , millions of people added the term “ Atmospheric River ,” to their meteorological lexicon .
Just one of these flowing columns of condensed water vapor , gliding 10,000 feet overhead and extending over 2,000 miles long , can have an average flow rate 15 times greater than the Mississippi River at its mouth . Atmospheric rivers pass uneventfully by many regions , but where they make landfall , as an unusually large one did in California , they reshape entire landscapes .
Yet there ’ s an even larger river flowing above and around our communities . It ’ s invisible to both satellites and the naked eye alike , but it has the capacity to shape our cities for generations .
It is the great river of financial capital that swirls around the world ceaselessly seeking assets in pursuit of investment returns . One asset class , U . S . commercial real estate , managed to scoop up just under $ 400 billion of capital flow in the four quarters ending September 2023 , according to CBRE Research .
But capital is fickle . It can effortlessly flow across borders and between assets classes . Indeed , the $ 400 billion invested this past year in U . S . commercial real estate was less than half the $ 928 billion that found its way into the same asset class during the prior year .
The flow of investment funds matters because the construction of new apartments – an essential component of housing affordability - requires a staggering amount of upfront capital . The builder of a 200-home apartment community in the Denver metro area today must typically raise over $ 80 million for their project .
Crucially , most builders can only afford to provide a small portion of the total capital required for their project , typically 2 % or less . They raise the rest from the lenders and equity investors whose capital flows so freely around the globe .
Diverting the capital from that great atmospheric river is no small feat . A builder in Denver competes with investments of every type in every city around the world . The builder must convince savvy capital providers that , against the myriad alternative investments , their project is the best use of the investor ’ s capital .
This leads to the intractable conundrum that haunts builders , policymakers , and affordable housing
18 | TRENDS JANUARY 2024 www . aamdhq . org