MARKET
chain issues , and increasing entitlement / inspection periods , as well as , more recently , increasing interest rates and inflation . As a test of these arguments , we have analyzed the number of new applications in Denver compared to the new applications in the surrounding 6 metro area counties . As shown in the following graphs above , the overall pipeline of proposed apartments in Denver fell 3,733 units ( down 9.0 %) from the 2nd quarter 2022 to the 3rd quarter 2023 , while the pipeline in the other 6 counties increased by 3,527 units ( up 12.2 %) during the same period . If the negative change in Denver were solely the result of the common factors discussed above , one would expect similar negative impacts on the proposed pipeline in the other 6 counties . However , while the Denver pipeline is down 9 %, the pipeline in the other 6 counties is up more than 12 %. This demonstrates that the EHA has had a negative impact on the proposed pipeline in Denver .
It appears that the number of units currently in the Denver pipeline is likely to continue to shrink . First , the developer success rate ( i . e ., the ratio of units proposed at the beginning of the year that actually break ground during the year ) in the metro area has fallen significantly over the past few years , due to the macroeconomic and other factors mentioned above , and is projected to continue falling . This will reduce the number of units being delivered in 3 + years . Second , many of the projects that entered planning prior to the EHA deadline did so without sufficient due diligence , which indicates that some ( perhaps many ) are not based on strong fundamentals and are likely to be dropped by developers . In fact , more than a few of these rushed projects that were grandfathered have already been dropped .
Finally , if properties currently in planning don ’ t receive a final site development plan ( SDP ) approval by the relevant deadlines , they will lose their exemption from the EHA ’ s affordable requirements and will likely no longer be financially feasible . Final SDP approval was originally required by the end of August 2023 or December 2023 , depending on the size / type of project . However , in May 2023 , Denver City Council extended those deadlines to mid-May 2024 and mid- September 2024 , respectively , with possible additional extensions through the end of August 2024 and December 2024 . These extensions were necessary because the significant number of
projects that applied prior to the EHA deadline overwhelmed Denver ’ s planning department . Denver Planning and Development simply could not get through the applications timely . These future SDP due dates will be telling as to how many units in the Denver pipeline move forward and how many eventually fall out . As the analysis above illustrates , if projects that are currently exempt from the EHA requirements fall out , there almost certainly will not be additional projects to backstop them .
26 | TRENDS JANUARY 2024 www . aamdhq . org