Kim Howard of Evergreen has been in her 2,600-square-foot home for 40 years. Now alone, the 70-year-old is looking to downsize and move closer to Denver, but she can’t find a smaller home with the same or lower mortgage payments.
She feels guilty staying because she knows the house is a perfect size for a young family, but she’s staying because she can’t afford to move. Rising interest rates in the last year aren’t helping, since that increases monthly payments on any home she could buy.
“I’m going to wait it out … because it has to make economic sense,” Howard said. “I can’t afford to move, and that puts a damper on those who want to move in. We need more affordable housing for retired and first-time buyers instead of large, expensive homes that we can’t afford.
“I feel kind of guilty. (Young families) are desperately looking to start their lives, and we senior citizens can’t afford to move. Unless someone provides for those first-time home buyers and for seniors who want to downsize, it’s not going to happen.”
Howard’s story is typical of the issues faced by many in the metro area when it comes to housing. While it seems like the crisis came on suddenly, it cannot be attributed to one moment or incident. Instead, think of it like the spokes on a bicycle wheel, with the center being the current housing situation.
Each spoke contributes to rising costs and shrinking availability, starting with the Great Recession that began in 2007, the loss of builders and labor, the dichotomy of home ownership between baby boomers and millennials, and more recently the pandemic, the consequences of the Marshall Fire and the popularity of short-term rentals.
Couple all that with population increasing in metro Denver, and it’s a recipe for disaster for many: higher home prices, increasing number of unhoused, lack of places to both buy or rent, frustrated home buyers and more.
A perfect storm has combined to create what many experts say constitutes a housing crisis throughout the Denver area and into the foothills — from Brighton to Empire and everywhere in between. It’s been brewing since the Great Recession more than a decade ago that created a harsh economic downturn, pushing skilled workers who built homes out of their careers.
It’s been exacerbated by a rising younger population and part-time residents who converted residences in some of the state’s most attractive settings into vacation homes, the skyrocketing costs of homes and increases in interest rates.
"There’s no incentive in the traditional market structure that we have around housing to build for those who are struggling economically,” said Phyllis Resnick, executive director and lead economist for the Colorado Futures Center, an independent, nonpartisan, academic nonprofit. “We think (the housing market) is feeling unhealthy for folks because housing that is affordable to lower-middle to low-income households is still very difficult to find and isn’t probably being built at the rate it’s needed.”
The metro area’s housing challenges start with the Great Recession that began in late 2007, part of a national trend where the housing market crashed. Before the recession, rising home prices, loose lending practices and low interest rates were the norm. When the economy soured, many homeowners could not keep up with their payments, prompting a rash of foreclosures.
According to real estate data company RealtyTrac, 6.3 million homes went through foreclosure in the United States from January 2006 to April 2016, more than double the norm of around 250,000 foreclosures per year. According to the Colorado Department of Local Affairs, from 2006 to 2016, Colorado saw 299,775 foreclosures.
With foreclosures came a glut of available homes that flooded the market, according to real estate agent Gaye Ribble with The Ribble Group, a real estate firm that offers home-buying services across the metro area. In the Denver metro area at the peak of the recession, 45,000 homes were on the market, Ribble said, when a balanced market is roughly 10,000 to 12,000 homes.
“As a result, builders were reluctant to get back in and buy land, buy materials, pay wages and build — all the capital expenses they incur before selling a single home,” said Tupper Briggs with Madison & Co. Properties, a real estate agent for more than four decades. “They did not add to the supply of housing for years.”
In other words, Ribble said, “builders stopped building homes because of the glut, and some builders went out of business because of the lack of work.”
Loss of tradespeople
The Colorado Futures Center bears out what Ribble noticed. A 2018 study by Resnick and Jennifer Newcomer, research director, examined the factors contributing to the growing cost of housing in Colorado. Much of it could be traced to the Great Recession.
The decrease in units built after the recession was linked, in part, to limited amounts of developable land, rising material costs and little incentive to build entry-level housing, according to the study. A bigger issue turned out to be the closure of several local construction companies and the related issue of a shortage of labor in specialty trades.
“Labor was short, it was a mixed story on materials, and there were some regulatory barriers, but I think we came away thinking that part of the biggest problem was we lost a lot of people in the development and building ecosystem,” Resnick said.
According to a 2014 report published by the U.S. Bureau of Labor Statistics, “Housing: Before, During and After the Great Recession,” construction industries experienced significant job losses during the recession.
From 2003 to 2013, for example, the residential construction industry experienced a 26.8% decrease in employment, which the report said was “precipitated by the recent recession.” The report also showed from 2003 to 2013, the number of businesses in the residential construction industry decreased by 10.8%.
Lone Tree Mayor Jackie Millet said she thinks the recession absolutely impacted the growth of housing.
“The bottom fell out of the market, the tradespeople — we lost people in the trades, we didn’t have people coming into the trades, and we lost that time,” Millet said. “And it’s, you know, cyclical, so we have been playing catch-up ever since then.”
Ted Leighty, the CEO of the Colorado Association of Home Builders, said the Great Recession made a lot of people more cautious, including banks, lenders and builders.
There were fewer land developers coming out of the recession, he said, so more builders have had to become their own land developers.
“Their access to capital and their cost of capital has increased greatly since the recession,” Leighty said.
Ribble added: “Not only every year are we lagging (in home construction), but we were never able to make up for six years with no new construction. During that time, population continued to increase.”
Population growth, interest rates
According to the U.S. Census Bureau, the seven-county metro area has seen a substantial rise in population in roughly the past decade. Douglas, Arapahoe and Adams counties each grew by more than 80,000 people, with Jefferson County gaining more than 45,000 people.
When the Federal Reserve lowered interest rates to move the United States out of the Great Recession, many more people who wanted to buy a home could. Rates remained low as the economy rebounded. That increased demand across the housing market. As demand rose, prices across the metro area began to skyrocket, creating a crunch. Fewer homes were available and many people were simply priced out of the market.
Real estate agents interviewed by Colorado Community Media agree that the Federal Reserve should have increased the ultra-low interest rates to keep the market more balanced.
Baby boomers, millennials and short-term rentals
Adding to the housing challenges is stagnation. Baby boomers, those nearing retirement age and older, aren’t leaving their homes. Meanwhile millennials, some now new to Colorado and in their 40s, are looking to get into their first home and sometimes even a second home such as a short-term rental that can be used for both vacation and added income.
Boomers, many of whom are empty nesters, aren’t downsizing for many reasons. While some simply don’t want to move, others want to downsize but can’t find a good deal on a home in the community they want.
According to Jackie White, a real estate agent in the Conifer and Evergreen area for nine years, if a baby boomer sells a home for $1.5 million, that person isn’t going to find a home about half the size for $750,000.
“That doesn’t feel good to them,” White said. “Add to that, because of low inventory of homes, kids can’t afford to buy homes in the communities they grew up in, so there are fewer multigenerational families in one community. Kids can’t easily check in on their parents.”
Many millennials can’t afford homes that are for sale. That eventually will change as baby boomers are forced to sell as they age, White said.
As Ribble noted: “In 18 years, this issue will resolve itself because baby boomers won’t be in their homes any longer.”
But at that point, some millennials will be in their 60s. For that generation, the dream of home ownership is still alive for many, Briggs said.
“The millennial demographic is larger and more powerful than the baby boomers,” Briggs said. “They are the bulge in the snake, and we baby boomers are sitting on our homes, getting old and not moving.”
Short-term rental ownership is becoming more popular, especially among millennials.
“Close to 50% of buyers (in Clear Creek County) ask if it can be a short-term rental,” said Josh Spinner, longtime Clear Creek County real estate agent.
More recent issues
The COVID-19 pandemic brought a new trend. Many people were able to work from home, and some decided to move out of urban areas to more scenic, less populated towns, real estate agents said.
“Whoever would have thought home prices would have gone up during COVID?” Spinner asked rhetorically. “Who could have predicted that? In addition to artificially low interest rates, we had a lot of artificial stimulus money. It defies logic that prices would go up in a pandemic.”
The Colorado Futures Center study agreed.
“The disruption of COVID and the almost complete lack of (market) churn really distorted supply with respect to what was available for sale,” Resnick said. “We believe, and we’re still working through all of this, that was a somewhat significant contributor in the run-up in prices.”
Briggs said the transition to people working remotely wasn’t an easy one.
“The seeds of remote work were there before COVID,” he said. “People started looking at their living arrangements and decided they wanted an office in their homes. They discovered if they work remotely, they could work where they wanted. They decided to get out of the city and into the suburbs or bedroom communities.
“They no longer were commute-oriented in making (home-buying) decisions. Instead, they were quality-of-life focused because they were able to do that. That created a surge in people moving from one place to another.”
The COVID-19 pandemic didn’t help, Millet in Lone Tree said, as well as the subsequent supply-chain issues.
“The demand has continued to increase that whole time, and supply has been falling further and further behind,” Millet said. “When you don’t have enough supply, price goes up — and that’s the space that we’re sitting in.”
Then toward the end of the pandemic, the Marshall Fire in Boulder County took place, burning 1,100 homes. That added to the situation — many families looking for temporary or permanent housing, further depleting the number of homes on the market.
City and county planners say they are seeing more builders wanting to build residential developments recently, but they are facing several issues.
“There’s a housing shortage because we can’t get homes built fast enough,” said Chris O’Keefe, Jefferson County planning director. “In Jefferson County, we have a lot of land but not a lot of land that is shovel ready.”
He noted that it doesn’t help when members of the community don’t want new high-density residential development near them.
“Recently we’ve seen some areas where … developers have wanted to rezone for higher density,” O’Keefe said. “The community sometimes is not supportive of higher density.”
In Clear Creek County, little developable land is available, and most of the building permits are for single-family homes.
“Over the last 20 years, building-permit applications that we are seeing for single-family homes indicate that homes are getting larger and more expensive,” said Fred Rollenhagen, community development director for Clear Creek County. “We are not seeing as many smaller or middle-class type homes like what we saw 20 years ago.”
Lakewood, for example, also doesn’t have large parcels available for residential development except in the Rooney Valley along C-470, where a residential development called Red Rocks Ranch is under construction with plans for 1,200 homes when complete.
“As a first-tier suburb of Denver, our vacant land is minimal,” said Paul Rice, manager of planning and development assistance for the City of Lakewood. “Other than the Rooney Valley, there are not a lot of development opportunities that are easy.
“A developer has to work to make a project successful. Lakewood is not an easy place to develop. Most everything is redevelopment. Developing land is a matter of aggregating property to create property that can be redeveloped.”
What’s to come
A 2022 analysis from Newcomer and Resnick on housing affordability in Colorado found that the share of housing affordable to people making the median Colorado income dropped 25% between 2015 and 2020. The same research found that statewide housing prices would need to fall by 32% to return to the affordability levels the state saw in 2015.
"Market correction alone will not restore relative affordability without considerable market pain," the 2022 analysis concluded.
Newcomer said it wouldn’t be easy for the housing market to become more balanced.
"We do need to find ways to build, essentially, a parallel market that's incentivized differently,” Newcomer said. “The normal constructs of housing development in the full market don’t incentivize doing anything differently. We have, especially with this disruption because of the pandemic and supply chain issues, these elevated costs from material goods to labor and so on. It's going to be really hard for those to come back down in the overall market environment now."
When projecting what housing production may look like in 2023, Leighty said a lot of it depends on mortgage rates.
“Will we see a recession? What will we see that necessarily starts to bring down the federal funds rate and then, you know, brings down the mortgage rates?” Leighty asked, highlighting the uncertainty of the future.
The Colorado and U.S. economies are projected to avoid a recession in 2023, but the “path for continued expansion is narrow” and “a wide array of unforeseen shocks could push the economy into a downturn,” according to the Colorado Legislative Council Staff’s December 2022 Economic and Revenue Forecast.
Leighty thinks 2023 may start slowly for home builders.
“Builders, they’ll move cautiously on land acquisition until there’s probably more clarity, especially in (interest) rates,” he said.
Real estate agent Briggs thinks the relationship between home buyers and sellers is changing.
“Although we’ll probably see more price negotiation in specific transactions, housing values will not decline overall, and there certainly won’t be a crash,” Briggs said. “But the days of multiple offers and over-asking selling prices are numbered. We can also expect it to take longer to sell as buyers sharpen their pencils when considering an offer.”