2020 Economic Conference
The “roaring” 1920s was a decade of economic prosperity across the United States. New inventions like the automobile, the airplane, and the radio transformed the technology landscape and gave Americans renewed hope for the future. A century later in 2020, Americans are again exploring a new frontier of tech discovery and innovation. Major metropolitan cities, which now include Denver, are swelling with new residents seeking jobs and fresh opportunity.
Yesterday, the Apartment Association of Metro Denver hosted nearly 500 industry leaders at Denver’s newest concert venue, the Mission Ballroom, during its premier 2020 economic forecasting conference for the Denver multifamily housing industry. “The economy is slowing, but still growing” said speaker Elliot Eisenberg, the internationally-acclaimed “Bowtie” economist. “The market experienced an unusual growth spike over the last two years because of tax cuts, and it is simply slowing down to an average, stable rate. While other industries may be experiencing slumps, the housing industry is strong and does not need to be worried about an impending recession.”
In addition to Elliot Eisenberg, attendees heard from CoStar Market Analyst Michael Petrivelli, industry expert Teo Nicolais, and a panel other housing influencers. The topics of discussion centered around market growth, multifamily industry challenges, and potential regulatory impacts.
Colorado’s rapid population growth, particularly among millennials, was a primary source of analysis during the conference. From the 2000 to 2020, over 200,000 millennials have moved to Colorado. The initial boom in 2013 was unmanageable for Colorado’s infrastructures and spiked rental prices, but the state has since built their way out by creating more units. As millennials approach peak home buying age, this steady demand will only increase.
In light of this data, the resounding call-to-action was to increase construction, particularly in Metro Denver. Experts explained the growing demand for housing must be met by supply in order for Colorado remain economically secure. Constructing new rental units and houses will lower the prices of current residences and accumulate affordable housing over time.
Studying the Past to Inform the Future
Over the past decade, Denver’s rapid population influx that has transformed the city’s infrastructure and housing availability. The growth initially revealed weaknesses in its housing market, but the state has largely adjusted to supplement housing for its booming size.
Current market analysis reports that Colorado, particularly Metro Denver, is behaving normally compared to Q4s over the past 40 years. Vacancy is at 5.3% and average rent has decreased to $1,503. Overall, Colorado’s economy is largely stable, and less volatile than it has been in past years.
Colorado’s current health gives housing industry professionals the space for proactive thinking towards the future. A stable market is not guaranteed, so it is important to study past trends to before making decisions for the future.
The most dominant trend from the last decade was the surge of millennials moving to Colorado. From 2000 to 2020, over 200,000 millennial residents flooded the housing market. The influx spiked in 2014, and Denver simply did not have enough housing to sustain the growth, so rental rates hit a record high.
In the years following, Denver has pushed rental growth back down by continuing to build a large supply of new houses and rental units. As of 2020, the millennial surge has largely abated and Colorado rental rates have decreased. The circumstances surrounding 2014 are not likely to be repeated.
The market may be safe today, but it is important to note potential risks, particularly surrounding housing construction. Construction of new units has decreased over the past two years, 20% from during 2018-2019 and 25% compared to 2017. If this trend continues, rental rates will inevitably increase. While out-of-state millennial migration has slowed, millennials currently residing in Colorado are reaching peak homebuyer age and the demand for both rental and buyer housing remains steady.
In addition, several well-intentioned policies have been passed by the Colorado legislature to locally constrain unit supply. The most recent example is the Housing Growth Cap Q200 passed in Lakewood. Since more people move Colorado each year, limiting construction of new homes will only result in rent growth. Cities with similar ordinances, such as New York, Seattle and San Francisco, have some of the highest rental rates in the nation.
Denver still has time to avoid this inevitable fate by handling affordable housing strategically. If rates are restricted to create an unusually affordable environment, then the people in expensive cities will flock to Colorado and claim the housing intended for lower-income residents. The answer to affordability for the next decade must be multi-layered and individualized. The Colorado legislature working together with the private sector and housing placement organizations can create long-term, sustainable solutions.
While there is obvious work to be done, it is important to note that Denver remains in-line with housing affordability across the United States. The 2000s turned Denver into a major metropolitan city, and its rental rates are comparable to other large cities across the country. In fact, Denver still has lower rent overall than cities with caps on housing construction or rental rates.
Affordable housing will be created through a variety of solutions, and the housing industry plans to dedicate the next decade to finding these answers. But if Denver’s history is any indicator, a proven method for lowering rates is increased construction. Colorado must keep building homes so that prices of existing units will decrease and affordable housing can accumulate over time.