The Housing Shortage
I am sure you have heard by now about the Colorado housing shortage unless of course, you have been on a deserted island for the last few years. Everywhere you turn, the stories in the news report on the lack of homes on the market. One of the primary reasons for this is that people feel like they won’t be able to find a home to buy and as a result, they don’t sell the home they are in. It’s a vicious chicken or the egg scenario. Every day we hear from clients:
“I would sell, I just don’t think I can find a home to buy.”
This problem will not get better unless someone sells. Here is how the cycle works. Let’s say a consumer is at the top of the market and lives in a $1.5 million dollar home that is about 8,000 sq. ft. they want to downsize because they are empty nesters and don’t need all the space. So they buy a smaller lock and leave property for their lifestyle. That means their current home is on the market and for sale. The person that is living in a 4,000 sq. ft. home at about $800,000 has a growing family and career. They decide to buy the home at $1.5 million, thus opening up their home for sale at 800,000. Then there is a couple that lives in a $400,000, 2,700 sq. ft. home that wants something bigger and they buy the family’s house that is for sale at $800,000. The $400,000 home is now for sale and a first-time home buyer purchases that home.
The problem is occurring when one or more of these parties are NOT selling because they have nowhere to move. The solution to the problem is multi-faceted and lies in large part to today’s home builders. I believe most of the answer is in building the $500,000 to $900,000 product. This would solve at least half of the problem and appeal to both empty nesters as well as the middle group of people looking to move up.
Home builders could start with developing more lock and leave style properties for an aging America. This would be product in the $600,000 to $900,000 range and be around 3,000-4,000 sq. ft. with no maintenance. This could be a townhouse, patio home, duplex, or high rise. Once the product is more readily available, the people living in the largest homes can sell, opening up the market at the top of the chain. The $600,000 to $900,000 group would then move up.
Builders should develop $500,000 to $900,000 new home product that is not lock and leave, but better suited to families that want a single family detached. This would be large square footage, larger lots, and would also appeal to a large segment of the population. This, in turn, would open up houses in the lower end of the market, which would then create more possibilities for first-time home buyers and lower income families.
What’s the Hold-Up?
The lack of land! Particularly land close in. meaning Denver, Cherry Hills Village, Greenwood Village, and the areas immediately south of the city. All of the available land to build product like this is far south or far north. While the city is naturally expanding that way because the aquifers run north and south, that doesn’t mean people want to move that far out. Once more amenities get built farther north and south, i.e. shopping, churches, restaurants, etc., it may become more appealing. Maybe the best answer is to continue the earnest re-developing areas of the city that have become old and impoverished. We have certainly seen that success with downtown Denver, Five Points, and other areas. In addition to the lack of land, there is a lack of skilled workers in the trades making new construction harder and it’s taking longer. The solution here needs to be more trade schools promoting the virtues of owning your own business and how lucrative a career as a plumber could be.
This is by no means the answer to all of the problems, but at least it gets the conversation started. I would love to hear your ideas on how to help the housing shortage, either on a comment on one of our social media channels or you can email us at email@example.com. As I said in a live video on our Facebook page, new home formations are happening at 2 million per year in the United States. We are only producing 1.1 million homes a year for sale, including new construction. That means we are in a 900,000 unit housing deficit and this problem is not going to end anytime soon. That’s why we need to start finding answers now.