The Uncorrectable Housing Shortage

Here in Colorado, there is a housing shortage, especially near the bigger cities where the majority of people live, like the Denver metro area, Boulder, Ft. Collins, Loveland, Colorado Springs, and so on. The problem is in many ways self-inflicted.

There are only so many buyers looking for houses above $500,000. There are many more buyers looking for houses below $500,000, and even more looking for houses below $300,000. A subdivision of homes priced between $200,000 and $250,000 would likely see a months-long waiting list in just hours.

Why No One Builds Lower Priced Homes Anymore

During the last housing crunch, buyers (like me) lined up to by houses from builders based on models. You put your name in the lottery for a lot, and then got to customize the house. The downside was that you had to wait the better part of a year to actually move into your new home while they were buying it. Back then, different builders built to different price points on large tracts of land. If you couldn’t afford the houses being built by one builder, you went with a different builder in that development.

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Today, most builders are competing for the same price point mid-$400 and up. The trick to that number, is that your base-price house comes with virtually nothing. Bargain basement appliances, formica countertops, unfinished yards and basements, and everything else built and installed to the bare minimum. Upgrade to better windows that aren’t so hard to open, a nicer kitchen, a finished basement, and a yard with a sprinkler system, and you are easily up over $500,000. Don’t even get me started on what it would cost to buy a home that was just like the model.

low cost housing density home

 

The question then is why no one builds low-priced homes in Colorado. The reality is that all of the “easy pickings” land has already been built out. That home I bought in Broomfield decades ago had cows in the field across the street. Today, that’s a Home Depot (and other stuff), and the next cows are miles away.

All that remains are far flung suburbs, and if people are going to buy into a neighborhood that far away, they want the area, and their house to be really great. As a result, $500K and up, neighborhoods are being built out past the currently sprawled neighborhoods. Sure, they have parks, and pools, and trails, and stainless steel appliances, but they aren’t low cost by any stretch of the imagination.

For anything remotely close to a city center, the land costs are very high. If the lot you are building a house on costs $75,000, building a $250,000 house leaves the builder very little room for profit. As a result, everything is expensive.

Low Cost Housing

The answer to higher cost housing is density. That is, putting more homes closer together. In the Stapleton neighborhood, many homes share a “yard” in the form of what they call “pocket parks.” But, nice homes, and a good neighborhood that close to downtown comes with lots of demand. As a result, low cost single-family houses in Stapleton are largely a thing of the past.

Even closer to downtown, my old little brick bungalow with just 1,300 square feet and a tiny backyard sold a while back for about $700,000. Ironically, it was insured for closer to $300,000. In other words, totally rebuilding the house from the ground up would only cost $300,000. That extra $400,000 was the cost of the land. It would have been scraped and rebuilt into a million-dollar home or duplex years ago if it were not in a historic district.

The problem with density is that to get enough density you have to start going big city style. That is, you need a lot of units on a small amount of land. That means going up, but up isn’t cheap after about four floors. Developments in the Cherry Creek area are doing just that, building up 8 stories high, the only problem is that if you are going to give up the single-family home and yard, you want nice amenities to make up for it.

No problem, except that those cost money, and the kind of people who can afford to pay for them want nice construction, and square footage, all of which adds up to $450K and up condo prices. Not to mention a demand for parking spaces, since Denver and Denver-area builders insist on living in the fantasy world where a family only needs one car. The result is the opposite of density, where large square foot condos are occupied by a single inhabitant, or childless couple (who go looking for a reasonably priced house once they have kids…)

Nationwide Issue

It turns out this is an issue nationwide where builders can’t recover labor costs and land costs on lower priced units. Some cities have tried to force the issue by requiring a certain number of “affordable housing” units in each development. That helps some, but as you can imagine, that only means that the remaining units have to be priced even higher to cover the costs of the cheaper ones.

There is no easy answer. If you don’t currently own a home, do your best to save up a nice downpayment, keep your credit report clean and monitor your credit score, and be ready to strike when a lower priced home enters the market in the area you want. Until the next recession busts the legs out from under this tight market, prices aren’t going anywhere lower for the foreseeable future.

 

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