Housing imbalance has many causes, few solutions

BOULDER — Balanced markets, housing experts say, should add one unit of housing for each new job added to the workforce. But instead of a 1:1 ratio, Boulder jobs outnumber housing units by 3:1.

And therein lies the problem with housing in Boulder. Not enough places for workers to live, and those that do exist often are priced well above what salaries can support.

Boulder isn’t alone in Colorado or the nation. Nationwide, according to a report listed by Duane Duggan, broker associate with Re/Max of Boulder, 1.3 million new houses would be needed each year just to keep up with population, and the housing industry hasn’t hit that number since 2007.

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Duggan moderated a panel discussion at the 2018 Boulder Valley Real Estate Conference on Thursday at which panelists discussed the problem of housing supply in the region.

The real estate conference is a BizWest event drawing more than 500 Realtors, contractors, lenders, title companies and others involved with the real estate industry. The conference took place at the Embassy Suites hotel.

John Covert, senior director west region for MetroStudy, told the group that demand for housing is as strong as ever and driven by strong job growth, a diverse economic base in Colorado, a low unemployment rate, and in-migration to the state that adds thousands of people each year to the region. “A half million people were not here 10 years ago,” he said.

The high demand by itself drives up the cost of land and existing or new housing. But within that are factors that slow the production of new housing.

Bruce Dierking, founding partner of Packard and Dierking LLC, a Boulder law firm, said legal and governmental factors are having an impact on supply. He said developers have to consider all costs when planning projects, and some of those can cause developers to build higher-end housing because they have a better opportunity for profit. He said land-use rules, zoning constraints, slow-growth policies, height limits, density reductions and open space that removes land from the marketplace all are factors that inhibit housing growth, especially housing at low and moderate prices.

The rules in Boulder are so stringent that the nation’s largest homebuilder,  Lennar Corp., won’t touch projects there.

“There are fewer and fewer ‘development-by-right” properties in Boulder,” Dierking said. Sudden policy changes, direct government costs such as construction use taxes, and indirect costs such as time to bring projects to market all contribute to project cost, he said.

Dan Nickless, land president for Lennar Homes in Colorado and formerly division president for CalAtlantic Homes, said prices aren’t going to go down. And even east of Interstate 25, where housing prices are generally $20,000 to $30,000 less than what is experienced on the west side of the interstate, the input costs easily push prices to $350,000 before land is considered.

He ticked off the inputs: Each lot requires at least one share, if not more, of Big Thompson water, which now sells for $35,000 per share. A typical homesite will require about $75,000 for preparation, including grading and utilities. A 2,000-square-foot house is built for about $100 per square foot in construction costs, or $200,000. And then the developer has to factor in the cost of land, which will vary but continues to escalate.

Higher density through construction of condominiums and townhouses is considered by some to be a solution because they can serve as entry points for young buyers. However, the state’s construction-defects laws have inhibited that area of the industry because of liability concerns. Under current state statutes, owners of condominiums and townhouses have eight years to find and file claims against builders, and builders until recently had no right to fix the problems to prevent suits. Recent changes in law gave builders at least the right to talk to homeowners and offer to repair deficiencies before suits are filed, Dierking said.

“No one wants shoddy construction. But the way we’re doing it now limits affordable housing, and there’s a societal cost to that, too,” Dierking said.

Covert said the change in the law has done little to incentivize condo projects. He said he knows of two large projects in Denver. Everything else in the market are what he called “boutique” projects with very few units and built for high-end buyers.

Solutions to the supply problem? Panel members had no magic bullets but suggested several things.

Nickless said multigenerational housing would help. So would mindset changes in which employers pay higher wages, and homebuyers are willing to buy smaller homes and stay in them longer.

He also said making the land entitlement process shorter would help. Cities need to increase staffing in building departments so that builders can move projects through the process more rapidly.

Dierking said cities need to determine what they want, write rule to make that happen and then permit developers to work within those rules without constant changes. Certainty reduces cost for the builder, he said.