John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... 
Only 3,408 building permits were issued in the Denver area, the lowest number on record.
Permits issued for single-family homes, condos and townhomes and apartment units fell by almost 64 percent from the 9,429 issued in 2008, which was the second lowest year for building activity since at least 1980 in the Denver area, according to data from the Home Builder Association of Metro Denver, obtained by InsideRealEstateNews.com.
“The big picture is that this is sort of a necessary evil,” said economist Patty Silverstein, principal of Littleton-based Development Research Partners. “As painful as this is for builders and developers, we have to see a stop in the increase of the supply, in order to see improvements in the market. While I think that this year will continue to be slow, I think we can see some improvements next year.”
In addition to a lack of demand, banks also have been unwilling or unable to lend, which also has crimped the ability of many small builders, she said.
Whatever the reason for the downturn, one thing is clear – the collapse in Denver-area construction activity last year was unprecedented.
“Historically, if we look over the last 30 years, we have issued an average of 17,000 permits per year,” Silverstein said. The market peaked in 2000, with 28,310 permits issued. And to put last year’s activity into perspective, consider that it was a 78 percent drop from the 15,890 permits issued in 1980. Since then, the population of the area has grown by about 70 percent. Overall permit activity in the Denver area has dropped from the previous year every year since 2005. Permit activity is down 88 percent from its 28,310 peak in 2001 and is down 77 percent from 2007, when 14,729 permits were issued.
The biggest hit last year was to the apartment market. Permits were issued for only 438 apartment units last year, a 90 percent drop from the 4,413 in 2008. Jeff Hawks, co-owner of the Denver office of Apartment Realty Advisors, said that rental rates in the Denver area need to rise by 20 percent to 30 percent to justify new construction. Because inflation of rents does not appear to be in cards anytime soon, especially given the poor state of the economy, there is no need to build more market-rate apartment communities in the metro area for four or five years, he argues.
What little appreciation people have seen in their homes recently, in large part is because builders are not increasing the supply, noted Tom Clark, executive vice president of the Metro Denver Economic Development Corp.
On one hand, that is good for individual home owners, “although sometimes we view affordable housing as an economic advantage,” for attracting companies to the area and encouraging companies to stay, he noted. Hawks noted that unlike the mid and late 1980s, when Denver was mired in a recession because of the collapse of oil prices and an economy that was not diversified, “now there is no place to go.” Indeed, people continue to move to Colorado with the hope that our economy will recover faster than other parts of the country, Clark said.
Still, the construction industry coming to a standstill hits the overall economy hard, Clark said.
“Construction is sometimes a leading indicator and sometimes a lagging indicator, depending on what kind of recovery you are having,” Clark said. “But when you look at the unemployment rate in construction approaching the levels we have not seen (since the Great Depression) of the 1930s, it has a huge impact. A large percentage of the people in the construction industry get paid well and they turn over their money very quickly in the marketplace. It has a huge multiplier associated with it, because the housing market touches so many other parts of our economy.”
In years past, Denver has used huge construction projects to pull itself out of its economic doldrums.
“Historically, we built ourselves out of a crisis. We built DIA, and the Colorado Convention Center,” as well as Coors Field and Invesco Field,” Clark noted. “Unfortunately, when the financial institutions are in meltdown and people have lost 30 percent of their net worth, it is hard to get excited to fund these massive projects.”
One bright spot is the redevelopment of Union Station as part of FasTracks, thanks to the federal government planning to provide a $300 million loan. “The federal government did its part in that instance,” Clark said. “But what we really need from Washington is to point which direction we are going. The federal government has never been very good at execution, but it is usually very good at finger pointing. There is no finger pointing, at least not in the direction they expect us to head. If they did that on health care, for example, companies could pull out their calculators and look at their expected profits and losses. But there is no fingers pointing us in a direction that will get us out of this mess. I blame both Republicans and Democrats. I think Congress should be ashamed of itself. There is no reaching across the aisle to accomplish what needs to be done.”
As grim as it is, it is far worse in other parts of the country, Clark noted.
“At least we’re not Phoenix, or other markets, where a great number of people have experienced huge losses in their home values,” Clark said.
What ultimately will get the construction industry back on its feet is jobs, especially well-paying ones, he said.
“Construction always follows jobs,” Clark said.
[...] Denver area building lowest on record Denver planning board meeting on new zoning code [...]
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email to: bonnie@teamcox.com
Dear John:
Thank you for your informative article.
We have hit the bottom of the permit cycle.
The air is filled with cautious optimism as the national builders and several local builders are exceeding their permit performance from last year to this year.
We may see a one hundred percent improvement over last year’s figures based on the economic forecasters throughout the market place.
The inventory of new homes continues to shrink, especially below $300,000 where the “sweet spot” is taking place.
ONwards and UPwards!
S. Robert August
President,
S Robert August and Company, Inc.
Are you guys taking crazy pills?
The market is set to hit new lows this year. I truly believe the worst is yet to come. NAR has been putting out 8 years of hype and I am sick of everyone believing it. Enthusiasm is great – but denile is worst.
I was thinking about this last night – since the end of WW2 – homes have driven our economy and made our country great! Think of how many people are employed just to build a home (at least 50), now think of all of the ancillary services, insurance, realtors, loan officers, surveyors, title and so on. Now you are talking at least 100 direct people. Now think of the supporting jobs – the roach coach that comes by the job site – the neighborhood bar on Friday nights – The gasoline the workers put in thier cars to get to work – the insurance they have to buy for thier cars – thats is well over 1000 indirect jobs.
Now go even further – say the supplies the electricain used who wired the home – they company that makes the wires – the company that smelts the ore -the comapny provides the tires to the trucks that hauls the ore -the company that fiances the ore trucks. Now we are talking tens of thousands of jobs – just for one house! How about the lawn mover the homeowner has to buy – get my point? Housing is the American economy!.
Everything was going great untill the mortgage craziness happened. We need to get housing on the right track again
Look up the HAMP program . These poor people are going to be taxed now on the deficency – Why? They cannot afford thier home as it is – how will this help them or the US? Instead of owing thier mortgage comapny they are going to owe the IRS, why in the world are we doing this?
Untill our leaders realize that they are making it worst and that this country was built on small business – not AIG – it is going to be a long strange trip.
Tony English
http://www.hqhomes.com
Look up the HAMP program . These poor people are going to be taxed now on the deficency – Why? They cannot afford thier home as it is – how will this help them or the US? Instead of owing thier mortgage comapny they are going to owe the IRS, why in the world are we doing this?
Untill our leaders realize that they are making it worst and that this country was built on small business – not AIG – it is going to be a long strange trip.
Tony English
http://www.hqhomes.com
Look up the HAMP program . These poor people are going to be taxed now on the deficency – Why? They cannot afford thier home as it is – how will this help them or the US? Instead of owing thier mortgage comapny they are going to owe the IRS, why in the world are we doing this?
Untill our leaders realize that they are making it worst and that this country was built on small business – not AIG – it is going to be a long strange trip.
Tony English
http://www.hqhomes.com
Look up the HAMP program . These poor people are going to be taxed now on the deficency – Why? They cannot afford thier home as it is – how will this help them or the US? Instead of owing thier mortgage comapny they are going to owe the IRS, why in the world are we doing this?
Untill our leaders realize that they are making it worst and that this country was built on small business – not AIG – it is going to be a long strange trip.
Tony English
http://www.hqhomes.com
Solid middle-American jobs have always been the backbone of this country. Entire sectors of such employment has moved off shore. Combine that with the artificial inflation of real estate during the last decade, due to the free flow of money created by mortgage backed securities, and it's easy to see that this disaster has been in the making for a long time. It will take years before we pull out of this one, and I wonder if we'll ever again see an America as we once knew it.
[...] Denver area’s building slump hits new low [...]
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