John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... Yesterday, I blogged that only 3,408 building permits were issued in the Denver last year, the lowest number since at least 1980.
Today, some experts said that the record low, although bad news for those who make their living building homes and apartments and the overall economy, is good news for anyone trying to sell their own home, and for landlords of apartments who won’t face competition from new communities anytime soon.
“It is so important that we are getting control of the supply,” said Byron Koste, director of the Colorado Real Estate Center at the University of Colorado in Boulder. “It is very good news for the Denver area and the whole region that we are getting the excess out of the supply.”
That said, anytime an industry takes it on the chin, especially one with the huge multiplier effect of the construction industry, it hurts.
“The industry does not like it,” Koste said. “We like to go out and build things. That is what the industry is designed to do. Developers and builders look at what is happening, and say “What is good about it?’
Housing slump hits economy
As far the toll on the entire economy, much is not good about it. The economic fall-out far exceeds those directly involved in construction, because building touches so many other parts of the economy. As Tom Clark, executive vice president of the Metro Denver Economic Development Corp. said earlier, some person working in a factory making dishwashers may be laid off because of a slump in home building. It also means that out-of-work framers, plumbers and electricians are not frequenting the area 7-11 store to buy a Slurpee. The list goes on and on.
Still, building beyond demand makes no sense, Koste said.
“Continuing to build things that we don’t need, yes, would help job- creation for a short while, and jobs are very important,” Koste said. “But it is more important to come down on the side of getting rid of the excess supply. It is time to come down on the side of balance.”
There were only 2,378 permits pulled in the Denver area last year for single-family homes, the lowest on record. That is a 35 percent drop from the 3,686 permits issued in 2008, the second lowest on record. Permits signal future home starts.
That is good news for people who already are homeowners, as they do not have to compete with many new homes on the market. That, combined with the $8,000 tax credits for first-time home buyers and the $6,500 tax credit for qualified existing home buyers, should help the home sales market this year. Buyers must put the home under contract by April 30 and close by the end of June to take advantage of the credits.
“That should help the market,” Koste said. “But I don’t want people to read this and think, “Wow, the market is really going to soar now and prices will dramatically improve,” because that ain’t going to happen. We still have all this crap on the market that we need to burn off. That is what created the problem in the first place.”
Tougher to get loans
In addition, it is more difficult to qualify for loans than it was in the past, so not as many people will be able to take advantage of the confluence of super-low interest rates, tax credits and home prices that are at a much lower level than in recent years. Only lower-end home values have been rising from their lows in the Denver area.
Apartment hit hard
The biggest drop in permit activity was for apartments. Permits were only issued for 438 apartment units last year, a 90 percent drop from the 4,413 issued in 2008. That was the lowest number of apartment permits issued since 1991, when developers only pulled 208 permits for apartment unit.
Steve Rahe, an apartment broker with Grubb & Ellis, was glad only 438 permits were pulled last year.
“I like that number,” Rahe said. “I think that is fantastic!”
Rahe said that the drop in permits is a sign of what happened in the economy last year.
“I think that it shows just how bad off the economy was in 2009,” Rahe said. “We just had to many apartments on the market. The excesses in supply had to be dealt with and I think it is great that so few units were added to the supply. What that will mean is that today’s apartment vacancy rate in the 7.9 or 8 percent range will come down to 5 percent or 6 percent in the coming years. If you believe in supply and demand, it will mean that building owners will finally be able to raise rental rates.”
He said that the Torto Wheaton Research Group recently predicted that Denver’s apartment market will likely be one of the five top performers during the next three years, along with Boston, Austin, Atlanta and Minneapolis.
“I have to think a lot of that is because the number of our permits are so low that we are not increasing the supply,” Rahe said.
If “organic” growth such as people graduating high school and pent-up demand from people living with their parents who are eager to strike out on their own occurs and there appears to be a looming shortage of apartments to rent, Rahe “I suspect the development community will look at the demographics and will address that. I think we could see some people looking at building something at the end of 2010 or in 2111. Time will tell.”
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865
