Apartment building permits soared in the Denver area in the first half of the year, shows a report released today.
The report by the Home Builders Association of Metro Denver showed that 520 building permits were issued in the Denver-area in the first six months of the year, 69.4 percent more than the 307 from January through June in 2010. And almost all of the permits – 507 of them, or 97.5 percent of them – were in Denver.
Permits for single-family attached – condos and town homes – meanwhile, were down 22.4 percent in the first half of the year compared with the first six months of 2010, with 323 permits pulled compared with 416 last year. Single-family detached home permits, by contrast, were basically flat, down only 1.9 percent to 1,726 from 1,759.
The HBA report covers the counties of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Elbert, and Jefferson, as well as all of the individual communities in each county. Permits reflect future building, not actual construction.
Of the 520 building permits, 50 of them were pulled in June, all of them in Denver. That is a whopping 614.3 percent increase over the 7 pulled in June 2010, but the numbers are small.
Even the 520 permits pulled in the first six months is an extremely low number by historic standards, said Jeff Hawks, a principal of Apartment Realty Advisors.
Apartment shortage coming
“It may sound like it is up a lot, but if you annualized it, we really are only about 25 percent of the annualized number of permits we have had over the past 20 years,” Hawks said.
He said Apartment Realty Advisors has projected 8,000 new units will be built in the Denver area during the past two years, with the majority of those coming on line in the second and third year.
“If all that construction happens, and all 8,000 units are built, three years from now our vacancy rate will be 1 percentage point lower than it is today,” he said. “It will be below 4 percent.” The Colorado Division of Housing recently reported that the Denver-area apartment vacancy rate is at a 10-year low of 4.8 percent.
There is absolutely no chance of over-building in the Denver area, Hawks said. “To over-build, we would need to see more than twice what is on the drawing board built,” he said. “That is physically impossible.”
Historically, the Denver market needs to add about 4,500 units each year just to keep up with normal growth. “By 2015, we are going to need 30,000 more units just to meet demand,” Hawks said. “And demand is going to grow for a couple of reasons. First, we have 36,000 kids turning 20 this year and many of them will be renters.”
Also, unlike past years when renters left in droves to buy homes when mortgage rates fell, that is not happening in this cycle, he said.
“No one is buying a home today,” Hawks said. “First, nobody knows if they will be able to keep their job, so they don’t want to risk buying a home. The last thing you want to do is buy a home in Highlands Ranch, if six months from now you will be looking for a job in Broomfield. And despite low mortgage rates, banks have made it tougher to qualify for a loan. And in the past 18 months, 130,000 people have moved to Colorado looking for a job. If you are coming to a state without a job, you are a renter, not a buyer.”
Also, the few apartment communities on tap, are not being distributed equally on a geographic basis.
“Almost all of them are going to be urban-style units built in Denver, along light-rail lines or in Boulder,” Hawks said. “The average cost of construction is going to be around $200,000 per unit. That compares to about $140,000 per unit for a typical garden-style, suburban community.
That means the new apartment communities will be targeted to high-end renters.
Contact John Rebchook at JRCHOOK@gmail.com
A limited supply with increased demand, translates into higher rents.
“It’s already happening,” Hawks said. “Every manager I know with a property that has been built within the past 10 years is raising rates by at least $100 a month per unit. I was just talking to a guy whose rent is going up by $300. He has been paying about $800, and now he is paying close to $1,200.”
Contact John Rebchook at JRCHOOK@gmail.com
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