The numbers remain small, but percentage gains in new home building activity were huge, shows a report released today.
The report by the Home Builders Association of Metro Denver shows that single-family attached permits rose in January to 50 from 23 in January 2011, a whopping 117.4 percent increase.
And permit activity for single-family detached homes rose 48.6 percent to 318 permits in January from 214 a year earlier. Richmond American Homes of Colorado remained the biggest single builder, pulling 53 permits in January. Richmond is a subsidiary of Denver-based MDC Holdings Inc.
“These are good numbers,” said Jeff Whiton, President and CEO of the HBA of Metro Denver. “It’s great to start 2012 with such positive numbers.”
Whiton noted that the single-family detached numbers “are almost exclusively for townhomes. Nobody is really building condos,” because it is too hard for consumers to get loans for them.
The report covers the counties of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Elbert and Jefferson, as well as all of the communities in the counties.
“Anecdotally, I’m hearing that home builders in Denver are optimistic,” Whiton said. “Nobody is expecting any big numbers, like we used to have. But as I told you before, we have shown improvements on a year-over-year basis every month since April. This is a sign that the recovery is continuing.”
Many in the industry did not think the permit activity, a measure of the promise of new construction, would continue for such an extended period, he said.
“We are not seeing any back-sliding,” Whiton said. “Back-sliding was always the fear in the back of everyone’s minds.”
Whiton said several factors have played into the surge in home-building activity.
Low interest rates, low inventory
“First, mortgage costs are pretty much the lowest they have been since maybe the ‘50s,” Whiton said. “Second, there is very little new home inventory available. There is six months or less of new home inventory out there and six months supply is what we have always looked at as a normal conditions that balance supply and demand.”
Meanwhile, there is a pronounced shortage of resale homes to compete with new products. The inventory of previously owned homes was down 42 percent in January from January 2012.
“Builders are very aware of the low resale inventory and are stepping in to meet some of the pent-up demand,” Whiton said.
A resurgence in home-building activity is good not only for builders, but for the entire economy.
Billion dollar-plus impact
The HBA of Metro Denver recently released an “impact” study that found based on building 3,448 single-family homes – the estimated number of new homes built in the metro area, excluding Boulder, last year – had more than a $1 billion impact on the economy. That put down for the his surveyed area.
It breaks down to $950.6 million in local income, $191.3 million in taxes and other revenues and 11,127 jobs. In addition, annually recurring impacts of building that small number of homes includes $133.1 million in local income, $28 million in taxes and other revenues for local government and 1,730 local jobs.
“When we get up and running and are issuing 15,000 or 20,000 permits like we used to, the construction industry is the single largest industry in the state,” Whiton said. “My experience is that over the past 30 years, we have been pretty much a 14,000-permit per year market, on average. So if you extrapolate from the 3,488 and quadruple that number, you can get an idea of the impact. Everyone wonders what the missing equation is to the recovery of the economy, and the answer is it is the home building industry.”
Whiton said he has heard that a number of municipalities are trying to convince builders it is time to start constructing homes again.
“They want the sales taxes generated from people who move into new homes and buy everything from drape to furniture. They want the revenues generated from the water and sewer hook-up, or tap fees. Property taxes support the schools.”
Multifamily construction also has a big impact on the economy, although not as great as building new homes.
The 2,050 new apartment units constructed in the Denver area last year generated an estimated $252.2 million in local income, $55.5 million in taxes and created 2,966 jobs. Apartment construction also resulted in $60.5 million in local income, $9.9 million in taxes and 676 local jobs.
“As apartment rents continue to rise, and this is very important, more people are going to start to choose to buy townhomes or even single-family homes, as with lower interest rates in many cases the cost of buying will be the same or less than renting,” said housing consultant S. Robert August.
Overall, August said experts in real estate are more bullish than they have been years.
“Home building in Denver has definitely turned the corner,” August said. “I’m seeing more optimism in the industry now than I’ve seen since the housing crisis began. It’s not just in new home building but across the board – apartments, retail, office, hotels and recreational/resort properties. Private investors and investment bankers focused on real estate are becoming excited again in real estate. “
The HBA report was the second piece of good news for the Denver real estate market today. Earlier, the Case-Shiller report showed that the Denver-area housing market was the second best performing in December from December 2010.
“Overall, I think the Denver housing market is considered one of the healthiest in the nation,” Whiton said.
August said some consumers are choosing new homes over resale homes because they tend to be more energy-efficient, but it is a tough sell if they have to shell out more greenbacks to go green.
“The energy payback is still five to seven years,” August said. “A lot of people would rather have granite countertops or upgraded carpets than pay for green features.
Savvy builders, he said, increasingly are offering green features as part of the base price.
“One company that has been doing that for years is Porchfront Homes in Boulder,” August said. “They include their energy saving features as a standard feature and so the customer feels like they are getting a better-built home that will save them money, but they aren’t paying an upfront premium to get it.”
For information about a resale home built by Porchfront, please visit this COHomefinder.com link.
Contact John Rebchook at JRCHOOK@gmail.com