CREJ

Page 38 - November 3-16, 2021 www.crej.com Colorado Commercial Real Estate Economic Insights CREJ has invited a select group of top economists to each contribute an expert article about the economy at the state or national level. Chris Akers Colorado Department of Local Affairs Tatiana Bailey University of Colorado Colorado Springs Odeta Kushi First American Title Patricia Silverstein Development Research Partners Anirban Basu Sage Policy Group Inc. Glenn Mueller University of Denver Richard Wobbekind University of Colorado Phyllis Resnick Colorado State University Brian Lewandowski University of Colorado Brent Campbell Moody’s Analytics Elizabeth Garner Colorado Department of Local Affairs Chris Brown Common Sense Institute P rices are up! For most products and services, a clear cause and effect relation- ship can be directly correlated to the pandemic. The cycle of business closures and consumer hesitancy followed by vaccines, reopenings and increased con- sumer confidence along with a flood of billions in federal dollars has created a perfect inflationary storm. Severe choke points in labor markets, electronic mar- kets, and more recently global transportation chains, are all causing significant supply short- ages. Amid higher inflation, housing prices stand out. In fact, while the Denver metro consumer price index has grown by 5.6% since the start of 2020, housing prices, as measured by the Case-Shiller index, have grown by 24%. This crisis in hous- ing affordabil- ity is expos- ing not just complications from the pan- demic after- shocks, but also severe s t r u c t u r a l flaws that have prevent- ed the devel- opment of an adequate sup- ply of homes for years. Prior to the onset of the pan- demic, our research suggests that there was a housing deficit of more than 170,000 units in Colorado. To close this gap, and account for population growth, more than 56,000 new homes need to be built each year for the next five years. Though 2018 and 2019 saw an annual increase in just over 40,000 units, which slightly improved the gap, the annual average from2008 to 2019 was just 25,682. In other words, current policy and market condi- tions are not likely to produce the number of new homes Colorado needs to address the shortage. Not convinced supply is the problem? Consider the impacts of the pandemic on a different segment of the real estate mar- ket, office space. As bidding wars drove up residential prop- erty values with each new home sold, high vacancy rates and the uncertainty around the future of the use of office space, par- ticularly in traditional urban cen- ters, has driven down the value of Denver office space by 4.8% according to data from Com- mercial Edge. While not quite as consistent as gravity, the forces of supply and demand are real. Just as the problem of hous- ing affordability was not caused by a single policy, it will not be solved with a single policy. This sentiment was echoed in a report released this past July by CSI Terry J. Stevinson Fellows Evelyn Lim and Peter LiFari. Their months-long stakeholder engagement interviews and years of experience in housing, led to the recommendation of multiple ideas. Each of which, could disrupt the value chain in housing development and create a better policy environment to help increase the supply of hous- ing in Colorado needed to return markets to a more stable level. Their report, “From Conflict to Compassion: A Colorado Hous- ing Development Blueprint for Transformational Change,” out- lined bold steps that leaders at both the state and local level could take today, to make real progress in addressing this crisis. Here are some of their ideas: • Do not make it any harder to build than it already is. Growth caps, rent control, or additional taxes and fees on development only set us further back. • Implement a uniform state- wide building code to kickstart productivity gains and take advantage of economies of scale. • Scale the Telluride Founda- tion Rural Homes For Sale, For Locals pilot project. • Allow for greater creation of accessory dwelling units. • Unlock large and nontradi- tional sites for housing develop- ment (e.g., malls and large retail sites). The list goes on. With the influx of federal dol- lars to the state, much of which has yet to be spent, Lim and LiFari also recommended a Pandemic exposes long-standing flaws in housing markets Chris Brown Vice president of policy and research, Common Sense Institute While the Denver metro consumer price index has grown by 5.6% since the start of 2020, housing prices, as measured by the Case-Shiller index, have grown by 24%.

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