Homes priced in the mid-$200,000s leave a profit of about $15,000 for the builder after costs.
Homes priced in the mid-$200,000s leave a profit of about $15,000 for the builder after costs.

Since the Great Recession, the seven-county Denver metro region has added households at a rate far greater than housing units. The housing surplus that once existed has been consumed, and housing prices have risen far faster than wages.

The result: Housing is increasingly unaffordable for many Coloradans. That conclusion holds true for Colorado Springs and the rest of the state, and it has a ripple effect that increasingly will affect all businesses.

A report released Monday by Shift Research Lab and Housing Colorado analyzes housing as a system, explores the interrelated factors that contribute to the affordable housing crisis and forecasts that the excess demand will persist.

“Our report concludes that while all factors are having an effect, the overriding driver of the affordability challenge is the market: Demand is outstripping supply,” said Phyllis Resnick, lead economist at the Colorado State University Colorado Futures Center and co-author of the report with Jennifer Newcomer, principal for research at Shift Research Lab.

Affordable housing

Fifty percent of renters throughout the state are cost-burdened — that is, they are paying more than 30 percent of their total household income for housing. Of those, 85 percent have annual household incomes of $50,000 or less, according to the report.

The extra income going to housing costs represents $2 billion that is not spent on food, clothing, health care, recreation and other costs, creating a ripple effect throughout the state’s economy.

- Advertisement -

“It touches all aspects of our world from local businesses to government, limiting the ability of those households to put their money into the local economy,” Newcomer said.

That money could support local businesses, and many of the forgone expenditures could contribute to the provision of state and local services through sales taxes.

Businesses also are affected in terms of workforce retention. The report projects that service businesses will find it increasingly difficult to maintain their workforce as the affordable housing crisis worsens.

Housing forum planned

The Housing & Building Association of Colorado Springs will present a housing forum at 8 a.m. Friday, Feb. 23, in the Board of County Commissioners Hearing Room, Centennial Hall, 200 S. Cascade Ave.

The forum will feature a presentation from economist Elliot Eisenberg, Ph.D., and will focus on statistics, issues, challenges and ideas for affordable workforce housing in the Pikes Peak region.

 

The state has lost middle-wage jobs over the past decade, while low-wage jobs have increased. So have high-paying jobs, but at a slower rate.

“Yet the new housing being built is disproportionately targeted to the high-income jobs,” the report states. “If these trends continue with no changes, even more families will become housing cost-burdened.”

Factors contributing to housing unaffordability include the cost of land, materials and labor, productivity, government regulation and consumer preference.

While the individual factors influencing housing cost inflation are uneven, intertwined and nuanced, “the market circumstances are unambiguous,” Newcomer said.

The same trends are playing out in the Colorado Springs arena.

A builder’s perspective

Todd Anderson, a principal at Shepherds Staff Consulting and former president of Challenger Homes, said the local housing industry’s challenge is how to deliver homes that are at or below the line of affordability.

“I moved here 14 years ago from Indianapolis,” Anderson said. “We were delivering 2,000-square-foot homes for about $125,000. A normal person working a normal job was able to afford our homes. Today, it’s very hard to build a home in El Paso County for less than $300,000, and the price of a new home is going up 6, 8 or 10 percent a year. Wages are not keeping up with the cost of housing, especially for the workforce — teachers, police and firefighters, call center employees. The gap is widening every year.”

The housing industry is responding to unmet demand as much as possible, “but it feels like a fight we can’t possibly win because the costs of labor, materials and fees continue to go up,” Anderson said.

The costs that go into building a $250,000 home include purchase of a lot for about $50,000, hard costs of $125,000, indirect or soft costs of $45,000 and costs of permits and fees of at least $15,000 and up to $33,000, depending on the location. That leaves the builder with a profit of $15,000 or less, Anderson said.

“There are good builders doing innovative work to get houses more affordable in terms of what it costs to build,” Anderson said. “But if I’m a trade worker, I still have to get paid.”

Fees here are a big part of the equation, he said. While local fees are lower than in some other states like California, they are “four to five times higher than some of the smaller areas around the state.”

That was a shock to Anderson when he moved here, and he thinks it would be challenging for Colorado Springs Utilities, for example, to reduce fees and compensate with higher rates.

It takes the same amount of work to build an affordable house as it does to build an expensive one, he said, so builders must decide whether they want to build affordable houses and make a small profit or build a $400,000 home and make more money.

“Even if you have a heart for affordable housing, the government wants to steal from the rich and give to the poor,” Anderson said. “That’s not a true sustainable solution. I think it ought to be market-driven so we work together to come up with solutions.”

Multifamily housing challenges

It is similarly difficult to offer affordable multifamily housing in the Pikes Peak region.

“Five years ago, we could spend $50 to $60 per door for acquisition and renovation costs,” said Lee Patke, executive director of Greccio Housing. “Today, it’s between $90 and $100.”

Affordable housing developers also face the additional burden of a rigorous review process to get funding.

“A for-profit developer may only need an initial cash infusion,” Patke said. “They can run pro formas on higher rental rates and achieve adequate cash flow for larger amounts of debt.”

Affordable housing developers must negotiate the process of obtaining grants and low-income housing tax credits.

“All of that takes time,” Patke said.

Cost-burdened renters range from people with disabilities and very low incomes to those whom Patke calls “the missing middle,” such as teachers,transitioning veterans and seniors.

With area median rents exceeding $1,000, “unless you have a very healthy income, your choices are limited as to where and how you can live,” Patke said.

Laura Nelson, executive director of the Apartment Association of Southern Colorado, said that in the past four years, 2,435 new market-rate units have been built or planned in El Paso County, while only 223 affordable units have been built or planned.

“New properties are leasing before they’re built,” Nelson said, “and there are long wait lists for affordable units. The demand is higher end; we see development up north that’s a spillover from the Denver market.”

Neighborhood resistance

Another issue is the stigma associated with affordable housing.

People who live in affordable housing often are perceived as not fitting into a community and bringing problems with them.

“The reality is that, of people who live in affordable housing, the vast majority do have jobs,” said Sara Reynolds, executive director of Housing Colorado, a membership association that represents the affordable housing industry. “Technically, $30,000 to $40,000 a year qualifies you for affordable housing.”

Affordable housing projects often generate neighborhood opposition. That is the case with The Ridge apartments, a planned three-building, 60-unit complex near Colorado Highway 115 and South Academy Boulevard. Greccio Housing partnered with Commonwealth Development Corp of Wisconsin to plan the development, with major financing through low income housing tax credits. Households with incomes at 30 to 50 percent of the El Paso County Area Median Income would be eligible, and rents for the one-, two- and three-bedroom units would be based on income levels.

The prospect of the development prompted the formation of the Broadmoor Bluffs Neighborhood Association a year ago to fight it.

The association appealed the Dec. 19 decision of the Colorado Springs Planning Department to approve the development plan, contending that the planners did not apply city code appropriately. After a lengthy hearing Jan. 18, the City Planning Commission rejected the appeal by a 6-2 vote. The association then appealed the decision to Colorado Springs City Council, which is expected to hear it Feb. 13.

Thus far, the association has fought the development on technical grounds, citing increased traffic, landslide-prone soils, and parking, ingress/egress and fire safety issues. But neighbors have also expressed concerns about “bad behavior,” lowered property values, impacts on schools and attraction of more homeless people to their neighborhood.

Finding solutions

Newcomer and Resnick concluded that, if current trends continue, the market will not correct itself, even with record-high building over the next decade.

Achieving affordability in all segments of the housing market will require multiple, creative approaches, structured around the goal of increasing housing supply.

Among the actions the report suggests are bolstering areas of labor shortage through training programs; exploring ways to expand productivity and removing barriers to alternative housing such as modular buildings; promoting and expanding opportunities for social impact capital investing and public-private partnerships; and reviewing regulatory requirements, trade policies and legislation such as the state’s construction defect laws to determine their impact on affordable housing inventory.

“It’s important that we take advantage of every reasonable affordable housing opportunity that we have and bring it to market,” Patke said. “The issue is not a lack of creativity; it’s going to be getting everybody on the same page.”

The report, titled “Exploring Colorado’s Housing Affordability Challenges in All of Their Complexity,” can be viewed at www.shiftresearchlabs.org/projects.