Editor’s note: This is the third part in a three-part collaboration with the Business Journal’s sister publication, the Colorado Springs Independent, exploring in depth the region’s affordable housing challenges.
State and local industry leaders say the cost of renting an apartment has started to level off after consistently rising the last several years.
“I really don’t think we’re going to see those double-digit rent increases year-over-year going forward in Colorado Springs,” said Carmen Azzopardi, vice president of multifamily property services at Griffis/Blessing Inc.
Colorado Springs started March with the nation’s biggest decline in year-over-year median one-bedroom unit rent prices, falling 5.3 percent to $900, according to online rental platform Zumper’s National Rent Report: March 2019.
The city’s cost for two-bedroom units also decreased by 0.9 percent to $1,100, while nationwide one- and two-bedroom rents both fell 0.4 percent with medians of $1,208 and $1,437.
The report, released Feb. 28, compared 100 cities nationwide using data from more than 1 million active listings in addition to the National Rent Index for one- and two-bedroom units. Azzopardi said the price decline is due to an increased interest in homeownership.
“A lot of our communities compete neck-and-neck with people wanting to buy homes,” she said. “As people are starting to buy more homes, we see a lot of people moving out of our communities.”
In February 2019, there were 1,824 single-family and patio homes sold in the Pikes Peak region, which is 471 more than the same month four years prior, according to the Pikes Peak Association of Realtors Housing Statistics.
“I think that plays a big factor in how much [apartments] can push rents,” Azzopardi said.
Nancy Burke, vice president of government and community affairs for the Colorado Apartment Association, said via email that rents are beginning to stabilize because of more supply hitting the market.
“Rents for the past two quarters in Colorado and in Denver have decreased,” she said. “The construction of 12,324 new apartments in 2018 — a volume nearly three times greater than Denver’s long-run average construction levels — has been a key factor in the easing of the rental market there.
“Due to a surplus of available apartments, average rents declined for the second quarter in a row [in Denver].”
The number of multi-family permits issued by the Pikes Peak Regional Building Department rose to 1,505 last year after hitting a low of 20 in 2009. Meanwhile, Burke said building apartments in Colorado can be difficult due to natives not wanting them near their neighborhoods and negative feelings toward growth in the state.
“Lakewood may soon see a 1 percent limited growth ballot initiative, but if something like price controls, or growth controls were implemented, it would have the opposite effect,” she said. “Housing prices would skyrocket because then we are limiting the supply.”
Apartment owners in Colorado are as diverse as the properties themselves, Burke said, adding they include individuals, families, small partnerships, private equity funds, large corporations and real estate investment trusts.
“Many of the large institutional owners are from retirement funds, such as teacher retirement funds,” she said. “Where Colorado apartment owners are based is diverse as well: A wide range of apartments are owned locally, some are owned by out-of-state investors, and some are owned by international investors.”
Both Azzopardi and Burke said a unit’s rent is based on the market where the property is located.
“It’s not somebody coming in from California, buying an apartment community and then saying, ‘OK, in California, we’re charging $2,400 a month for two bedrooms, so now we’re going to charge that for a two-bedroom in Colorado Springs too,’” Azzopardi said. “It literally is just market driven.”
If an apartment complex charges “an outrageous amount for rent,” Burke said renters won’t pay that price and, in turn, it will force the property’s management to lower their prices to attract tenants. “I have seen companies purchase a property to do a retrofit — [add value] to the entire building,” she said. “The media gets ahold of this and calls it eviction, which is not accurate. It is displacement. Because of this, we are seeing fewer companies handle retrofits this way, albeit it is their right, because it is their property.”
Azzopardi said there’s been an increase of out-of-state investors in recent years buying older properties as well as developing new apartment communities in Colorado Springs due to the city’s growing population.
“Because the market is doing really well here, an investor can buy a 1970s apartment community, upgrade the units and get the rents at what the rest of what the market is getting,” she said. “It’s a hot market, just like in Denver, Austin and Salt Lake City.
“All of those cities are booming right now. So you’ll see those out-of-state investors come in and buy apartments, but that’s not why the rents are increasing — it’s the demand.”
It can be more expensive and complex to build affordable housing projects than market-rate apartment communities, both Burke and Azzopardi said. That’s why it’s important to preserve what affordable apartment units the state has already, according to Jerilynn Martinez, director of marketing and community relations for the Colorado Housing and Finance Authority.
Formed in 2016, the Colorado Housing Preservation Network includes: CHFA; Colorado Department of Local Affairs-Division of Housing; U.S. Department of Housing and Urban Development; United States of Agriculture; in addition to local governments, including the city and county of Denver and the city Colorado Springs as well as many others.
Affordable properties that receive any state or federal subsidies are typically required to remain affordable for 30 to 40 years, Martinez said, but past projects may have only been restricted for 10 to 30 years. Martinez said the network is responsible for reaching out to properties that have expiring affordability contracts to work with the owners to get them to consider extending the lower rent.
“Whether they were supported with [federal or state] tax credits or some other kind of subsidy, we will work with them,” she said. “If perhaps renovations are needed at the property, we work with them on getting those completed as well.”
Over the next decade, CHFA estimates that the affordability restrictions on about 22,000 affordable rental housing units statewide will expire, Martinez says, adding 1,300 of those are in El Paso County.
“Any time you have an imbalance between a lower supply that’s available and the population growth that’s happening — that out-of-balance supply and demand — certainly that’s going to impact pricing for rent even more,” she said.
In 2016 and 2017 combined, the Colorado Housing Preservation Network helped preserve more than 9,000 affordable rental housing units in the state, Martinez said.
“I know that 311 units were in Colorado Springs,” she said. “Our effort for outreach and working with property owners to extend those affordability contracts has proven very successful thus far — we’re excited about that.”
One way the city of Denver is trying to preserve its affordable housing apartment units is by extending the required affordability period from 20 to 60 years, according to Derek Woodbury, spokesman for Denver’s Office of Economic Development.
The new time restrictions went into effect Feb. 1, he said, explaining it applies to any new or existing affordable project using the city’s offered gap financing or its other subsidies for unit preservation.
“Affordable housing obviously is a top key issue in our community and in many other communities as well,” he said. “A couple years ago, we went through a planning process as far as a long-range housing plan to guide all of our affordable housing investments, called Housing an Inclusive Denver.”
The city is in the second year of the five-year housing policy strategy and investment plan, Woodbury said.
“In the many months preceding January 2018 — when it took effect — there was lots of planning and outreach that was done, and during that planning process for that document, we received lots of feedback calling for longer-term affordability across all of our housing investments,” he said. “Basically, it’s a tool we are using to stabilize affordable housing units rather than put those tenants at risk of displacement.”