Colorado is experiencing an economic boom that is unprecedented in the history of the state. With that boom comes a whole lot of people moving to the state, whether its for the amazing beer, the incredible outdoor life, the great cultural scene, or good ol fashioned legal weed. Nowhere is the influx more apparent than in the capital city of Denver, which has led to a real estate market that cant keep up with demand.
The housing boom is fueling a sellers market that is pushing prices up to levels never seen before on a non-coastal city. According to a May 21 Denver Post article, the Zillow Denver metro home value index now sits at $294,100, and saw the fastest growth of any of the nations major cities. Wealthy investors are coming into Denver and buying old and historic houses and, rather than restoring them, are tearing them down and replacing them with cheaply constructed homes that they can either resell for a profit or rent out.
Speaking of rentals, rents in Denver are now the eighth most expensive in the nation, growing at the third fastest rate, 11.6 percent, after only San Francisco and San Jose. The Zillow rent index is now $1,868 per month, pushing lower income and older families out of homes and neighborhoods they have lived in for years. Historic communities like Five Points and Baker have almost completely been gentrified, and the culture of the area is suffering. Go to any message board talking about festivals in any given area and you're bound to witness a flame war between new arrivals and residents who have been in the Mile High City for a longer period of time.
The problem is that homes simply cant be constructed fast enough to accommodate the incredible demand. Houses are regularly selling for much higher than the actual asking price and rentals can see dozens of applicants within a few hours. Its not uncommon to see a listing for a rental on Craigslist posted within the hour, only to call and find that its already been taken.
Roughly 300 new building permits have been issued in the Denver area for every 1,000 new residents that moved to the city over the past couple years, said Zillows Svenja Gudell. Real estate agent Kylle Knudsen also says that the asking prices are a joke. People are getting 20, 30 thousand more than what its actually listed for. Its just nuts.
Besides the incredible population growth and new launch housing shortage, regulations put in after the 2008 real estate collapse have limited the number of condos that can be built. The rules lead to developers being sued over http://www.homes.com/ extremely minor defects, which makes many gun shy to even build them. In fact, when condos are constructed, most of the units may be sold before construction even completes, because buyers are getting so desperate.
The entire situation is adding up to a possible problem in the future: A second housing collapse. Christopher Waggett, CEO http://www.homes.com/ of real estate developer D4 Urban, agrees. "We've had a situation in Denver for the last five years, where vacancy rates on multi-family [units] have stayed below 5 percent and rental growth has been above 7 percent, he says. That is not a normal market I don't think incomes have been rising at that pace, and I think we all know what happened in 2008-09 where we got an imbalance between incomes and value of property, in this case rent. There is a serious issue.