Housing prices in Colorado continue to skyrocket. Denver prices have been increasing at double-digit rates for years and Northern Colorado has been no different. In Greeley the median price is close to $250,000, which is double what it was five years ago. With housing prices increasing so fast, it has become much more difficult for people to afford homes. Wages have been increasing in Colorado and the economy appears to be solid, but wages have not increased nearly as much as housing prices have. The government sees this problem as well, and has been trying to make housing more affordable in Colorado through a number of measures.
Why have housing prices been increasing in Colorado?
I wrote a detailed article here on why housing prices have been increasing in Colorado. Basically, Colorado had no building going on during the housing crisis. People were able to buy foreclosures and prices were too low for builders to make any money. During that time, people continued to move into Colorado. When the economy turned around and foreclosure listings dried up, there were not enough houses for everyone. There has been record low inventory multiple years in a row, which has pushed prices up. Building has started to pick up, but many people cannot afford to buy a new home for $250,000 or more.
What does the government want to do to increase housing affordability?
One of the reasons there are few new construction projects in Colorado, is a bill was passed that makes it very easy for consumers to sue contractors for building defects. That law has scared many builders, especially builders or town homes and condos. Town homes and condos are typically lower priced than single family homes, which makes the affordability problem even worse.
One of the things the republicans have been trying to pass is a law that would make it harder for consumers to sue builders, which would in theory cause the builders to start more projects. If there was more building and inventory, prices would most likely stop increasing so much and housing may become more affordable.
The democrats have proposed a number of ideas that include:
- One would use $40 million from the state’s “unclaimed property” fund and use the money for rent vouchers and other assistance for the needy.
Another measure would give create new tax-free accounts for savers who haven’t yet bought a home. They could save up to $14,000 a year and get tax cuts between $27 and $46 each year, as long as they use the money to buy a home.
The final bill would extend an existing Colorado low-income housing tax credit through 2019.
The republicans are against all of these bills, stating the money could be used for better things. At this point it looks like there may be a stalemate between the two sides and nothing will get done.
How affordable is housing in Colorado?
According to statistics from Realtor.org, Denver had a home affordability rating of 129 in 2015. The home affordability rating is from a mix of interest rates, median incomes, housing prices, and more. The national average for home affordability is 164. The higher the number is, the more affordable homes are. Denver is one of the least affordable cities in the nation right now, as are many parts of Colorado. Denver had a rating of 169 in 2012, which made it relatively affordable at that time. Housing prices have increased much faster than wages have in the area. It is estimated that 160,000 households in Colorado spend more than half their income on housing. Households should only spend about 1/3 of their income on housing.
What can Colorado do to make housing more affordable?
I think the underlying problem with Colorado’s housing affordability is supply and demand. Low interest rates make housing in Colorado even more affordable than it would be otherwise. If interest rates were to rise in the next year or two, it would make it even tougher to afford a home in Colorado.
If we were to extend tax credits to buyers, or give tax refunds that may increase the ability of lower-income Coloradoan’s to afford homes. However, that will not help the supply problem. In fact, allowing more people to afford homes, would make the supply problem even worse, because more people would be buying houses. That could push prices up even higher, which would put us right back where we started and make the problem worse for those who do not qualify for the credits.
While giving money to first-time home buyers may be a short-term solution for the problem, we still have to fix the supply problem. There is plenty of land in Colorado available to build on. The cost of water, labor, and city fees to build are very high in Colorado. If there was some way to entice builders to build more houses, that would be the long-term solution to Colorado’s housing affordability.
Of course, you do not want to over build like the did in the early 2000’s, which caused Colorado to have one of the highest foreclosure rates in the nation in 2006. If they could make it harder for builders to be sued, that may be a start, but I think more needs to be done as well.