The Denver Business Journal had a great story they shared last week from the NY Times about Denver’s real estate market. It was titled, “Housing market slows as prices outpace wages.” As evidence of this are fewer existing homes selling and building permits are dropping nationally.
The story said, “Few analysts expect an outright decline in home prices anytime soon. That’s because, unlike the speculative bubble of the mid 2000s, the recent run-up in prices has been driven primarily by economic fundamentals.” This is what I have been saying in my Bubble class for over 2 years. Further, they cited the fact that metro Denver has added more than 300k new people since 2010 and we have a shortfall of tens of thousands of housing units; just like I have been teaching.
And rising interest rates are creating what economists call the “Lock-In Effect” as fewer homeowners will be willing to sell and to give up their mortgage rate in the 3’s. Who else has been saying this?
So, how do we break out of this logjam? We need to build more homes and to build many more affordable homes. But, how can builders build affordable homes when the price of land, building permits, and other fees can easily be $150k-$200k before digging dirt? Surprisingly the story cited how restrictive zoning makes it difficult to build new affordable homes. Third, materials costs are rising and labor costs are rising. Freddie Mac chief economist Sam Khater said, “The problem is, it’s uneconomic for them to produce affordable.” Incredibly true!
Personally, I think there are 4 major solutions. First, “The only way to solve the riddle is through density,” said Dave Lemnah, co-owner of Lokal Homes. Second, we need to greatly simplify our building codes to 1 set of rules and regs for metro Denver, instead of the current 34 sets of rules and regs. Third, we need our high schools to offer vocational training again. Fourth, as a society we need to value and celebrate the work and contributions of blue-collar workers. We need to hold them in higher esteem.