Denver seems to be No. 1 at making rankings lists around the country for everything from health and lifestyle to job prospects, but it’s our regular rankings for top home prices and shrinking inventory that have business and civic leaders concerned.
If there was a list for top conversation starters in the region, it would probably be near the top. Or at least that’s how it may feel for those closest to the issue, like Mark Falcone, who found himself pulled into a discussion on the trials of house hunting with a server once she overheard he is a developer.
One culprit of this housing pinch, many business leaders agree, is construction defects lawsuits.
Though a coalition of mayors, business leaders and housing advocates has rallied at the Capitol the last two years to find a statewide solution to this issue, legislation has yet to make it to the governor’s desk.
In the meantime, local municipalities have taken matters into their own hands.
The State of Building
It’s the numbers that tell the story.
Last year over 1,600 multifamily housing units were built in Denver. Of those, just 37 were condos. Compare that with 2008: Of the 973 units built, 442 were rentals and 531 were for sale.
That means in the span of four years, the share of for-sale multifamily housing has gone from 55 percent to just 2 percent—and the margin is slimmer for those at an attainable price range of $175,000 to $275,000. Nationally, condos make up about 23 percent of other cities’ housing options currently for sale.
What may set Colorado apart is the ease in which homeowners’ association boards can enter into litigation.
It’s created an atmosphere that can be risky for builders, which means they have to pay more for insurance to build these projects—and that cost is passed on to the consumer. Couple that with rising costs for land and building and those entry-level options become cost-prohibitive or challenging for builders.
There is a silver lining: The move away from building condos has created more opportunities to build rentals across the region.
“We’re creating more multifamily housing and therefore more rental opportunities, which is much needed,” said Habitat for Humanity of Metro Denver CEO and Executive Director Heather Lafferty. “But it’s meaning that homeownership opportunities are becoming even less available for low-income families.”
Builders have voiced concern about the lack of diversity.
“Too much product of the same kind at the same time is not a good thing,” said Trammell Crow Company’s Senior Managing Director Bill Mosher.
To address the issue, the Homeownership Opportunity Alliance (HOA)—comprised of metro area mayors, the Chamber, the Metro Denver Economic Development Corporation, homebuilders and housing advocates—has urged a solution.
Earlier this year, Senate Bill 177, sponsored by Sen. Jessie Ulibarri (D-Commerce City), would have required all owners in a building be notified of any allegations of a construction defect; the majority agree before filing a suit; and that the original form of resolution outlined in a sales contract, such as arbitration, continue to be the preferred path to resolution before litigation.
Finding a key victory in the Senate, the bill moved on to the House, where it was assigned to a kill committee and died. Supporters say the bill would have passed if it had been heard on the floor of the House. But, it never had that chance.
A City Approach
Although no changes have happened under the dome, cities across the region are making changes of their own, aiming to stimulate interest in building entry-level priced condos through local ordinances that mirror the senate bill. And, it’s starting conversations with developers that weren’t happening before, area mayors said.
In October, Lakewood acted first, with longtime HOA advocate and Mayor Bob Murphy at the helm, passing an ordinance that in addition to the provisions in the state legislation gives builders the “right to repair” any issues.
Other cities have followed suit—Commerce City, Lone Tree and Littleton have passed similar ordinances.
During each of the proceedings, there was close attention from protesters and proponents alike. As Lakewood continues to work with interested developers on potential condominium projects, Murphy expects the same attention.
Murphy said Lakewood has six to eight developers looking at projects, but could not elaborate, saying he thought the city could see projects in the next 18 to 24 months.
“The due diligence is underway,” he said.
Lone Tree Mayor Jim Gunning said passing its ordinance has opened up more dialogue about for-sale options.
“The ordinance has generated some very positive discussions about condo development,” Gunning said, adding that he believes the outcome of his and other city ordinances will be more condos getting built—but they may be isolated to those areas.
Murphy anticipates there will be more municipalities that follow suit across the region with similar ordinances.
“There will be a number of cities that will have ordinances in place by the time the legislature starts up again in January,” Murphy said. “It’s up to the municipalities right now to take leadership on this
issue.”
It’s a leadership role they’ve had to absorb as local communities see growth and new or redevelopment—particularly as more stations in the regional commuter project FasTracks come online. Local leaders must act, D4 Urban CEO Chris Waggett said, because “the ultimate cost of
this is paid in the community. Density, mixed-use and mixed-tenure opportunities around transit fosters a sense of pride, community and opportunity as well as creates resiliency over the long-term. Condo homeownership is a critical piece in that fabric.”
Courts Weigh In, May Impact Next Session
In addition to the work being done by cities, a recent ruling by the Colorado Court of Appeals has upheld arbitration as a tool to resolve a dispute among owners and builders—one of the same concerns the legislation aimed to resolve.
The ruling has been appealed to the Colorado Supreme Court. The court has yet to announce whether it will hear the case.
However, advocates were buoyed by the ruling.
“Assuming that ruling stands we’re much farther down the road of progress than we thought we were before,” Murphy said.
Supporters are hopeful the ruling and the city ordinances will coalesce momentum at the Capitol and help advance a bill, particularly one that will allow builders to fix issues.
“The right-to-repair issue is the issue that we will continue to pursue,” said Metro Denver Economic Development Corporation CEO Tom Clark.
And, there continues to be a strong sense of urgency. Leaders warn that without a full range of housing options, the region’s growth could be stifled.
“If we do not quickly find a way to make Denver affordable for people of all income levels to live, we’re going to start to feel it economically,” Lafferty said. “In order to attract and retain employers, we need affordable housing for their workforce.”
For some neighborhoods, such as Denver Union Station, whose development seemingly happened overnight with the resurgent interest created by the renovation of the station, it may be too late.
“It’s unfortunate (the neighborhood was built) during a window of time when for-sale condo buildings were out of favor because of some misaligned legislation,” said Falcone, CEO and founder of Continuum Partners, which with East West Partners developed area. “We can’t recreate that moment in time. It’s gone now.”
But, supporters continue to urge a statewide solution, and they’re confident they’ll find one.
“We’ve gained so much ground from when we started,” Clark said. “There is an inevitability that we’re going to get there.”
Sara Crocker is communications manager for the Denver Metro Chamber of Commerce.