Waves of Change in the Homebuilding Market

Single family rental units are becoming mainstream. Off-site building solutions are gaining momentum. And Denver's homebuilding industry is expected to remain strong for the next several years. These are just a few of the key takeaways from the recent Vectra Bank Homebuilder Breakfast, where Metrostudy 's John Covert gave local builders a recap of 2017 and look at what to expect in 2018.

Colorado continues to have a problem with too many people looking for single-family homes and not enough homes to purchase. That, and the state's high home prices, are driving demand for rental, paired and condominium housing options. Demand will remain high for a few more years so production of all kinds is necessary and will continue with no immediate relief in the future.

Of course, changes to tax law will have impacts we cannot foresee, but the message from Metrostudy is that because of rising production costs builders are going to have to create organizations that are different from today to survive. New players will continue force builders' hands towards more efficient production. One of the benefits to off-site production is that it can be running 24/7, 12 months a year. Another change for the industry is diminishing customization, as customers demonstrate that they are okay with fewer choices. As an example, Oakwood Homes new American Dream home is 1,000-1,500 square feet and all built off-site.

It might be hard to grasp that there are enough people to fill all those rental units being built where construction cranes dot the Denver downtown landscape, but believe it or not, today Denver is undersupplied for housing by 4 million units. Yes, you heard that right.

For those that can afford the $500K plus average home price or in some cases upwards of $600K townhome, the resale market is very strong. Demand is extremely high. Because there are so few resale listings, people who can afford a single-family home are having to consider the new home market.

In 2017, there was an only a 12 percent difference in sales volume between the new home versus resale home markets. That's the narrowest margin in Denver history. Single-family home starts increased by only 22,000 since last year, simply due to lack of dirt to build on. That is in part why the townhome and duplex markets are up 25 percent. Less attractive and remaining flat, condominium sales have increased to just over 7 percent. In Denver today, 68 percent of home starts are single-family detached, which means one of every four homes are attached.

As young people looking to purchase their first home move out of the expensive urban center of Denver, one of the areas expecting some of the largest growth is Aurora. When Stapleton's last home is completed in about four years, all those homebuyers will be pushed to Aurora, where infrastructure is already in place thanks to Denver International Airport's (DEN) development and areas like The Gaylord, with unlimited capacity to grow. New homebuyers should not be expecting a bargain, however; areas around DEN will be more expensive than thought. With ample amenities, schools and parks, homes are expected to range from $450K and up.

Those who can't afford to move, or choose not to, are remaining in their homes and remodeling them. Whatever Denver residents choose, it's all good for the home building industry, for years to come.