Housing the low income

“We’ve never done a very good job of housing extremely low-income people and families and helping to move them out of poverty."”

Heidi Aggeler, managing director and co-founder of Root Policy Research, a Denver-based community planning and housing research firm.

Why we use the median sales price

According to Matthew Leprino, a spokesperson for the Colorado Association of Realtors, using the median sales price rather than the average proves to be more indicative of the housing market than the average.

He said the high and low end prices of homes usually skew the average.

“There's a bunch of $600,000 houses, but there's one that sells for $200,000 and one that sells for $25 million, that average is totally skewed. But if you use the median, it's going to pick up all the $600,000 houses. That's a lot more indicative of what's actually happening,” he said.

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A home means everything to Shelley Gilson, a 50-year-old single mother of three girls who works as a guest service agent at an airline. 

“It’s one word: priceless,” she said.

The rising cost of housing in the Denver area has made it difficult for her to afford a home. She spent years bounding around working for low pay, including to several affordable housing communities across the state. 

Eventually, more than a decade ago, she found a home at Orchard Crossing Apartments in Westminster. It is an affordable housing community that includes voucher-based housing, a federal government program that provides vouchers to low-income families, the disabled and elderly so that they can afford housing.

From work to school to neighborhood events, the program has created a way for Gilson’s family to be a part of a community. With housing and communities come resources, though not all are created equal.

Gilson explained her prior communities were predominantly made up of people of color and people of a lower socioeconomic status, which systematically led to a lack of accessible resources like academic opportunities and mental health services.

That’s why she moved to Westminster, where she has lived for 12 years. 

“I wanted my kids to have a stable education and stable housing,” she said. 

It’s not just low-income residents who struggle to afford housing. Across the metro area and along the Front Range, rising inflation and mortgage rates, a long-term building slowdown and increasingly crowded cities and towns have combined to create what some observers and experts say is a housing crisis. 

More and more people throughout the metro area are finding the cost of renting or buying a home eating up significant portions of their budgets.

“That’s the No. 1 reason that people move, is they can’t keep up with their rent (and) utilities payments,” said Heidi Aggeler, managing director and co-founder of Root Policy Research, a Denver-based community planning and housing research firm.  

There’s a term for it: “cost-burdened,” which describes households paying more than 30% of their income on housing. A little more than 700,000 households in Colorado are cost-burdened, most of which are renters, according to a November 2021 report from Root Policy Research. 

“We’ve never done a very good job of housing extremely low-income people and families and helping to move them out of poverty,” Aggeler said. “We’ve never had enough resources to adequately address that.”

People who make $25,000 or less a year have long faced a housing crisis on some level, Aggeler said. But now, the number of people who make more money and are feeling the pinch of high housing costs is growing. 

It has become increasingly common for middle-income households with incomes of roughly $35,000-$75,000 to experience cost burden, according to Root Policy Research.

As long as Colorado continues to be an attractive place for people to move to, invest in and retire, Aggeler thinks housing challenges will continue. 

There are also too few options for would-be buyers. Many find the cost of single-family homes beyond their reach but have few options a step below that, such as condos.

“If you believe that Colorado will be a place that employers will continue to want to move to, then I think … the outlook may not be good unless we accelerate production and density and fund housing at the level that is needed,” Aggeler said.

The cost of housing 

Practically every community in the metro area is facing its own housing affordability and availability issues. South of Denver, in Lone Tree, Mayor Jackie Millet said there is a “housing crisis.” 

“I think it varies in severity throughout our state, but I do think it is a problem that is affecting all of Colorado,” she said. 

Not everyone is describing it as a crisis, but those who use that word point to the numbers across the metro area, as the costs of single-family homes and townhomes have skyrocketed over the years.

Northwest of Denver, in Arvada, the median sale price of a single-family home was $667,000 as of late 2022, according to the Colorado Association of Realtors. That’s up by 71% from 2017, when the price was around $390,000.

The story is similar in Brighton, northeast of Denver, where the median sale price increased by approximately $225,000 over that period.

Littleton, south of Denver, saw an increase of approximately $300,000 in the price of single-family homes from 2017 to 2022.

Lone Tree saw an increase of $473,750. 

“What we have seen is our housing prices doubling and our wages have not been keeping up,” Millet said.

From 2000 to 2019, median rents rose at a faster rate than median renter household incomes did “in every Colorado county and city with 50,000+ residents,” according to Root Policy Research. 

Many residents want a home of their own, Millet said.

“That was our ultimate goal, and that is also the way most of us accumulated wealth,” she said. 

When the cost of buying or renting is too high, however, people cannot establish these roots, she added.

A view of housing in Lone Tree on Dec. 23, 2020. Douglas County's population grows by 24 people per day and is projected to reach more than 460,000 …

Supply versus demand 

One of the main causes of the rise in cost-burdened households and lack of affordable housing is that production has not kept up with demand. 

There was a 40% decrease in the number of homes built between 2010 and 2020 in Colorado, according to the 2022 “Affordable Housing Transformational Task Force Report.” 

Susan Daggett, executive director of the Rocky Mountain Land Use Institute, said the crash of 2007 affected housing supply. People left the construction industry and many companies went bankrupt.

“The housing market bottomed out, people left the construction industry, a lot of people went bankrupt,” she said. 

At the same time that housing development slowed, Colorado’s population grew.

“In the meantime, the population has grown tremendously and the supply just hasn't been able to catch up with that demand,” Daggett said. 

In 2010, Colorado had a population of 5,029,196, according to the U.S. Census Bureau. By 2022, the population was estimated at 5,839,926 — a roughly 16% increase. 

As of June 2021, Colorado’s for-sale housing inventory was 13% of what is needed for a functioning sales market, according to Root Policy Research’s report. A functioning sales market means there are enough units so that people can move more easily, such as being able to upsize or downsize, Aggeler said.

To return the housing market to a functioning level, Colorado would need an average of 44,250 units built each year until 2030, according to the report, published in November 2021. This would be 1.67 times the state’s current production levels.

Ted Leighty — the CEO of the Colorado Association of Home Builders, an affiliate organization of the National Association of Home Builders — said, overall, depending on who is talking, Colorado is somewhere between 175,000 to 200,000 units short of demand. 

“That’s really challenging to come back from, especially, you know, the pace by which we were able to produce new housing in Colorado,” Leighty said. 

He hates to use the word “crisis” when discussing housing in Colorado, describing it instead as a major challenge.

Leighty explained the cost pressures and challenges facing residential construction can be summarized by the “five L’s” — lumber and other building materials, labor, land, loans and access to capital, and local government. All have played roles in slowing down housing construction, especially since the Great Recession, leading to higher demand and decreased affordability.

“These are always our main cost drivers for residential construction,” Leighty said. “All five of those right now, and have been, unfortunately, for the last several years, been huge challenges for us.”

He said high lumber costs and some supply chain issues have improved marginally recently, but they still pose problems for developers. 

Also, there is a labor shortage.

“We’ve seen a little bit of uptick in (the) labor participation rate for construction, but not nearly enough,” Leighty said. “We’ve got an aging skilled labor demographic, and we haven’t done a great job replacing that labor with younger, skilled laborers.”

In addition to training the laborers of the next generation, Leighty said a “sound immigration policy” could help bring more workers to projects. 

“There’s a pretty big deficit,” Leighty said. “We need to do all we can, policy standpoint and otherwise, to increase labor.”

During the pandemic, there was a perception the housing market was hot, Leighty said. 

“It was the most challenging hot market ever on record — to source materials, to source labor, to get projects through the pipeline was immeasurable in how difficult it was,” Leighty said. 

The market cools 

But there are signs the hot market is cooling. The University of Colorado’s 2023 Business Economic Outlook found there is a slowing of price growth, as reported by the Colorado Association of Realtors. 

It is taking longer for listings to go under contract and an increase in interest rates has impacted buyers' purchasing power, the report states.

Lending issues have recently risen to the top of many homebuyers’ and homebuilders’ concerns, Leighty said, citing concerns for inflation, economic uncertainty and rising interest mortgage rates.

Imagine a $500,000 home that roughly a year ago a person could buy at a 3% rate, Leighty said. Their monthly payment might be around $2,600.

By July 2022, as rates rose to roughly 5%, the payment for the same house would rise to $3,500. That’s an increase of more than 34%.

“So, how do you get back down to that $2,600, you know, something that’s more achievable for the average home buyer?” Leighty asked rhetorically.

In December, rates on a 30-year fixed mortgage were more than 6.5%, according to Bankrate.

Higher mortgage rates caused a spike in cancellation rates for contracts in the summer, reaching above 40%, Leighty said. By comparison, in July 2021, the cancellation rate was 13% and 18% in 2019.

“By the time the home was ready, or maybe even wasn’t ready yet, they knew what their debt-to-income ratio was going to be and that it had increased immensely, and they could no longer afford it, so they canceled,” he said. 

Yet Matthew Leprino, a spokesperson for the Colorado Association of Realtors, explained there’s an upshot for some potential homebuyers. There are more homes available now than in years past as the market reacts to the changing economy.

“The story that I've been telling a lot of clients lately is, ‘Yeah, you can pay a higher interest rate now than you were a year ago, but you're paying $100,000 less for the house,’” he said.

There are more properties available now than any time since October of 2019, he said.

“It's a better time to buy now than in the last three years,” Leprino said.

A balanced market’s months’ supply of inventory stands at about four months. For the metro area, October 2022 was the first time that number hit two months or above since October 2019. 

The metro Denver area hasn’t reached a balanced market for housing since at least 2014, when the Colorado Association of Realtors started tracking that data — and Leprino suspects it’s been much longer than that. 

“Number one, houses are a lot more expensive than they used to be,” Leprino said. “Number two, there's not enough of them.”

Given the high cancellation rates and continued supply and labor disruptions, the University of Colorado’s 2023 forecast said homebuilders will "slow their new production further to survive this slowing cycle.”

“Elevated levels of housing inventory should be short-lived, which likely translates to a reset back to growth trends before the pandemic began,” the report stated. 

From 2010 to 2020, Douglas County’s population grew by 25% to just over 360,000 people.

The role of local governments and zoning 

Local governments have played a huge role in the lack of housing supply and lack of affordability in Colorado, Leighty said. 

He notes they play a role through their regulations, land use zoning and entitlement process, and their fees.

Zoning can be a significant factor in the housing issues people see today, Aggeler of Root Policy Research said. It refers to when a city or county divides its land into different sections and designates an intended use for each, such as industrial or residential development.

“Really, the problem, it’s very simple: There’s a scarcity of housing for people of all income levels," said Pat Cronenberger, vice chairperson for South Metro Housing Options, the City of Littleton’s public housing authority.  "Colorado is a popular place. People want to be here, and we have restrictive zoning laws that really don’t make it easy to build housing.”

“And that’s all contributed to high rents and big, skyrocketing home prices,” she said. 

One of the more controversial zoning issues across the metro area is how dense a city can build. 

“People are very afraid of adding units, very afraid of density — and I think probably overly so,” Aggeler said. “We should be zoning artfully, in a way that preserves what we love about communities but also provides opportunity for other people to live there.”

Leighty said some local elected officials have expressed concerns that if they approve denser housing units, they could be recalled “because there’s so many people that believe we have — we’re growing too fast.” 

“But the numbers belie all of that,” he said. “Our net migration is still positive.” 

Net migration refers to the difference between the number of immigrants and the number of emigrants throughout the year.  

“That’s how you’re going to attack this issue, right, is allowing greater density — taking down the land costs a little bit by being able to do more with less as far as more construction on less land,” Leighty said. “Zoning plays a huge role in our ability to bring new product on the market.” 

A lot of communities in Colorado are mostly single-family homes, resulting in lower density and forcing developments to sprawl out.  

With the dominance of single-family homes, many communities in Colorado face a “missing middle,” meaning there are not a lot of diverse housing options such as townhomes, cottage courts, accessory dwelling units and duplexes. 

Part of the reason for that is because of a policy change, Leighty said. 

“We made it really, really easy to sue for what they call ‘construction defects’ on multifamily for-sale condominiums,” he said.

Multifamily for-sale condominiums went from roughly 20% of the market, going into the recession, to about 2% of the market by 2017, Leighty said. By 2019, it rose to about 12% of the market, but then the pandemic hit. 

“If you kept that 20% pace of condominiums, you wouldn’t be in the same situation you are now. You wouldn’t necessarily be in market equilibrium, right? But you wouldn’t be … 200,000 units shy either,” Leighty said. 

Condominiums are a really important product, he said, as they provide places for young professionals and families to achieve homeownership and for empty nesters to downsize. 

“That product has been absolutely missed in this marketplace and it has certainly contributed to our inability to keep up with demand,” Leighty said. 

Lone Tree Mayor Jackie Millet said in 2004, she served on the city’s planning commission and approximately 20% of the new buildings were condos. 

“To my recollection, in Lone Tree, we haven’t seen one in probably 15 years. And the ones that are being built in the metro region are either — they’re very, very expensive,” she said. “That was our supply of entry-level housing, and it is no longer being produced.” 

Millet thinks the construction-defects law played a significant role in the supply of the entry-level housing market. She also knows of residents who wish to remain in the community and want to downsize, but cannot find any affordable options.  

Typically, Millet believes the markets should resolve the issues themselves. 

“But in my opinion, the markets have been corrupted by a number of things,” Millet said. “And so I do feel at this point, we must do something other than just complain about it, because we’ve seen it increase as a priority issue for our residents and our businesses.” 

“If we just keep complaining about it, which is what we’ve been doing, without taking any kind of action to increase the supply of housing that people can afford, the problem is just going to get worse.” 

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