New Construction Economics Work Against Home Affordability In Fort Collins
There are a lot of people wanting to buy homes in Northern Colorado right now. The problem is there’s not many for sale.
This might seem like a great business opportunity for developers. Build more houses, and the buyers will come. A proposed development next to the Dry Creek neighborhood in northeast Fort Collins shows that the situation is more complicated than that.
The proposal is to transform a field of grass into a new neighborhood called Timbervine. It will be "pretty similar to Dry Creek," said developer Landon Hoover of Hartford Companies.
There will be one important difference: home prices.
Dry Creek's homes – mostly three-bedrooms between 1,600 and 1,900 square feet – were purchased by many first-time buyers for well under $250,000. At Timbervine, though, Hoover said he will struggle to bring the homes to market for under $300,000.
This is leading to a mismatch in the supply of new homes and the demand for them. The majority of buyers in the Fort Collins market are looking for houses priced between $200,000 and $300,000.
But rising costs in the housing industry have made it so the finances for building those homes don't always pencil out.
Things like curbs, gutters and utility lines have dramatically increased over the past 10 years, said Russell Baker, a land broker with DTZ Real Estate in Fort Collins.
"We've seen a 30 to 40 percent increase in the cost of those since the 2005, 2006, 2007 markets, when those were a lot more affordable," said Baker.
Labor also costs more. During the Great Recession, a lot of contractors switched jobs or moved out of state. The shortage means developers have to pay more for workers.
Then there's water. It's a precious commodity, and new developments have to pay for water shares. Water has been getting scarce as the region's fast growth sucks up the supply.
"Within the last two years we've seen over a 100 percent increase in those costs depending on what [water] districts you are in," said Baker.
Add up those increases in costs, and to turn a profit, developers have to charge more. According to Hoover, the days of the sub-$300,000 new home in Fort Collins are nearly over.
"If it already isn't happening it will be in the next 3 to 5 years where it is really impossible to find a new house for under $300,000."
What does this mean for first-time homebuyers and middle income purchasers who can't afford to pay more?
It means they may continue to have difficulty finding a home. Instead of getting a single-family property, they may have to settle for a duplex. Or they may have to go further afield in search of something they can afford, to some of the areas outside of the city.
The town of Fort Collins knows it is facing a housing affordability problem. A recently released study on housing costs from the town's office of social sustainability found the city doesn't have a lot of tools to address the issue.
City council member and mayor pro tem Gerry Horak said one way the city can get involved is on the rental side of the equation. The city can't influence housing costs that much, but it can waive or reduce development fees, encouraging certain types of development. Horak said the city gets the most bang for its buck by doing this with multifamily developments and apartments.
If more desirable rental properties are built, this might end up freeing up some existing single-family homes that are currently rented out. Those properties could become owner-occupied homes again, said Horak.
"I believe, by increasing that, you are going to get more people moving out of neighborhoods and more neighborhoods changing into single-family houses and those are the houses currently that sell between 200 and 300-thousand."
That's happened in Horak's neighborhood. The street he lives at used to have four rental properties, single-family homes. Three of those have sold.
"We're down to one rental [now]," he said.
It's not the fastest way to build up the supply of more affordable houses in Fort Collins. For now, though, every little bit helps.