Quote:
Originally Posted by mhays
I (still) bet the largest issue with condos is that values aren't high enough. Defect law makes them more expensive of course, and it's a problem. But if values rise enough, I bet they get built.
buyers will see more benefit to locking up a place and a price early.
The second problem is that the old "presale" method isn't trusted by buyers/financiers/developers, so you can't finance them that way yet. You need a ton of equity, then you get a smaller loan based on selling during/after construction. Not many developers can do this. Again, things will loosen up when condo values are higher. When that happens,
A third problem is that construction costs are rising quickly. In my area it's looking like around 5% annually for construction. Don't know for Denver but it might be similar. It'll get worse as the rest of the country improves, which will exacerbate today's lack of construction people on the technical and trade sides (our cities are currently living off migration of construction people from other regions). Land costs are probably rising even more quickly than 5% in Denver. Condo values need to rise even faster than 5% annually to overcome these and the other issues.
A fourth problem is that rentals are profitable. A developer will often choose the safe, easy path.
A fifth problem in Denver's case is the oil question. Regardless of how diversified the city has become it's a big sector, including whatever multiplier.
On the bright side, interest rates are incredibly low again, Denver probably has a lot of pent-up condo demand, and the city overall is getting better every year, which becomes a self-sustaining upward spiral.
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It's different here, none of those "normal" factors are really driving. Any and every developer locally would disagree with you. Insurance is impossible. I've got one client doing massive amounts of over-ex where the geotech says the soils are absolutely fine and it's not needed (engineer just throws up his arms). Folks are acting straight up paranoid - it's basically 100% you get a defects claim on every single project. It's a real world problem, not just academic anymore.
Yes, at high enough price points ($600k+ probably) you can get it done, and we're seeing a couple hundred of those. But that's the entire condo segment right now. It's under, what, 3% of building permits now are for-sale multi-family housing? That's not natural, it was 7-times that before the recession, when the urban market was much less strong than it is today. Land costs aren't a factor outside of the urban core, and outside of the urban core there are exactly zero units under construction.
I just hope the bill passes, that's all.
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