DENVER | Main Development Thread #6

[DenverPoke]

I post on this quite a bit because I take a walk by the site a few times a week, but anyway, Eviva Cherokee seems to be a go. New fencing up, all concrete posts taken out, a couple of backhoes, even 2 portalets on the lot. :-)

[corey]

That Denver Civic Center Park photo is really old

[RyanD]

Originally Posted by TakeFive

Nice find. That's not a bad image of Denver either.

I like some greenery in my Civic Center photos!


Civic Center - 09 by Ryan Dravitz, on Flickr


Civic Center Flowers Capitol by Ryan Dravitz, on Flickr

[mhays]

Originally Posted by Denverite

The reality is, the Denver market is overpriced given the cost of living, wage rates, and product quality. I realize it's dictated by demand, but it doesn't mean the price is worth it.

Prices tend to align more closely with development cost than demand, in a reasonably balanced market. If prices are too low to justify construction then they don't build. If prices are too high, developers will flood the market and prices will come back.

Wages are a factor but also not a defining one. If people want to live in a city badly enough, some of them will pay more of their income for housing, and/or take roommates and so on.

On the sound issue, I agree that woodframe is the worst. But I also agree that improperly installed wood flooring (it should sit on a barrier) is a nightmare in a concrete building.

[Denverite]

Originally Posted by mhays

Prices tend to align more closely with development cost than demand, in a reasonably balanced market. If prices are too low to justify construction then they don't build. If prices are too high, developers will flood the market and prices will come back.

Wages are a factor but also not a defining one. If people want to live in a city badly enough, some of them will pay more of their income for housing, and/or take roommates and so on.

I tend to think it's a bit more complicated than that, at least for metro-Denver. Yes, certain materials can and do cost more to haul to Colorado, but such a high volume of materials is being ordered and stockpiled for some of these really large subdivision developments that the material unit costs tend to drop quite a bit to very competitive levels. I do know that labor is spread thin and some of the sub-contractors have gone into bidding wars for their services between developers. Again, how much does that play into the final price tag? I really don't think that much.

In very basic terms, it's always seemed to me that Middle Class type Denver home prices are based on 3 major factors: local economic conditions, available product, and demand. Materials and labor tend to be more incidental and fluctuate based on the factors I mentioned above.

What I don't understand is how my house, which I like, but is nothing special, could sell for approximately $365K (purchased for $100K less just a few years ago) but it's a cookie-cutter suburban house and is fairly cheaply built. My property taxes are $3200/year (a metro district tax specific to my subdivision is set to expire in 2017 dropping my property taxes to around $2200). When my wife and I watch House Hunters and word-of-mouth from friends in different parts of the country, the amount and quality of home a person can buy for what we could sell for is amazing. Suburban areas in cities throughout Texas & Florida, Atlanta, Phoenix, Minneapolis, etc. many of the houses run in the upper-100s to mid-200s and, by all accounts, look amazing - both exterior and interior.

As a quickie example, according to Zillow, DFW Home Value Index is $162,200, Denver's is $297,700, and both have "very hot" markets, and homes in Texas sure look nice for the price. Now, the running joke is "well, then you have to live in Texas", but considering that Texas is one of the best economic engines in the country, I would assume demand is high, so how is it that home prices are running about 50-75% of Denver's prices while also seeming to have superior product? Utility costs often seem to be less in other markets as well.

Overall, It seems to me Denver's pricing is due to high demand in a market with low product. Which in turn brings out the developers who produce cheap product on a near-impossible-to-meet schedule in order to maximize profit. There's no question that a huge chunk of this is due to the pot thing. When the weed thing finally goes national, Colorado may be on the verge of a bursting bubble, and left with stick-built falling-apart apartments that smell like pot. I hope not, though.

D.

[corey]

Denver is a much more appealing place to live than all of other cities you listed. Denver has always been considerably more expensive than those cities as well. Colorado gets tons of tourists every year because it is a great place. I don't think legal pot is the main force behind the hot housing market. The positive national publicity we have gotten in general has had an effect though. I think Denver deserves to be in the top 10 of highest priced housing. What makes the other more expensive cities worth their exorbitant prices? I do think prices will increase much more modestly from now on, which is good.

[corey]

Ryan, those Civic Center photos are beautiful! I've always liked the flower beds Denver plants in all of the parks every summer.

[Denverite]

Originally Posted by corey

Denver is a much more appealing place to live than all of other cities you listed. Denver has always been considerably more expensive than those cities as well. Colorado gets tons of tourists every year because it is a great place. I don't think legal pot is the main force behind the hot housing market. The positive national publicity we have gotten in general has had an effect though. I think Denver deserves to be in the top 10 of highest priced housing. What makes the other more expensive cities worth their exorbitant prices? I do think prices will increase much more modestly from now on, which is good.

I thought it was common knowledge that the weed industry is driving the bulk of our economic boom right now. After the pot thing passed, there were three houses within smelling distance of mine that became grow operations - it reeked, I couldn't smell anything but skunk for two years. Fortunately at least two of them have been shut down and I can now smell my lawn. The house next to me has turned into an apartment complex (because kids move out here and can't afford to rent anything so people now rent out bedrooms in single-family-homes - ask Douglas County Zoning, they're saying it's epidemic of homes turning into bedroom units and complaints of grow operations on a daily basis). 4 of the 5 tenants next to me are from out of state and into weed, one works in the pot industry and leaves empty pot canisters in the yard and I just found a hash pipe a couple days ago on the sidewalk, where children play. I just had an x-ray taken today and the operator reeked of weed - nice guy, but total stoner. I get a contact high every time I drive through Englewood. My point is, the weed industry is prolific right now. There is no question our economic boom is mostly fueled by the pot thing. It's basically a free-for-all in terms of pot here. It's made a lot of people very, very rich. And a lot of other people want to move here and those that can, do. That right there is the biggest reason for the demand for housing that we're seeing.

There's a good audio interview I listened to recently about a local music/DJ promoter who laments the old days (2 years ago) when he could find and afford a wharehouse space for events. I have a personal friend who also is a music promoter and outside of proper establishments, you can't find a wharehouse to save your life. They're all converted into pot farms for the weed industry and their rents are sky high, so even when you can find a wharehouse, the rent is too damn high. The rent is too damn high!

[DownhomeDenver]

Originally Posted by Denverite

As a quickie example, according to Zillow, DFW Home Value Index is $162,200, Denver's is $297,700, and both have "very hot" markets, and homes in Texas sure look nice for the price. Now, the running joke is "well, then you have to live in Texas", but considering that Texas is one of the best economic engines in the country, I would assume demand is high, so how is it that home prices are running about 50-75% of Denver's prices while also seeming to have superior product? Utility costs often seem to be less in other markets as well.

D.

What you fail to mention is that DFW's property taxes are outrageous. A 90k condo is going to cost you what you're paying in property taxes now--before your metro district expires.

There's nothing overly superior about build quality in other parts of the country.

Texas' utility prices are also not all that great. They brought in competition years ago and they're still paying more than what we pay here.

[DownhomeDenver]

The Bizjournal and DenverUrban Review have both articles about RTD's Civic Center Station Redo!

http://www.bizjournals.com/denver/blog/e...ges-in-store-for-rtd-s-civic-center.html

and

http://denverurbanreview.com/2015/06/rtd-plans-renovations-for-civic-center/

[Denverite]

Originally Posted by DownhomeDenver

What you fail to mention is that DFW's property taxes are outrageous. A 90k condo is going to cost you what you're paying in property taxes now--before your metro district expires.

Texas' utility prices are also not all that great. They brought in competition years ago and they're still paying more than what we pay here.

I've heard that TX property taxes are high. Had no idea it is that high though. if it's based on your assessment, I couldn't afford the same house price there then. LOL.

My power is through IREA and it is less expensive than XCEL, but I could do without their right-wing propaganda in their monthly newsletter. Water-Wastewater is pretty high out here, but other municipalities seem to be catching up.

It probably equals out, I suppose.

[bcp]

Speaking of which...shameless promotion. ...selling my home in my first project. Ping me if you want the SSP discount!

http://www.dwell-denver.com/listing/cms/httpwwwdwell-denvercomlistingcms150/

[mhays]

Originally Posted by Denverite

I tend to think it's a bit more complicated than that, at least for metro-Denver. Yes, certain materials can and do cost more to haul to Colorado, but such a high volume of materials is being ordered and stockpiled for some of these really large subdivision developments that the material unit costs tend to drop quite a bit to very competitive levels. I do know that labor is spread thin and some of the sub-contractors have gone into bidding wars for their services between developers. Again, how much does that play into the final price tag? I really don't think that much.

In very basic terms, it's always seemed to me that Middle Class type Denver home prices are based on 3 major factors: local economic conditions, available product, and demand. Materials and labor tend to be more incidental and fluctuate based on the factors I mentioned above.

What I don't understand is how my house, which I like, but is nothing special, could sell for approximately $365K (purchased for $100K less just a few years ago) but it's a cookie-cutter suburban house and is fairly cheaply built. My property taxes are $3200/year (a metro district tax specific to my subdivision is set to expire in 2017 dropping my property taxes to around $2200). When my wife and I watch House Hunters and word-of-mouth from friends in different parts of the country, the amount and quality of home a person can buy for what we could sell for is amazing. Suburban areas in cities throughout Texas & Florida, Atlanta, Phoenix, Minneapolis, etc. many of the houses run in the upper-100s to mid-200s and, by all accounts, look amazing - both exterior and interior.

As a quickie example, according to Zillow, DFW Home Value Index is $162,200, Denver's is $297,700, and both have "very hot" markets, and homes in Texas sure look nice for the price. Now, the running joke is "well, then you have to live in Texas", but considering that Texas is one of the best economic engines in the country, I would assume demand is high, so how is it that home prices are running about 50-75% of Denver's prices while also seeming to have superior product? Utility costs often seem to be less in other markets as well.

Overall, It seems to me Denver's pricing is due to high demand in a market with low product. Which in turn brings out the developers who produce cheap product on a near-impossible-to-meet schedule in order to maximize profit. There's no question that a huge chunk of this is due to the pot thing. When the weed thing finally goes national, Colorado may be on the verge of a bursting bubble, and left with stick-built falling-apart apartments that smell like pot. I hope not, though.

D.

You're making this too complicated. If the market was overpriced vs. development cost, there would be a much larger building boom.

[DenverInfill]

Ryan and I appear in a new Bloomberg Business article about Denver's rent crunch: http://www.bloomberg.com/news/articles/2015-06-24/where-are-all-the-middle-class-rentals-

Also, you might like this article in the Atlanta Journal Constitution. It's doing a year-long series on Atlanta's future and it's poor record on regional cooperation. It recently featured this article on Denver and our relative success in regional cooperation: http://atlantaforward.myajc.com/denver/

[bunt_q]

You're assuming a balanced market. If there is no development possible that meets market demand, the result is a rapid inflation of housing costs. That's why $200k houses have become $400k houses in less than five years, and that's no exaggeration. And they'll become $600k houses, because we can't build for less than that, pricing in litigation costs.

Sure, we can build rental, but that's a different market. Many people are not choosing to rent, they are renting because there is simply nothing to buy. And nothing being developed (except for on the outskirts, but that too is a different market). When you have such a backlog of buyers, every time a house hits the market, you see bidding wars, leading to $10k price jumps overnight. That is not the market being the market. That is the behavior of a market with an artificial supply ceiling.

It has nothing to do with development costs. It doesn't inherently cost $700k to build a condo in Denver. But we have seen not s single unit built - not one - under that price point in years. That's the litigation premium. We lawyers like to get paid, and paid well.

[bunt_q]

Originally Posted by DownhomeDenver

What you fail to mention is that DFW's property taxes are outrageous. A 90k condo is going to cost you what you're paying in property taxes now--before your metro district expires.

Metro districts don't "expire," haha. In some circumstances, they dissolve, but that's pretty unusual. Their bonds get paid off, that's what drops the mill levy. However, they can always issue more debt, most of these have TABOR authorization enough for many hundreds of millions more than they ever issued (at least any district I ran the election for does), so be careful.

[Scottk]

Originally Posted by Denverite

I thought it was common knowledge that the weed industry is driving the bulk of our economic boom right now. After the pot thing passed, there were three houses within smelling distance of mine that became grow operations - it reeked, I couldn't smell anything but skunk for two years. Fortunately at least two of them have been shut down and I can now smell my lawn. The house next to me has turned into an apartment complex (because kids move out here and can't afford to rent anything so people now rent out bedrooms in single-family-homes - ask Douglas County Zoning, they're saying it's epidemic of homes turning into bedroom units and complaints of grow operations on a daily basis). 4 of the 5 tenants next to me are from out of state and into weed, one works in the pot industry and leaves empty pot canisters in the yard and I just found a hash pipe a couple days ago on the sidewalk, where children play. I just had an x-ray taken today and the operator reeked of weed - nice guy, but total stoner. I get a contact high every time I drive through Englewood. My point is, the weed industry is prolific right now. There is no question our economic boom is mostly fueled by the pot thing. It's basically a free-for-all in terms of pot here. It's made a lot of people very, very rich. And a lot of other people want to move here and those that can, do. That right there is the biggest reason for the demand for housing that we're seeing.

There's a good audio interview I listened to recently about a local music/DJ promoter who laments the old days (2 years ago) when he could find and afford a wharehouse space for events. I have a personal friend who also is a music promoter and outside of proper establishments, you can't find a wharehouse to save your life. They're all converted into pot farms for the weed industry and their rents are sky high, so even when you can find a wharehouse, the rent is too damn high. The rent is too damn high!

And they said marijuana legalization wouldn't have a negative impact on Colorado.

Saw an article in the Denver Post a few months ago that said homelessness in Denver significantly increased after the marijuana legalization because homeless people were moving to Denver for the legal weed.


I am 100% pro legalization, but there is no denying that weed has caused some shitty people to move to Colorado. It seems like I meet someone ever week who moved out here "for the weed." Whenever I am out of state I invariably meet some bum / scrubby person who upon learning that I am from colorado tells me that they are "trying to make it out there."

[corey]

What ScottK said about legal weed is why I don't think it has been the main driving force behind the rapid increase in home prices. Sure some people who smoke lots of pot with money to buy a home have moved here. They apparently found a good job here and we're able to move. However, a lot of people who moved here just for legal weed did not buy a house. They rent, crash at someone else's place, or are homeless. Denver and Boulder in particular have always had a lot of transients. The funny thing is that legal weed is a lot more expensive than what you buy off the street, I hear. So a lot of the transient potheads are not buying pot from the retail shops. I guess the fact that they won't get busted for possession, etc and the general pot culture are the attraction. Low unemployment, high quality of life are the main reasons for the real estate boom. I read a CNN article about how pot was the driving force. But in typical CNN fashion, they did not back anything up with facts, studies, etc.

[Denverite]

Originally Posted by corey

What ScottK said about legal weed is why I don't think it has been the main driving force behind the rapid increase in home prices. Sure some people who smoke lots of pot with money to buy a home have moved here. They apparently found a good job here and we're able to move. However, a lot of people who moved here just for legal weed did not buy a house. They rent, crash at someone else's place, or are homeless. Denver and Boulder in particular have always had a lot of transients. The funny thing is that legal weed is a lot more expensive than what you buy off the street, I hear. So a lot of the transient potheads are not buying pot from the retail shops. I guess the fact that they won't get busted for possession, etc and the general pot culture are the attraction. Low unemployment, high quality of life are the main reasons for the real estate boom. I read a CNN article about how pot was the driving force. But in typical CNN fashion, they did not back anything up with facts, studies, etc.

First, there's no question had the pot thing not passed that we'd see more modest cost-of-living increases than we are. Secondly, I'm not anti-weed and it's worth noting that not all potheads are dysfunctional, including many that are moving here. I just am disappointed with what I am seeing and didn't quite expect it to get to be so out of hand. I wished that there was more state oversight, with a cap on pot shops. I'm sure you're all aware that there are more pot shops than Starbucks in Denver. That's weird.

The way it's generally been going is: potheads move to Denver from all over the country, demand for rentals and home buying rises higher than expected due mostly to the influx of people into the pot-related industry. And because product is still really low, particularly since home-building nearly ceased altogether for several years after 2008, prices go up. Now, we do have a lot of new business in the Tech Center like Schwab, etc. so, there's no question that too is adding to the demand. A lot of locals / natives that we know saw the writing on the wall and vacated rentals and bought, even just recently. Part of their decision was based on other rental units opening up, potheads move in, and people sitting on balconies smoking weed. We have friends who lived in an apartment complex who just had a baby. The people below would sit on their balcony all the time smoking pot and the smoke went right into their home. If you don't like pot, it's a good idea to buy a house to try and escape the effluent.

We may disagree on just how much the impact weed has had on our economy, but one thing is for sure, it made a huge difference. In my opinion, it's a net negative. And I'm a lefty progressive who voted for it.

D.

[Denverite]

Originally Posted by mhays

You're making this too complicated. If the market was overpriced vs. development cost, there would be a much larger building boom.

That's just not true in our case. Again, does it play a role in cost? Sure, but a small one. Not to mention, I'm not sure the building boom could be any bigger when it comes to suburban subdivision development. Not to mention rental units are popping up all over C&C Denver. I've not seen anything like it before. I've found that the economics of development rarely goes by the book.