Colorado Is Experiencing Residential Growth, But Uncertainty Could Temper That
The past 10 years has brought population growth to Colorado, which many associate with Amendment 64, or the legalization of marijuana, along with an overall flat interest rate. The new issue is whether Colorado can sustain this growth, despite the heavy focus on affordability.
So far, however, the state has experienced continued growth in population, income and multifamily sales volume, according to CoStar. Tapestry Segmentation also reports a median household income in the Greater Denver area of $76,094, which is 28 percent higher than the national figure reported by the U.S. Census. The Denver multifamily market is enticing to tenants as many view the option to lease as an easier path than purchasing a home. This, in turn, has enticed investors and developers to build due to demand. Investors also see opportunity in converting apartments to condos when the market shifts.
At the same time, there are concerns that the Federal Reserve’s Interest on Excess Reserves (IOER) policy could present uncertainty to the overarching environment. The intention of the IOER policy is to allow banks to have a lower reserve, which is intended to remove the volatility of interest rates. However, many experts are questioning if this could lead to future issues in lending capability and affordability, resulting in an erosion in sales.
Investors may also be cautious due to government and legislative changes, such as the Colorado construction defects statutes, municipal growth restrictions and the City of Denver’s green roof requirements. Even if the statistics indicate population, income and sales are increasing, these cautionary factors can negatively impact the economics of the multifamily marketplace, causing a negative impact to affordability and the market as a whole.
I anticipate the multifamily market to remain stable in 2020 as there are no significant factors to indicate a decline, and investors may hold steady due to this being an election year.
— By Doug Jennings, president, RE/MAX Commercial. This article first appeared in the February 2020 issue of Western Real Estate Business magazine.