Condos Provide More Than Lock and Leave
Union Station's The Coloradan tops out and achieves $150 million in sales
Home prices continue to climb and inventory is at an all-time low. Low inventory is a particular concern when it comes to condos, as there are very few developers actively building condos in Denver today, despite clear demand and recent reforms by Colorado lawmakers that should encourage such development — or at least not stifle it. Historically low inventories in condominium resales are a clear indicator that more condominiums could be supported.
In 2016 and 2017, condo construction represented just 6.7 percent of the residential homebuilding activity in the Denver area, according to Metrostudy. While this is up from 2015 numbers, it is still well below current buyer demand. With Denver’s surging population, this demand will only increase, particularly among millennials and baby boomers looking to downsize.
During much of the last decade, conventional wisdom was that a fundamental shift had occurred in the home-buying habits of the next generation, and that extensive rental demand would continue as millennials began to build families. Historically, new homebuyers rented for some period while building the equity to purchase a home, and some assumed this transition would not occur this time.
We have now seen that this is not the case. Apartments certainly serve a purpose for a large piece of the market in Denver and there are many benefits to renting, particularly if you have variability in your personal or professional life. The limited commitment of renting allows for flexibility.
One of the problems with renting, however, is you are subject to the whims of the market. For the last eight years, the monthly cost of living in Denver has gone up substantially year over year. According to the Apartment Association of Metro Denver, from 2013 to 2016, rents increased 30 percent metro-wide and other studies since have stated that rents have continued to increase substantially. An increase of that size is hard to stomach and for many means having to move, downsize or find a roommate. For others, that has meant leaving the neighborhood they chose in the first place.
However, if you owned a condo or a home, you would instead have seen your equity increasing in that same timeframe. While the purchase of a home shouldn’t be viewed entirely as an investment, ownership is often still a protection to allow you to stay where you are when the cost of living increases. In addition, in a rising cost environment, to the extent you do need to move within the same city, you will likely have preserved value to allow you to move to another location within the same market.
Much of the attractiveness of renting also relates to the fact that many of the most popular products are in urban or otherwise walkable environments. What truly cements the appeal of a home is a combination of community, lifestyle and dynamic social experiences. This has proven popular to all generations, but increasingly empty nesters. This group often determines that as they simplify their lives, they would like to live in areas that have more age diversity, and enjoy the vibrancy of living downtown for the walkability and entertainment they can access. This provides an increased feeling of belonging and connecting with community.
Housing price stability is also important for smart urban growth. Denver has stated its commitment to grow public transportation usage and enable alternative transportation modes such as cycling and walking. Given that, we need to provide more permanent home ownership opportunities in downtown as well as around transit centers in the suburbs. Condominiums are the most efficient way to do this. The Union Station neighborhood is a perfect example, with the transit hub providing flexibility to live downtown with access to other areas of the city via heavy rail, light rail and bus rapid transit. A condominium near transit offers many of the same benefits of apartment living – a lock and leave lifestyle –with the benefits of ownership as well.
One factor that will continue to increase demand for condos is how people live today. In the early 2000s condo heyday, many developers and buyers thought of condos as stacked single family homes and the home itself was the focus for all of the amenities. But many buyers today are eager to connect with neighbors and friends as well as the surrounding city. This changes not only the living spaces, but also the amenities, which are increasingly designed around interaction. For example, East West Partners saw the trend in its infancy with the development of the Glass House in 2006, but it’s even more true today, as people are looking to take advantage of where they live and to develop deeper connections with the surrounding environment and people. At The Coloradan, the developer has added spaces for people to connect, and even attached the building itself to the bridge over the train platform to bond buyers to the community and the community to The Coloradan.
While condo development may not be rising as quickly as demand requires, developers are sure to catch up soon. The key will be, as with all real estate, the right place. East West Partner is excited about locations that are at the heart of activity and transit, like its Coloradan development in Union Station, believing this is the nexus of what buyers desire. Observing firsthand that the demand is there, it is with that belief that smart developers will meet this challenge with a product that serves the needs of today’s buyer.
Amy Cara is the managing partner of East West Partners Denver.