Denver-area home permits lowest on record

Home-building activity in the Denver area has all but come to a halt.

“In our history, we haven never seen so little new construction,” said Roger Reinhardt, executive vice president of the Home Builders Association of Metro Denver. Fewer than 2,000 single-family home permits have been issued in the eight-county area in the first nine months of the year.

Fewer building permits will be issued this year than during the previous low set in 1989, when the metro area was in the earliest stage of recovery of what had been the worst housing downturn in Denver’s recent  history, until this most recent economic crash that has swept the nation for the first time since the Great Depression.

The downturn in Denver two decades ago was caused by a fall in oil prices when Denver’s growth was being fueled by energy jobs. That led to  overbuilding at a time when jobs were disappearing in Colorado and there was a population exodus to other states, such as California, where the economy was still booming.  The most current world-wide downfall, of course, started with a collapse of housing  and  credit markets.

The most recent data from the HBA of Metro Denver shows that only 1,787 single-family home permits in the eight-county area have been issued in the first nine months of the year, a 44 percent drop from the 3,167 permits issued in the first three quarters of 2008.

Townhomes and condominiums, meanwhile, have shown even more severe drops.

There have only been 483 permits issued for attached housing in the first nine months of 2009, a 58.8 percent drop from the 1,171 permits issued during the same period last year.  Permits indicate how many housing starts a market can expect.

“I think we are likely to see about 3,000 permits issued this year,” for homes and condos, Reinhardt said. “We have never seen so  few permits issued.”

Builder pulled 4,903 housing permits 20 years ago, during the previous low. The population in the metro area has risen about 50 percent since the 1989 low.

Reinhardt said the primary reasons that building permits have fallen so dramatically during the past two years is  because there “are not lot of jobs out there, and very few new ones are being created; there’s not a lot of family formations; and there is still a huge lack of consumer confidence.”

And even if someone is confident enough about their  job to want to buy a home, it has never been harder to get a loan, Reinhardt said. It’s also almost impossible for builders, especially small builders, to get loans to construct homes, even if they think the demand exists.

“Banks are getting a huge amount of federal stimulus money, but they won’t, or can’t lend it out,” Reinhardt said. “They are afraid to lend because they don’t want to run afoul of bank regulators who want them to shore up their balance statements. And banks want to see an improvement in the economy before they lend. There’s not a bank in this country who will give a builder a loan for a spec home.”

Next year, Reinhardt expects about 5,000 permits to be issued in the metro area, which includes Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Elbert and Jefferson Counties, as well as all of the communities in the counties.

During the past 20 years,  “We traditionally would see 11,000 to 12,000 permits in a typical year,” he said. “Nationally, especially with the extension of the tax-credits,  some experts are predicting we’ll  see a jump of 40 percent in starts next year.  Some experts are even looking at a 60 percent jump. But relative to where we have been, even if we do increase 50 or 60 percent, we will be no place near what we used to call a ‘normal” market.”

Local housing consultant S. Robert August said that he expects a surge in home building activity in the Denver area next year.

“Building will be very active in the first three months of the year, because of the tax-credit extension,” which requires qualified home buyers to have their houses under contract by the end of April, he said.

“A lot of entry level housing is going to be built and that is going to favor the big national builders, like (Denver-based) MDC Holdings,” parent of Richmond American Homes,” August said.  “They will be able to make the shift to that sweet spot below $300,000.”

Economist Patty Silverstein said as bad as the depressed numbers are, it would be far worse to have a robust construction market, given the lack of demand and difficulty in buyers getting loans.

“The harsh reality is that we are where we need to be,”  said Silverstein, the chief economist for the Metro Denver Economic Development Corp. and principal of Littleton-based Development Research Partners.

“It wouldn’t serve anybody to have a bunch of beautiful houses sitting around empty,” she said.

Related blogs:

Housing slowdown not evenly distributed in Denver area

How long will the market bounce along the bottom?

Apartment permits fall more than home permits

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.