Over the last five years, home price increases in Denver have significantly outpaced price increases in the rental market, making it harder for potential buyers to purchase homes, particularly in the entry-level segment. While demand for for-sale housing plummeted as a result of the Great Recession, it has returned in recent years in Denver and other major metro areas. At the same time, for-sale housing inventory growth has lagged population growth since 2007, most notably in the U.S. West Census Region, which includes the Denver metro area. Condominium growth in particular has been largely non-existent in Denver in recent years, which has contributed to the restricted supply. Recent pricing pressures suggest that there is significant unmet demand in Denver for affordable, entry-level housing.

This paper describes why there is a strong case that prices in Denver are being driven higher due to restricted supply, particularly in the condominium market, and how this has led to a “crowding out” of young buyers, forcing young households to rent rather than purchase. The inability to purchase robs a buyer of the chance to build home equity, an important financial asset which represents nearly two-thirds of the median U.S. household’s net worth. This report also explores how current construction defect legislation is likely contributing to restricted condominium supply in Denver and, using Regional Economic Models Inc.’s PI+ and Tax-PI dynamic forecasting models, explores the broader economic impacts of lower residential investment and higher housing costs…

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