Almost everyone involved in affordable housing and real estate agrees that a massive shortage in stock is one cause of the affordable-housing crisis in Denver. Population in the metro area has boomed as more people move to the state, while housing growth has lagged, with an estimated deficit of over 30,000 units.
But according to the U.S. Census Bureau’s 2017 estimates (the most recent available), there are about 19,452 unoccupied housing units in the city. At the same time, according to the 2019 Point in Time Survey, there are approximately 3,943 people experiencing homelessness in Denver on any given night.
That's a whopping five empty housing units for every homeless person in Denver.
“We could literally house the entire population of people experiencing homelessness in Denver alone with the vacant rate and market luxury apartments. It's like a gut-punch every time I say it out loud,” says Cathy Alderman, director of policy and communications for the Colorado Coalition for the Homeless.
While the numbers are jarring, they require an explanation.
"Technically, it’s true: We do not have a housing crisis; we have an allocation challenge. But that's if you just look at the raw data," says Elena Wilken, executive director of Housing Colorado.
The average vacancy rate of the approximately 140,000 apartment units in Denver was 5.2 percent for the most recent fiscal quarter, according to the Apartment Association of Metro Denver. But that doesn't mean that all of those apartments are empty throughout the year, says Teo Nicolais, a local real estate buff and Harvard Extension School professor. According to Nicolais, a good portion of those vacant units are in between leases; either the owner is looking for a new tenant, or it’s been pre-leased and is awaiting a new tenant to move in.
Real estate experts assume a “frictional” vacancy rate of somewhere between 3 to 6 percent for rentals. That’s the vacancy rate that will naturally occur in the market to account for the time it takes to “flip” a unit from one tenant to another. But the Apartment Association does not keep track of the exact number of vacant apartments that are actively on the market, so it's hard to pin down the number of housing units that are vacant for more than a few weeks.
Anyone who’s trying to find an apartment that won’t break the bank knows that Denver’s real estate market is hot. The average vacancy rate since 1980 has hovered around 6 percent, and the vacancy rate for both households and rentals is about 6.3 percent, according to the U.S. Census Bureau. Still, Denver's 5.2 percent apartment vacancy rate is actually the lowest it's been in a while, making the market extremely competitive for prospective renters.
But the vacancy rate isn’t consistent across the board, says Ron Throupe, a professor of real estate at the University of Denver's Daniels College of Business. He conducts the Apartment Association's report, which surveys about a third of the property managers across the metro area to compile data each quarter. With over thirty years of information, it's the most comprehensive data set of rental patterns in the metro area. While some information is lacking, the report reveals some patterns for those new luxury apartments that housing advocates feel so frustrated about.
Because it is so expensive to build (according to a recent survey by the Federal Housing Finance Agency, the price of residential land in Denver increased by 97 percent from 2012 to 2018), most new units in metro Denver rent at the higher end of the price spectrum. In Denver, the average rent of apartments constructed after 2010 was $2,087, compared to an overall average rent of $1,582. The Apartment Association report also shows that the vacancy rate for apartments built after 2010 is higher than the average, ranging from around 8 to 12 percent during the past year. Part of that, Throupe says, is because of the lag time it takes to lease brand-new apartment complexes.
According to Natrience Bryant, a deputy director at the Colorado Department of Local Affairs, the greatest need for housing is with the lowest income brackets, even though the highest end is primarily what's being built in the private market. Denver would need over 26,000 additional units with monthly payments below $487 to have enough affordable housing for those whose incomes are below 30 percent of the area median income of $65,000. Based on the graph below, thousands more would need to be built for the next-highest income levels.
Housing advocates are also concerned about the owner-occupied housing rate, which hovers at 50 percent in Denver. That means about half of housing units are lived in by the person who owns them. The other half includes renter-occupied units as well as vacant units and short-term vacation rentals. The Apartment Association tracks rentals, but other houses and apartments may be owned by private individuals but completely or partially unoccupied. And the overall vacancy rate doesn't take into account the number of short-term vacation rentals or second homes owned by people outside of Denver. Alderman would like to see Denver adopt a registry for long-term rentals, a move Boulder has taken, so that it could better track the number of apartments that are truly vacant and available. The City of Denver tried matching empty luxury units to low-income renters, but the the Lower Income Voucher Equity program was only utilized by a few people.
While the vacancy-rate statistics reveal a glimpse into Denver's real estate market, the even more complicated question is how to make the market more friendly for renters and less volatile for those with lower incomes.
The simple answer is to build more housing units. "At the end of the day, it all comes down to supply," Nicolais says. If the market is less constrained, he argues, rents will go down across the housing spectrum.
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But housing experts argue that the benefits of building more new housing won't automatically trickle down to fill the greatest need. "We can’t build our way out of this," says Wilken.
She argues that considering the type and affordability of the housing we build is more important.
"You can’t just build willy-nilly. What a lot of communities are starting to focus in on is their housing profile or portfolio. ... A more interesting question is, what do we need to build to meet the demands of the population?"
Update, November 13: This article previously misstated the owner-occupied vacancy rate.