Colorado-Real-Estate-Journal_414122

Page 14 — Multifamily Properties Quarterly — August 2024 www.crej.com HOUSING SUPPLY M arket forces, rather than regulation, could be a potent mechanism to stimulate increased sup- ply in the Denver metro area’s multifamily housing sec- tor. By focusing on creating favor- able conditions for developers and removing barriers to construction, the market can naturally address the housing shortage, potentially making homes more affordable. This article explores how market- driven strategies could be more effective than regulatory measures in achieving this goal. The economics of supply and demand The fundamental economic prin- ciple of supply and demand sug- gests that increasing the supply of a good or service tends to lower its price, assuming demand remains constant. In the context of housing, this means that building more units can help balance the market and prevent excessive price inflation. Evidence from housing markets includes: n Supply side economics. Stud- ies have shown that regions with fewer barriers to construction tend to have more stable housing prices. For example, a study by Glaeser and Gyourko (2002) indicated that restrictive zoning laws significantly increase housing prices by limiting supply (Fannie Mae Multifamily) (Matthews) (The Impact of Zoning on Housing Affordability | NBER). n Historical context. Historical data suggests that periods of significant hous- ing construction have often been followed by peri- ods of stabilized or reduced hous- ing prices. The post-World War II housing boom in the United States, for instance, saw a massive increase in homebuilding that helped keep housing affordable for a growing population. Reducing regulatory barriers One of the primary steps to har- ness market forces is to reduce regulatory barriers that impede development. This includes stream- lining zoning laws, reducing entitle- ment timelines and simplifying the permitting process. Such measures can lower development costs and encourage more builders to enter the market. Potential benefits include: n Increased competition. Lower barriers to entry can lead to more developers competing in the mar- ket, which can drive down prices and improve the quality of housing stock. n Speeding up projects. Reducing the time and complexity involved in getting projects approved can lead to a quicker response to housing demand, helping to stabilize prices more rapidly (Fannie Mae Multifam- ily) (Sustain Build). Encouraging private investment Another way to stimulate housing supply is by incentivizing private investment. This can be achieved through tax breaks, subsidies, or public-private partnerships. Such incentives can make multi-family housing projects more financially viable and attractive to investors. Examples of successful incentives include: n Tax incentives. Offering tax cred- its or abatements to developers can offset some of the costs associated with building new housing. This approach has been used success- fully in various states to encourage affordable housing development. n Subsidies and grants. Providing direct subsidies or grants to devel- opers can reduce the financial risks associated with large-scale housing projects, making them more likely to proceed. Impact of increased supply on affordability As supply increases, competition among landlords for tenants tends to rise, leading to more competitive rental rates. This phenomenon can help to keep housing affordable, particularly for lower- and middle- income households. Market dynamics include: n Rent stabilization. With more units available, landlords may lower rents or offer incentives to attract tenants, which can lead to overall rent stabilization or reductions. n Diverse housing options. An increased supply can also lead to a more diverse range of hous- ing options, catering to different income levels and reducing pres- sure on any single segment of the market. Case studies and real-world examples Several cities have successfully used market-driven approaches to address housing shortages and affordability issues: n Houston. Known for its relatively lax zoning laws, Houston has seen robust housing development, which has helped keep housing prices more affordable compared to other major cities. n Minneapolis. Recently, Minne- apolis eliminated single-family zon- ing, allowing for more multi-family housing units to be built, which has been credited with helping to sta- bilize housing prices and increase affordability. Market forces, when properly har- nessed, can significantly increase the supply of multifamily housing and improve affordability. By reduc- ing regulatory barriers, encouraging private investment, and leveraging the natural dynamics of supply and demand, the Denver metro area can address its housing challenges more effectively than through regulatory mandates alone. The goal should be to create a flexible, responsive housing market that can adapt Leveraging market forces to increase supply Derek Simpson Senior vice president, Colorado, Alcorn Construction Please see Simpson, Page 22