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The Economics of Housing Inflation in Colorado: Exploring the Supply and Demand Imbalance

The lack of affordable housing in Colorado for middle and lower-income households is a lesson in economics. Unlike the healthcare market, which is muddled with third-party payors, the housing market is straightforward supply and demand analysis. Demand has been far outpacing the supply of housing for the last decade in both the ownership and rental markets, driving up housing inflation across Colorado. 

READ: Evergreen Real Estate Group Leads Affordable Housing Development in Globeville

Housing costs have been rising dramatically throughout the state and nation. Since the pandemic, housing has been the greatest driver to our high inflation rates. Even slow- and no-growth areas like the Lower Arkansas River Valley east of Pueblo have experienced dramatic housing inflation even though job growth is minimal in the area. Moderate income Front Range retirees and workers are relocating to the area due to affordability, and investors have followed suit thinking cheap housing assets within a couple of hours of urban areas are a good long-term investment. 

Housing is a basic need where demand is driven by household growth, which is influenced by birth and death rates and urban concentration of economic opportunity pushing migration. In recent decades, relative affluence across much of America has also resulted in housing as an investment through second homes and the acquisition of investment properties. Even the tourism market is increasing housing demand through short-term rentals. Global capital markets, perceiving better potential returns from housing investments, are funneling dollars into the U. S. from around the world. This started after the 2001 dot-com bust and has continued except for the years surrounding The Great Recession. The low-interest rate environment since 2009 added massive fuel to the fire until 2022.

For prices to be increasing so dramatically, demand growth must be far exceeding supply growth – at least supply that meets societal expectations of “suitable housing.” As a result, market adaptation is occurring. More rental households are paying at least 50% of their income in rent. Households are doubling up. Multi-generational households are increasing. Average new unit sizes are decreasing. There is some localized pushback on short-term rentals. RV and van alternative lifestyles are becoming much more prevalent. Innovators are manufacturing tiny homes, pre-fab factories, and even 3-D printed homes.  These substitutes for traditional housing attempt to remain a step ahead of homelessness. 

Our governments, at every level, effectively limit housing supply that could be suitable alternatives to the above market adaptations. They constrain the housing supply growth through adoption of more stringent building codes, planning and zoning limitations, and cumbersome land entitlement processes. A study we did for the Colorado Springs Home Builders Association a few years back found local government requirements equate to 26% of the total price of new housing. Even when local land use policies support new and more affordable housing types being developed, democratic processes are heavily influenced by people who advocate for greater housing opportunity as long as it’s “not in my back yard.” The result is discrimination based on income at the very least. 

READ: New Approaches to Affordable Housing in Resort Communities

It is not just governments and NIMBYs that greatly constrain the housing supply. Great hindrances to the supply side come from insurance companies, fire professionals and environmental groups interested in protecting property, public safety and long-term sustainability, respectively.

Culturally and politically constraining our ability to increase the supply of traditional housing results in housing-costs indices rising much more rapidly than incomes over the last half-century. No wonder the corporate and investment sectors see nothing but long-term opportunity in housing and are funneling money into the market. 

The federal government’s effort to counter the supply constraints through low-income tax credits or direct investment through local housing authorities is absurd. Building enough housing to standard housing codes and socially acceptable sizes probably cannot be done without dramatic cutbacks to Medicare and Medicaid – assuming neighborhoods did not organize to oppose workforce or affordable housing. 

We need to re-engineer our societal constraints on the housing supply. Re-engineering requires radical redesign with targeted cost savings of at least 30%. Throw out the legacy models that hinder us and start over, using new technologies and emerging realities like climate change. Re-engineer building codes, public inspection processes, and land entitlement rules and regulations. There should be six objectives:

  1. Mitigate fire risks where fires are most likely to erupt.
  2. Pursue density.
  3. Allow development generally consistent with current zoning, and reallocate planned land uses to minimize NIMBYism
  4. Encourage existing small property owners to participate through the addition of mother-in-law apartments and accessory dwelling units.
  5. Keep residential areas residential as opposed to commercial tourist zones; 6) embrace new housing designs, materials and production approaches. 

Unfortunately, re-engineering requires we quit being our own worst enemy – something much easier said than done. It’s time to fight housing inflation in Colorado, once and for all.


Tom BinningsTom Binnings is a senior partner at Summit Economics in Colorado Springs. He has more than 30 years of experience in project management, economic and market research, real estate development, business analytics and strategic planning. He can be reached at (719) 471-0000 or [email protected].

Financial Forecasting the for the Future of 2023 With Economics and Tarot

This time of year, economists are invited to podiums to offer their prognostications for the coming year. Sometimes it’s a perverse holiday ritual. Not wanting to stuff stockings with coal for the holidays, we tend to look for optimism even if we’ve spotted the Grinch. My favorite retired economist and predecessor with this column, Tucker Hart Adams, tells me she’s glad not to be in the financial forecasting business these days.

On the one hand, financial forecasting for 2023 seems rather easy. The Federal Reserve will bring on a recession, if it has not already done so, to get inflation under 3%. Unfortunately, the Fed’s financial forecasting reputation is far from stellar recently. The Federal Reserve forecasted inflation ending just above 2% in both 2022 and 2023. The longest ongoing forecast of professional economists, the Livingston Survey, produced a June 2022 consensus of CPI inflation being 3.8% in 2023 and the unemployment rate staying very close to its current level of 3.5%. Given this backdrop, I forecast inflation slightly over 4% by summer 2023 with the unemployment rate creeping to just over 4% as well. As for Colorado, inflation will be slightly higher and the unemployment rate about the same as the nation. It will be the year of the 4s supported by a continued strong labor market as some people re-enter the workforce to keep up with inflation. 

Read — Finding the Silver Lining Amidst Rising Interest and Inflation Rates

There are very significant risks as we look forward to financial forecasting for 2023 considering the tumultuous state of health, weather and war. It’s a trifecta of possible crises where the potential for miscalculation by leaders also runs high; especially given our mistrust of their competency and legitimacy. While a certain degree of this dysfunction is built into democracies with free speech, the challenge appears especially acute with a recent Sienna College – New York Times poll finding 70% of Americans, regardless of their political affiliation, believe our democracy is at risk.

Whatever happens in 2023, the year continues a period I call “the great disequilibrium” — a socio-economic and political disruption that will define the next half-century. The disruptors offer both positive opportunities and negative challenges, including:

Global Warming and Sustainable CO2 Emissions

The only question is how bad will it get and to what degree we can bend the curve through rapid societal efforts on many fronts, but especially in transportation, electricity and food production.

READ — America’s Energy Future Depends on Cultivating the Next Generation of Talent

Demographic Shifts

The great resignation of baby boomers in recent years was the tip of the iceberg. Anticipate a health-care surge and eventual loosening of the housing market. The millennials are bringing new technology, skill sets and life values including ESG (environmental, social and governance) investing as well as greater diversity at the top of organizations.

High National Government Debt Levels Supported by Monetizing the Debt (aka, Printing Money)

Even without more or prolonged significant wars, projections call for continued deficits to fund the demographic shift, as well as address new technologies, more severe weather and a retrenchment from economic globalism.

Financial markets’ growing complexity, foreign exchange volatility and new products such as non-fungible tokens (NFTs) and cryptocurrency increase speculation and fragility. Stagnant asset prices for homes and stocks are more likely. Fortunately, the financial world is becoming heavily focused on ESG rather than just bottom lines to support the changing landscape. 

Technological Transformations in Virtually All Realms From Artificial Intelligence to Microbiomes to Autonomous Driving

History offers good lessons in times like this. Niall Ferguson of the Hoover Institute notes historically high inflation rates are associated with wars. We fought the pandemic like we fight wars (throw money at it) thus adding demand fuel to the supply shock inflation, and now we face a proxy war with Russia without direct military confrontation. To make matters worse, China’s Xi Jinping is watching carefully as he determines China’s next move with Taiwan, which is the global center for semiconductor manufacturing. Unfortunately, as Ferguson points out, America does not appear to be engaging in détente, as painful as that might be. And even if we engaged, can the U.S. be trusted? In the eyes of many around the world, we look rather crazy on many fronts, including our taking up the cause of democracy globally while feeling it is threatened at home.

Eventually, a new equilibrium will emerge. Mother Nature will persist. The only question is which side of human nature will dominate – good or evil? Can we bend the curve of history along with the trajectory in climate change? With the lack of future clarity, I turned to a tarot card reading based upon 2023 being the year of 4s.

Unfortunately, tells me the number 4 in the tarot is the card of the emperor who represents “material goods and worldly authority” and when reversed means “immaturity.” Hmmm. My gift to myself for 2023 will be to remain hopeful, ignore the tarot, and to engage the possibilities rather than surrender to cynicism. 


Tom BinningsTom Binnings is a senior partner at Summit Economics in Colorado Springs. He has more than 30 years of experience in project management, economic and market research, real estate development, business analytics and strategic planning. He can be reached at (719) 471-0000 or [email protected].

How the world could better handle black swan events in the future

Occasionally, something so random occurs that we are left astounded. Our whole self, including our economic being, which is focused on earning our daily bread, is shocked. Economists call these black swan events. This past winter a black swan landed in Wuhan China, and its offspring spread quickly to virtually every pond around the globe.

The COVID-19 pandemic is testing our institutions on a global scale. Since the 1918 Spanish Flu pandemic, our population grew fivefold, average life expectancies increased significantly, higher expectations paralleled standards of living, and our institutions have expanded proportionately. Despite this magnification, the role of community leaders, across sectors, remains the same when black swans land. Is it a single, rare event, or a pattern?  And how far might it fly?  If a pattern, leaders need to inspire an organized response with good information. If the swan can fly far and spread harm, the rest of the world needs to be warned.

Economists, for the most part, don’t study black swans. The randomness places interested researchers out of the mainstream — like a kooky Chicken Little exclaiming “the sky might fall.” Research does occur after the fact, but it often gets buried until the next black swan spotting. Looking back at the Spanish Flu, we know it spread faster and was concealed from the public, thanks to troop movements in WWI. The death toll after three waves in 1918-19 was 50 to 100 million people worldwide (about 4.5% of the population), 500,000 to 675,000 Americans (0.5%), and 7,783 Coloradans (0.85%). Many children were left orphaned. Federal Reserve economist Thomas Garrett (2008) found urban areas and the poor were more vulnerable than others. Businesses and workers were hurt in the short-term with some businesses losing 50% of revenues over the course of a year or two. Other businesses addressing key pandemic needs saw business increase. Garrett concludes the greatest negative impact on the economy will occur if medical staff become victims of the virus as “the duration and severity of the pandemic will be increased.” While it’s difficult to assess the frequency of pandemics, when they do occur there’s a 0.5% to 3% death rate with short-term economic devastation. This compares to the annual influenza virus which takes about 35,000 Americans (0.01%) annually with little economic impact. One would expect any community, especially the nation, should be able to handle this magnitude without long-term destruction, regardless of the frequency.

Success in the modern world requires a clear and rehearsed national and global plan of action. Unfortunately, despite warnings from people like President G.W. Bush in 2005, Bill Gates in 2015 and many health experts around the world, our response to this black swan demonstrates we have been acting worse than ostriches by burying our collective head in the sand just thinking of the predator. Perhaps our recent successes with viruses like Ebola, SARS and MERS in the last 20 years have lulled us into thinking we have this under control.

There is a fascinating dichotomy here. On the one hand we have crisis and disaster teams in every community planning for “the event” which is more of a white swan hurricane, tornado, earthquake or, in the U.S., a mass shooting. We spend $650 billion a year (3.2% of GDP) being prepared for hostile attacks. Yet, something as focused and as inevitable as a pandemic catches us off-guard. This does not mean we should keep an excess supply of millions of ventilators, but it does strongly suggest we need rapid supply-chain flexibility to go along with anticipatory political and economic responsiveness. It appears the awards for initial rapid response go to local distilleries switching to hand sanitizer, the health-care system adding capacity the best it could, data analysts tracking hotspots and scientists focusing on vaccines and fast, reliable tests.

To do better in the future, we need a large reserve of medical professionals who train annually and a federal response and logistic system to address emerging hotspots overnight. Economists and the Federal Reserve must know what it means to put the economy on hold for 30 to 120 days to focus on the true essentials for life. Furloughs with reduced subsistence pay from forgivable loans to all negatively impacted businesses should be the norm. Such a rehearsed global pandemic plan of action should have been triggered in January as a precaution.

Black swans are far more predictable than in the past. Frank Knight, an economist, wrote shortly after 1918 pandemic: “We must infer what the future situation would be without our interference, and what changes will be wrought by our actions. Fortunately, or unfortunately, none of these processes is infallible, or indeed ever accurate or complete.” Given the current realities, we should be documenting lessons learned at every level of decision making and mobilizing for the probable second and third waves.