DENVER -- A lack of available housing is one of several factors contributing to rising home prices in metro Denver and the shortage is unlikely to improve anytime soon, according to a new report.
The report, from Shift Research Lab and Phyllis Resnick of CSU's Colorado Futures Center, aimed to not only examine the current state of Denver's housing crisis but also look at the factors that contributed to it and predict how things might change in coming years.
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The main problem facing Denver right now, according to the report, is a huge gap between demand and supply. The metro area's population is simply growing faster than developers are building new homes.
Even with record levels of building activity going forward, the report forecasts that the metro area will continue to see housing deficits through 2025, with overall vacancy rates around 1.5 percent during that time (5 percent is generally considered a "healthy" vacancy rate).
How did we get to where we are today?
The report identified a number of factors that have together created the situation we're in now - things like supply and demand, consumer attitudes, construction labor shortages and land costs.
For example, homebuilder and general contractor employment in 2016 was down 23 percent compared to pre-recession levels. Fewer construction workers means slower rates of home construction around the metro area.
In addition, the amount of land available for residential construction is on the decline. Colorado doesn't exactly have a shortage of land in general, but it's becoming increasingly difficult to find land that's zoned for residential and the report estimates Denver's currently-developable residential zones will only be able to accommodate about five years of growth. You can re-zone land, but that only adds to the cost of development.
It seems people also increasingly want bigger, nicer homes, which further drives up home prices. Though the average household size has steadily decreased for decades, the typical home size has increased and a growing number of people want high-end finishes to be standard features in their homes, the report found.
Together, these factors have helped create a market environment in which the housing supply simply isn't keeping up with demand.
"Our report concludes that while all factors are having an effect, the overriding driver of the affordability challenge is the market: demand is outstripping supply," Resnick said.
Prior to the great recession of 2007 or so, Denver was adding thousands more housing units than new households every year. That trend reversed when the recession hit and it hasn't changed since. 2011 was one of the worst years, with only about 5,000 new units and more than 25,000 new households.
What can be done?
The report makes clear that while a complex combination of factors led to today's housing crisis, only one thing can really turn it around: Building more housing and a lot of it.
In order to do that, state and local agencies will need to get creative and think of new ways to meet the unprecedented demand for new housing, the study's authors said.
"Under these circumstances, the typical policy responses will be insufficient," co-author Jennifer Newcomer said. "While it's important to keep current programs, solving Colorado's housing crisis will require a different way of thinking about how we bring supply to the market."
Any potential solutions, whether they're focused on boosting employment or lowering development costs or creating public-private partnerships, should have the ultimate goal of increasing the amount of housing, the report states. And not just expensive homes, as has been the case in recent years, but those on the lower end as well, since people are increasingly being priced out of the housing market.
Denver should also reach out to other communities that have struggled with housing shortages, such as San Francisco, to find out what kind of lessons they have learned from dealing with the issue, the authors said.
To read the full report, log on shiftresearchlab.org.