The number of multi-family construction permits issued so far this year is at a nine year high, but that doesn’t mean there’s going to be a building boom.
The Pikes Peak Regional Building Department has issued 18 permits for developers to construct 407 multi-family units so far this year, the highest number of units approved annually since 2002.
But, in 2002 1,663 were approved.
“There’s no in-between in this town,” said Doug Carter with Sperry Van Ness. “The switch is either on or it’s off. We’re either building or there’s nothing happening.”
While some conditions indicate the county could be on the precipice of another building boom, many brokers believe this small permit surge is a one-off for developers.
The 1,663 units built in 2002 outnumber the total permits issued since then. During some years fewer than 100 units were approved, and in 2009, no multi-family permits were issued.
Before that, more than 1,000 permits were issued each year between 2000 to 2002.
Following those big building spurts in the early 2000s, vacancy rates surged and rent prices plummeted.
Vacancies stayed around 10 percent throughout the better part of the last decade and rents stagnated.
“There was no other market in the state where vacancy rates went up to 9, 10, 11, 12 percent and just stayed there,” said Division of Housing spokesman Ryan McMaken.
Other markets like metro Denver saw fluctuations over the last 10 years with fluctuating vacancy rates and rents. That didn’t happen here.
As people lose their homes to foreclosure; it’s harder to borrow money to buy single-family homes; and troops are flowing back into the city, vacancy rates have fallen to their lowest levels in a decade and rents are on the rise.
The division of housing reported that rent vacancies were about 5.8 percent in the first quarter of this year and up slightly to 6.4 percent in the second quarter.
The division hasn’t released third quarter vacancies yet. But Carter, who publishes his own Apartment Insights data about the local market and who is typically on track with the state report, found a 5.2 percent vacancy rate in Colorado Springs for the third quarter.
As vacancies have fallen, rents have gone up and it’s stirred a long quiet optimism in the city’s apartment development community.
While the market seems prime for new apartment development there is one key ingredient missing — money.
Two of the biggest projects, accounting for most of this year’s permitting activity, include the Peak’s at Woodmen near Woodmen and Union and the Vistas at Jackson Creek in Monument. Both are luxury apartment developments where rents will likely be the highest in the region.
And they’ll have to be if developers are to justify the cost of construction, Said Ron Spraggins with apartment brokerage Commonwealth. With average rents in Colorado Springs around 91 cents per square foot, these new developments will have to demand at least $1.30, Spraggins said.
For a 1,000-square-foot apartment that would be $1,300 a month, which is more than a mortgage on a $220,000 house would cost.
That’s why Spraggins is not worried this surge in new permits will result in overbuilding. New construction is too expensive and financing is too hard to secure, he said.
Kevin McKenna, a senior advisor with Apartment Realty Advisors, agrees the market will likely be different this time that it will be able to control itself and keep from eagerly overproducing rental units.
“I’m not worried about there being an overbuilding of supply here,” McKenna said. “Times and economy were different in the early 2000s.Developers were a lot more optimistic. The sentiment is a little more tempered now. Developers aren’t counting on huge job growth and salary increases. I think it will stay in check.”
The spike in permitting activity isn’t that many units, not after nine years of almost no new construction, McKenna said.
“Anything is going to look like a dramatic jump after the last few years,” he said.
But 400 new units won’t likely make a big impact on the market.
“It would take thousands of new units,” Spraggins said.