Steep decline in apartment development signals deeper economic issues in Colorado

COLORADO SPRINGS, Colo. (KRDO) - The Pikes Peak Regional Building Department reports permitting 63% fewer apartments in 2024 than they did in 2023.

The steep decline signals less developer interest in the Pikes Peak Region when it comes to building apartment units. However, experts say the number is deceptive.

The decline in permitting coincides with 3800 units coming online last year, mostly concentrated in downtown Colorado Springs. The Pikes Peak Regional Building Department says about 1600 more are expected to come online next year in the region.

The increase in supply could signal a saturation in the market, but Tatiana Bailey with Data Driven Economic Strategies says that developers are looking at other headwinds: steeper insurance rates, higher loan rates, and increasing construction costs-- all of which drive up the price of housing.

"If we're still building some single-family and multifamily [units], that's great," Bailey with Data Driven Economic Strategies said. "We're closing the gap.  However, you know, the other side of that is that we're not really building enough affordable units."

One apartment building that came online last year, the Experience at Epicenter, is roughly $1500 per month for a small one-bedroom unit, according to Apartments.com. That's while the per capita income for Colorado Springs is around $44,000.

The reason apartments are getting expensive is complex and signals a statewide issue.

"I worry about what we've seen in some other parts of the country, including to some extent in Denver, where people end up deciding not to stay permanently or they don't come in the first place because the perception is that we're a pretty expensive state," Bailey said. "We are indeed in the top ten in terms of most expensive states in the nation."

Bailey says factors like a 51% increase in construction costs since 2020, higher insurance rates statewide and the developer's need to turn profit drive higher rent prices.

"The issue there is, on the one hand, you can look at this and say, oh, they're so greedy and they're just, you know, building these high-end units because the margins are higher. I mean, if you're an investor, you're going to want a higher margin, right?" Bailey said. "The other side of it is especially since the pandemic, construction costs are sky high. It's difficult to make a project, scratch -- in other words, to make it work financially, to get enough of a return to compare it to, say, investing in the stock market or investing in data centers or something else."