Getting your player ready...
In the late 1980s, when the Denver area was slogging through what was then its worst housing crisis since the Great Depression, the Denver Chamber of Commerce ran a very successful and clever ad campaign. It displayed photographs of two nearly identical and relatively modest-looking houses – one in California, the other in Colorado – and told how much each cost. You probably don’t have to guess which one was affordable and which one required a surgeon’s salary to afford.
And despite the national meltdown in home prices that began with the subprime lending crisis four years ago and continues with unrelenting high unemployment, the price discrepancy between Denver and major California cities remains.
S&P/Case-Shiller last week released a report analyzing 17 of the 20 markets it tracks by three price bands – Low, Medium and High. In Denver, the Low is $202,414 and below; Medium is $202,414 to $308,$428, and High above $308,428, as earlier reported by InsideRealEstateNews.
In comparison, consider the prices in California. The low is $300,374, $304,952 and $312,546 in Los Angeles, San Diego and San Francisco, respectively. San Francisco also boasts – if “boast” is the right word – that it trumps all of the other cities as far as high prices. In order to be considered to be at the top of the housing food chain in San Francisco, the price needs to be north of $573,577.
Affordability key to companies
Patty Silverstein, the consulting chief economist at the Metro Denver Economic Development Corp., and Tom Clark, executive vice president of the economic development agency, both agreed that home prices are still a factor when recruiting companies to move or to expand in the metro area.
“I think it definitely still factors in,” said Silverstein, who also is principal of the Littleton-based Development Research Partners. “Because of the state of flux in housing prices nationwide, it might not be as apparent today as it was in the past, or it may be approached a little differently. But from a business standpoint, companies will still look at what they need to pay employees in the local labor market. The price of housing is a big factor and a big differential in attracting qualified employees.”
In some cases, companies that want to bring a lot of employees with them may not even consider moving at this time, because so many of their employees are “underwater,” that is their mortgages are worth more of their homes, so it will be impossible or near-impossible for them to sell their homes and move. In other cases, they may plan to do most of their hiring locally, so that is not an issue. Also, many companies will provide buyout programs for top executives, in which part of their compensation goes to subsidizing losses on homes when the companies move.
’90s good for owners, bad for relocating companies
While falling prices is bad if you are trying to sell your home, from the economic development, or eco-devo perspective, nothing is worse than home prices rapidly going through the roof.
“The worst decade for us in Denver was the ’90s, when we had this huge appreciation,” Clark said. “At the same time, Dallas and Phoenix homes prices were not going up. They were much more inexpensive than Denver. Companies that might have preferred Denver were going to Dallas or Phoenix instead because of home prices. People from the Midwest were moving to Denver and going through sticker shock.”
Of the 17 cities tracked by price tiers by Case-Shiller, Phoenix is the only metro area in which the low-price is below $100,000. To be considered a low-priced home in Phoenix, the prices must be below $97,859. And its high-end, at above $169,583, is $32,831 below Denver’s starting point of $202,414.
Maybe you can’t be too thin, but homes too cheap send the wrong signal
One might think that depressed home prices in Phoenix serve as a great eco-devo tool, but the opposite is true, Clark said.
“In Phoenix, carpenters were building homes for carpenters,” Clark said. “It was unsustainable. Just before the whole bottom fell out, their median price was the same as in Denver. Now it is far below.”
People and businesses fear that extremely low home prices are a symptom of an even worse underlying economic foundation, making them wary either of a recovery in homes prices or that the economy will get back on its feet anytime soon.
“The housing vacancy rate is a big problem in Phoenix,” Clark said. “So many homes are sitting empty that people are reluctant to buy, because they don’t know how many years it will take for them to bounce back and be able to sell them for a profit. On the other hand, you know that you will get a great home for a fantastic price in Phoenix. I’ve talked to CEOs who have told me that they know they can buy a fantastic home in a great subdivision, but they would be the only homeowner in the whole subdivision!” In other words, no matter how sweet the deal, no one wants to live a in a modern ghost town.
Goldilocks market
Denver may have what is known as Goldilocks home prices – not too high, not too low, but just right for a company scouting a new location.
“The best thing about Denver prices is that they have been relatively stable,” Clark said. For example, home-price stability and relative affordability played a role in DaVita moving its headquarters from California to Denver, Clark said. DaVita, a leader in kidney dialysis, is building a $101 million headquarters building in downtown.
“If you are making $90,000, or even $125,000, it still is almost impossible to buy a decent home in a major city in California, but you certainly can in the Denver area,” Clark said.
Hmmm. Maybe it is time to roll out a new version of those old ads showing what you pay for housing in California and in Colorado.
Contact John Rebchook at JRCHOOK@gmail.com.
