The cause-and-effect of the West’s wild housing prices

There is more housing in the West than at any time in history, being built more quickly than at any time in history ... why are prices so high?

Article after article about Colorado and the West’s high housing prices skim across the front page of our newspapers. It’s a nonstop, daily or weekly occurrence.

An article that came out this morning from the source I now call, “The Post-Denver” talked about “co-ops” as a solution to Denver’s high housing prices. In the past, co-ops were called “communes” and “compounds” – as associated with various cult-like groups where many people live together. But the hipster devolution has made everything from Fortune 100 companies¹ to communal housing cool again by describing them with some kitschy language, like something out of a Portlandia episode. 

There’s a big herd of elephants in the room that nobody seems to want to talk about in these articles and conversations; The fundamentals of what’s driving high prices.²

Ideologues and imbeciles both point to investors and the construction of single family homes instead of condos and apartment complexes as the cause. And, sure, those are variables in what’s helping to prop prices up, but no remotely informed or rational mind will consider those two variables to be the leading variables – those are merely trace variables that have a minor influence. 

The real reason for high prices in Denver and the West can be explained entirely by college-freshmen-level economics; Supply, demand, and how those variables influence price. 

Here are some facts to support that position: 

• There has never been as much housing as Colorado as there is today – and there have never been as many people as there are here today

• Colorado adds about 100,000 people per year to its population - that’s ~273 people arriving every single day of the year who will create demand for housing and resources - housing that hasn’t yet been built

• Colorado’s population has doubled in 30 years, and 30 years ago, the population had doubled in the 30 years prior - because we’re in an exponential growth pattern with doubling times of less than 30 years

• Housing has never been built as quickly and in such huge quantities in Colorado and the West as it is being built today, and yet demand still outstrips supply

I can keep going with the facts, but there’s one detail they all point to; Every single person moving to the West and Colorado today is driving urbanization and development by creating demand for housing that does not yet exist. And, demand is so great, it outstrips current supply and the capacity of builders and cities to get new housing on the ground. 

So, when demand is so high that it outstrips supply and outstrips the capacity to create new supply, guess what happens? Price goes up. 

I took this photo from a bus on my second or third trip to California over a decade ago. I thought I had seen unbridled terraforming before in Colorado and Utah, but I quickly learned that California does development to a whole new level. The California method is scrape, stabilize, build, repeat … and make sure not a single strand of the place is left in the wake of new homes and retail stores. This image is what that looks like as California works to develop places that were previously considered too difficult to develop. Goes to show, with high demand and price, any place becomes habitable … until a predictable disaster wipes it all out, that is.

What this means is that every single person you know who is moving to or who has moved to Colorado or any of the other Western states is doing four things: 

1. Creating demand for housing that doesn’t yet exist

2. Driving urbanization and development in a place that doesn’t have enough housing to accommodate them

3. Driving prices up – way up.

4. Driving prices up higher, faster, and beyond what the local economy has historically been able to produce — lending to only those “with money” being able to buy or rent

Imagine a 1,000 square foot house, which is now extremely modest by current building standards. Barely any condos are less than 1,000 square feet today. This 1,000 sf house has a total rebuild cost of $210,000 in 2023 material and labor costs, but this house will sell for $525,000 if put up for sale today. That means that there’s about $315,000 of perception-driven value in the house above the build value. 

Let’s focus on that $315,000 for a moment. It is far more interesting than you might think on first glance. It represents something significant and is a direct indicator of demand outstripping supply. And it indicates that potential buyers are willing and able to pay prices that are higher than the local economy has conventionally provided, thereby wedging existing locals out.

Borrowing a thread from the viral, “Neature Walk”³ videos on YouTube, the news articles on the subject of house prices here seem to always glaze over the fact that house prices here aren’t high “just because of the way they are” – they’re high because demand is high and there are people willing to pay higher prices for a house just to live here. And they’re not willing to just pay a little more – they’re willing to pay A LOT more; Like, 400% more than just 10 years ago. 

Talking about high house prices in the West while ignoring the fact that high prices are coming from a deeply out of stasis supply, demand, and price relationship is akin to your car overheating and blaming it on the paint being chipped. Which is misinformed to the point of delusion. 

Signs like this are at the boundaries of most farm land along the Front Range of Colorado, where farmers decide if they want to continue selling bushels of spinach for $0.10 each, or if they would be better off selling their 60 acres for $70 million to some developer who will turn that over for a 100% or more profit. The simple economics of being on “the map” …

High house prices across the West are entirely caused by the fact that we have more housing here that we ever have throughout all of human history, we are building housing faster than we ever have in all of history, and yet demand still vastly exceeds supply, and people are moving in large numbers and are willing and able to pay big dollars for housing here. In that, the people moving in are willing and able to out-compete locals and other candidates just for the opportunity to live here … in one of the most volatile, hazard-prone, and resource-scarce environments on the continent.

Next time you see an article or hear someone talk about high house prices in the West, consider their position – and consider whether they’re on offense or defense. Those who are on defense are rooted here, and those coming in to pop the locals out are on offense - they’re the creators of new demand. And the offense appears to come with big pockets, big willingness to pay, and a big willingness to pop the few locals out as quickly and completely as they possibly can. 

Housing isn’t expensive in the West because of some conspired mystical force – it’s expensive because we have a severely offset supply and demand relationship in our housing market, which has caused prices to increase sharply to where supply and demand equalize.

And remember; There is more modern housing in the West than there ever has been, throughout all of history, and is being built more quickly than it ever has been, throughout all of history. Ruminate on that while contemplating why the West’s housing market is so screwed up right now. 

The Fleeting West is written by a rooted local-yocal who watched the West go from “flyover country” to being one of the most insanely hot real estate markets in the country. 

~

Footnotes and Citations

1. Fortune 100/500 companies calling themselves “Co-Ops”, like REI …

2. There’s more to the story, too — check out my last post on the subject:

3. Neature Walk on YouTube — classic, and quotable. Pertinent to this post: