Denver a top ten “outflow” destination with more looking to leave

A record 32.6% of Redfin.com users nationwide looked to move from one metro to another in the second quarter, up slightly from 32.3% in the first quarter and roughly 26% before the pandemic.  Denver was recently named by Redfin a top “outflow” destination with more people looking to leave Denver than Chicago. What does 47% signify for Denver and is this statistic the primary driver of Denver’s outflow migration?  What does this mean for real estate prices?  Is this the beginning of a trend or a blip?

What was in the data?

A record number of potential U.S. homebuyers are seeking to relocate, according to a report published last week by real estate brokerage firm Redfin. The report ranked the cities Redfin users appeared most likely to try to leave — San Francisco, Los Angeles and New York topped the list.

Marr noted that a lack of affordability is a tougher sell for cities than ever before, with the rise of remote work across large swaths of the country. Roughly 33% of Redfin users searched for homes in new cities in the second quarter of 2022, up from 26% in 2019 before the Covid-19 pandemic hit.

Note: Denver was on the top 10 list of move out cities, but this does not mean that other front range cities will face a similar fate.  For example Boulder is still desirable and Ft. Collins continues to gain residents along with many other smaller cities and suburban locations.

Top 10 cities home-buyers are looking to move from:

1. San Francisco, CO
2. Los Angeles, CA
3. New York, NY
4. Washington, DC
5. Seattle, WA
6. Boston, MA
7. Detroit, MI
8. Denver, CO
9. Chicago, IL
10. Minneapolis, MN

Why are people looking to relocate from Denver

1. Expensive house prices: The average home price in Denver is over 700k whereas cities like Dallas and Atlanta home prices are roughly half the price in Denver.  Rising interest rates are further exacerbating the affordability issues.
2. Homeless issues; Colorado’s homeless population has surged 266% since 2007 almost triple the rate of California. Here is an excerpt from a Westword article where convention attendees were asked to submit feedback on their Denver trip:

“I’m sorry but I would never consider putting attendees in danger by holding a convention in your city. We are staying at Embassy Suites downtown on 16th, and last night witnessed a group of about 30 teenagers attack a man walking along 16th street. I am told this is not an unusual occurrence. The homeless situation is very sad, and public streets reek of weed. The Denver police should be more alert to large groups of minors congregating on city streets attacking tourists. My feedback from this meeting will be to never locate here again; I have felt much safer in downtown NYC, Philly, Seattle and Chicago.”

3. Crime: Violent crimes are increasing to the tune of 20% a year: A 27-year veteran of the Denver Police Department, Pazen said he never thought he would see the level of crime he’s seeing now, in LoDo and throughout the city.” Violent crime, in particular, continues to increase, it doesn’t look like it’s stabilizing at all and we’re very concerned about violent crime and gun crime in the LoDo area,” Pazen said. In addition to the 176 assaults in LoDo and the surrounding area this year, there have also been six homicides. Citywide, there have been 54 homicides in Denver in 2022, a roughly 20% increase over last year, which had the second most murders in modern Denver history.

Is leaving Denver and anomaly or a new trend?

Denver’s housing policies are hollowing out the middle class, crime continues to rise, and the city is not adequately addressing property owners concerns about homelessness which will lead to a continuation of the current trends of net migration out of Denver.

1. Building policies like Linkage fees reduce available housing for middle class. Single family homes are included in the linkage fee. Assume that someone is going to build a 4k foot infill single family home, the linkage fee would be 7/ft leading to a cost of 28k.  Most new houses are greater than 1600 feet as it is difficult to justify the lot prices and development costs for very small homes which means substantial fees for new construction and the end of middle income construction as it is no profitable to build with all the additional fees.  Essentially the affordable housing legislation will hollow out the middle in housing where builders no focus on the higher end properties.
2. Crime continues to rise: It doesn’t look like there is any end in sight, as the Denver police noted: ” Violent crime, in particular, continues to increase, it doesn’t look like it’s stabilizing at all and we’re very concerned about violent crime and gun crime in the LoDo area,” Pazen said. Violent crime, which counts homicides, aggravated assaults, sex assaults and robberies, is up 17 percent between 2019 and 2021. Murder is up 47 percent in those two years.
3. Prioritizing homeless over property owners: The number of people in metro Denver who reported experiencing first-time homelessness in 2021 nearly doubled over 2020, according to a new report. The Denver metro spends just under a half-billion dollars a year: $481 million. Most of that is spent in Denver. Denver itself spends $435 million on homelessness. Denver spends at least double on each homeless person than it does for a k-12 student. Yet as spending has continued to increase, homelessness has increased even faster with no end in sight. Currently in the Denver metropolitan area homelessness is prioritized over real estate owners/tenants.  There are countless examples of homeless encampments on private property, adjacent to residential homes, schools, etc… The police have not prioritized public health and safety by moving these groups immediately thereby having huge impacts on property owners.

 

What happens to real estate prices?

In the short term I don’t see huge impacts on prices as inventory in Denver is very tight with very little building.  Over the longer term, the impacts could be much greater.  If Denver is not able to effectively control crime, prioritize property owners, and stop hollowing out the middle-class real estate prices will fall substantially.  As with any real estate it will be neighborhood specific.  The areas with the highest crime and homelessness issues will fall the most with other areas not impacted nearly as much.  We could see a repeat of the 80s with a flight from particular urban neighborhoods to more suburban or uniform urban areas.  Basically, we will see “gentrification” work in reverse in particular submarkets throughout Denver.

Summary:

Without substantial changes, the data highlighted in the redfin reports looks to be the beginning of a trend with more people looking to leave than move into Denver.  It is unfortunate that the key drivers forcing many people to look to other cities were caused by the city of Denver’s policies prioritizing homelessness over property owners, not addressing crime, and creating housing policies that hollow out the middle class.

Real estate will be impacted by these long-term trends with many areas going through a” reverse gentrification” and back to the 80s with high crime and flight from these areas.  The city has time to correct their past missteps, but unfortunately as of today, they look to continue the same policies that created the issues triggering the current net migration out.

Additional Reading/Resources:

1. https://www.redfin.com/news/q2-2022-housing-migration-trends/
2. https://www.9news.com/article/news/crime/denver-police-concerned-lodo-crime/73-05c1168f-f50f-4c18-8fdd-adff71a159d5
3. https://www.cpr.org/2022/03/10/colorado-crime-rates/
4. https://www.denverpost.com/2022/05/12/colorados-median-single-family-home-price-april-2022/
5. https://www.axios.com/local/denver/2022/02/08/colorado-homeless-problem-biggest-jump
6. https://www.westword.com/news/16th-street-mall-are-homelessness-drugs-crime-on-mall-costing-denver-8113379

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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