Anticipated trends, shifts and challenges we might see this year
It’s difficult to predict the future, maybe even impossible. Few 2020 forecasts saw the COVID pandemic coming. Housing was on a seemingly permanent upswing in 2007 and 2008—until it wasn’t. In our own lives, most of us couldn’t have anticipated when (or if) we would get married or have children or buy our first home.
And yet, every new year, forecasts and predictions abound. We like to plan ahead, even if what we’re planning for never happens. And sometimes taking steps to prepare for one outcome—say, streamlining operations to weather a major economic downturn—can set us up well for the future, even if the downturn never comes.
We spoke with several industry experts about what might be ahead for Colorado’s building industry this year—from the economy to legislation to energy efficiency. While nothing is guaranteed and timing can be uncertain, the predictions noted below can, at minimum, let builders know what to keep an eye on as we move into 2024.
The annual Business Economic Outlook from the University of Colorado’s Leeds School of Business predicts Colorado’s economy will stay strong in 2024, even while facing a host of headwinds. Challenges will include persistent inflation, continuing high interest rates and slowing consumer spending. But while the report’s authors were optimistic about most industries in the state, construction wasn’t one of them.
Seven of the state’s 11 major industries are expected to add jobs this year, according to the forecast, but construction could lose somewhere around 2,300 jobs. Higher interest rates have significantly slowed demand for single-family homes, the report says. Multi-family projects are set to decline as well, with several apartment projects coming online early in the year and satisfying demand. The one bright spot for the industry, according to the report, is nonresidential and infrastructure projects, which are expected to stay steady in 2024. That’s largely thanks to government funding from legislation like 2022’s Inflation Reduction Act.
It’s a shift from previous years, as Colorado has long had labor shortages in the construction industry. That’s still true, but some positions are more in demand than others. “It’s a challenging dynamic right now because there has been—and still is—a labor shortage in the industry,” says Brian Lewandowski, executive director of the Business Research Division at the Leeds School of Business. “It’s hard because a construction job isn’t just a construction job. They all have very different training and skills required.”
Long term, Colorado’s population is still rising, which will create building needs. Colorado is expected to grow from 1.7% of the United States population in 2020 to 2% by 2050, a slowdown from previous years but still roughly twice the national rate. Short term, however, interest rates—not growth rates—are a problem for both home buyers and builders. Prospective homeowners are reluctant to get locked into expensive mortgage payments, and builders are less eager to take out high interest loans to fund their projects. “These high interest rates are really just hammering the industry,” Lewandowski says. “If builders have to finance a project, there’s a much higher cost.”
There’s been much speculation that the Fed might reduce interest rates in 2024, which could help. “The [Economic Outlook] committee was a little more optimistic about single family housing because we could see a little bit of interest rate relief in 2024,” Lewandowski says. But the general consensus among those involved with the Economic Outlook is that any reductions will likely be small and slow to come. “We might be peaking in terms of interest rates, but I think we’re only going to see modest decreases, if any,” Lewandowski says. “The services sector is still fueling inflation.” And any small to medium interest rate decrease likely won’t bring a surge in demand for homes. “Even if you get a 1 percent decrease in mortgage rates, I don’t see a doubling in building permits because of that,” he says.
Financing likely won’t get easier in the year ahead. In addition to high interest rates, many lenders have tightened up, making it harder to access capital for projects. Given 2023’s bank failures and lower demand for homes, that might not be changing anytime soon. “I don’t think we’re going back to where we were two years ago,” Lewandowski says. “I think those days of cheap money are really gone for a while.”
If there’s an economic bright spot for builders, it could be in home remodels and repairs, Lewandowski says. “Anecdotally, my struggle is that I see a backlog in activity for contractors to work on even small projects in homes,” he says. “I wonder if there’s enough of that out there that it could support a little more than we expected.”
If any industry might beat expectations this year, it’s construction, Lewandowski says. “If there’s a place in our forecast where we could be a little bit surprised on the upside, it’s in the construction sector,” he says.
Offsite construction is poised for a big year in 2024. Builders like Colorado’s Fading West and others are gaining national attention for their ability to create affordable homes quickly, and more safely, in a factory setting. “Offsite construction is a huge buzzword right now,” says Eric Holt, assistant professor at the University of Denver’s Franklin L. Burns School of Real Estate and Construction Management.
Traditional stick builders are starting to look to offsite construction to help with at least portions of their builds too. That might be in the form of floor cassettes or even kitchen and bath pods—rooms that are built in factory and then added on site. “Builders are going to be looking at what makes sense to do in the field and what makes sense to do in the factory and leveraging that more,” Holt says.
Energy efficiency will also be top of mind. All-electric houses are becoming mainstream, Holt says. We’ll likely also see increasing demand for other energy-efficient features, like cold climate heat pumps, solar panels and induction cooktops.
The trend is being driven by updated energy standards. Several Colorado cities, towns and suburbs have recently adopted energy codes prohibiting or restricting gas lines in new homes. Colorado’s largest utility, Xcel Energy, has established goals around energy efficiency and renewables and is encouraging builders and consumers to make greener choices.
Additionally, consumers and investors increasingly expect companies to build with the environment in mind. “We’re seeing a lot of mainstream builders talking about building green,” Holt says. “Everyone has to have an ESG [environmental, social and governance] report.” Colorado’s Thrive Home Builders, Holt says, has been leading the industry in this respect.
Builders and homeowners are also continuing to take advantage of rebates and tax credits in the Inflation Reduction Act, which provided incentives for electrification, efficiency upgrades and more for new and existing homes, Holt says.
On the legislative front, there are several issues builders will need to keep an eye on, according to Ted Leighty, CEO of the Colorado Association of Home Builders.
Last year, Gov. Jared Polis rolled out a sweeping land use reform bill that would have encouraged greater urban density to help Colorado reduce its housing shortage. The proposal would have required communities to allow the construction of “middle housing”—like townhomes, multiplexes with up to six units, and accessory dwelling units—in addition to single-home construction in residential neighborhoods. Many cities and towns in the state would have also been required to submit housing plans and reach goals identified by the state. If they failed to do so, the state would have been able to override local zoning rules and impose its own.
The proposal had many proponents but also met with a lot of opposition from those worried about the loss of local control, parking headaches created by greater density and other concerns. Ultimately, the bill died a few months after it was introduced.
Leighty says much of it will likely be resurrected this year. “We’ll see a package of bills that do a lot of the same things that were in the Governor’s land use bill last year, broken into smaller bills,” he says. While potentially less restrictive, the bills will have the same aim: increase housing density, particularly along urban transit corridors.
There’s also potential for the legislature to tackle construction litigation reform this year, Leighty says. Reform efforts would be aimed at making it less easy for homeowners to sue builders, which could potentially ease insurance costs and availability and also reduce legal costs for builders. Reform would benefit builders who work on condominiums the most, as they’re often subject to lawsuits brought by homeowners associations, but all builders would likely benefit, depending on what the bill’s final form looks like.
Leighty warns that there could also be a redux of last year’s House Bill 23-1192. The bill aimed to remove a clause from the Consumer Protection Act requiring proof that a deceptive or unfair practice was engaged in “knowingly and recklessly” by the tradesperson. If passed as written, the bill would have made it substantially easier to litigate and prove claims against builders and contractors. The final bill struck that provision, but Leighty says efforts to revive it could arise this year.
Of course, nothing’s written in stone, and 2024 remains hard to predict. “There will be a suite of bills that we won’t know about until they come out of the hopper, which could always create challenges,” Leighty says.
The best thing builders can do is pay attention and stay engaged, Leighty says, particularly through their local Home Builders Association. “We have a saying that if home building is your profession, then policy and politics is your business,” he says. “Whether or not you care for politics and policy, it does care about you.”