About The Author
Steven L. Byers, Ph.D. is the senior economist with the Common Sense Institute. Steven’s Experience as an economist spans twenty-three years, including work at federal regulatory agencies (SEC, CFTC, PCAOB) and quantitative economic analysis supporting international trade litigation cases brought before the U.S. International Trade Commission.
About Common Sense Institute
Common Sense Institute is a non-partisan research organization dedicated to the protection and promotion of our economy. As a leading voice for free enterprise, CSI’s mission is to examine the fiscal impacts of policies, laws, and to educate voters on issues that impact their lives.
CSI’s founders were a concerned group of business and community leaders who observed that divisive partisanship was overwhelming policymaking and believed that sound economic analysis could help people make fact-based and common sense decisions.
CSI employs rigorous research techniques and dynamic modeling to evaluate the potential impact of these measures on the Colorado economy and individual opportunity.
Teams & Fellows Statement
CSI is committed to independent, in-depth research that examines the impacts of policies, initiatives, and proposed laws so that Coloradans are educated and informed on issues impacting their lives. CSI’s commitment to institutional independence is rooted in the individual independence of our researchers, economists, and fellows. At the core of CSI’s mission is belief in the power of the free enterprise system. CSI’s work explores ideas that protect and promote jobs and the economy, and the CSI team and fellows take part in this pursuit with academic freedom. The CSI team’s work is guided by data-driven research and evidence.
The views and opinions of fellows do not reflect the institutional views of CSI. CSI operates independently of any political party and does not take positions.
Introduction
The City of Aurora has experienced large increases in population for many years. Housing demand has risen accordingly, but unlike other Colorado cities, Aurora has increased the supply of housing to meet demand. The result is that since 2005, average housing prices in Aurora have been lower than the state average despite increasing 121% in the last ten years. Combined with 20-year record mortgage rates, affordability has decreased by more than half.
This report analyzes affordability trends and estimates whether there is a deficit or surplus in housing units in Aurora Colorado.
Key Findings
- Due to elevated prices and rising interest rates, the affordability of purchasing a home in Aurora is at the lowest point in more than 20 years, nearly doubling in cost in the last eight.
- Housing costs are outpacing income, so home affordability has decreased by 122% since 2013.
- Unlike other Denver Metro cities, the housing supply deficit in Aurora has been reduced significantly in the last 5 years.
- Between approximately 1,166 and 1,804 permits are needed annually through 2028 to close the city housing supply deficit and meet the demands of future population growth.
- Aurora’s housing gap is nearly closed.
- 59% of permits issued in Aurora since 2011 are for single-family structures and 49% for multi-family structures.
- Homebuilders’ confidence has declined 41% since a recent high in February 2022.
Declining Affordability as Measured by the Homebuyer Misery Index
Figure 1 shows the “Aurora Homebuyer Misery Index”, as developed by CSI (shown by black line). The index captures the impact of housing prices (shown by redline) and mortgage rates (shown by blue line) on the affordability of purchasing a new home. The homebuyer index is based on 30-year mortgage rates and the Zillow Home Price Data for Aurora, see figure 1.[i][ii] The mortgage rates and average home prices are converted into an index with 2000 as its base year. The significant increase in the index value over the last two-and-a-half years reflects the drastic decrease in home affordability as home prices and mortgage rates.
Figure 1 – Aurora, CO. Homebuyer Misery Index
Figure 2 shows the change in the Homebuyer Misery Index through July 2023 relative to prior years end. Thirty-five percent of the decline in affordability from 2015 occurred since 2020 alone, as both home price and mortgage rates have grown.
Figure 2 – Change in Housing Affordability in Aurora, CO.
The Wall Street Journal and Realtors.com began producing their Emerging Housing Markets Index in spring 2021 and has now published 6 quarterly estimates. The index identifies the top metro areas for home buyers seeking an appreciating housing market, strong local economies, and appealing lifestyle amenities. Three hundred of the most populous core-based statistical areas as measured by the U.S. Census Bureau are evaluated using two main areas: real-estate markets (50%) and economic health (50%). It utilizes 11 key indicators that are weighted and summed to create a single measure: real-estate supply (16.6%), real-estate demand (16.6%), medium home listing price trend (16.6%), unemployment (6.25%), wages (6.25%), regional price parities (6.25%), amenities (6.25%), small businesses (6.25%), and property taxes (6.25%).[iii]
Figure 3 shows the rankings of the Colorado core-based statistical areas relative to all three hundred most populous areas included in the index. The Denver-Aurora-Lakewood area has fallen since Spring 2022 and is now ranked 114th. This index provides some perspective that the large decrease in affordability is making Aurora relatively less attractive given the potential for prices to continue to rise and for other quality of life amenities and economic factors.
Figure 3 – Wall Street Journal/Realtor.com Emerging Housing Markets Index, Ranked Relative to 300 Metropolitan Statistical Areas
| Wall Street Journal/Realtor.com Emerging Housing Markets Index, Ranked Relative to 300 Metropolitan Statistical Areas | |||||||
| Spring 2021 | Summer 2021 | Fall 2021 | Spring 2022 | Summer 2022 | Fall 2022 | Spring 2023 | |
| Boulder | 31 | 46 | 20 | 6 | 14 | 33 | 46 |
| Colorado Springs | 32 | 14 | 11 | 25 | 20 | 14 | 66 |
| Denver-Aurora-Lakewood | 115 | 88 | 59 | 52 | 66 | 38 | 114 |
| Fort Collins | 96 | 68 | 24 | 8 | 11 | 47 | 64 |
| Grand Junction | 60 | 39 | 90 | 126 | 50 | 43 | 118 |
| Greeley | 153 | 140 | 93 | 108 | 113 | 168 | 147 |
| Pueblo | 86 | 55 | 83 | 102 | 78 | 98 | 160 |
| This table is ranked by comparison to 300 of the most populous metro areas in the U.S. The index identifies the top metro areas for home buyers seeking an appreciating housing market, a strong local economy and appealing lifestyle amenities. | |||||||
Home Prices
Shown in Figure 4, home prices in Aurora eclipsed the U.S. average home price in 2013 and have risen at a rate close to Colorado home prices since 2013. However, they have diverged since 2020, and home prices in Aurora are less expensive on average than the state overall. Home prices as measured by the Aurora Home Price Index increased 121% since June 2013 and 25% since the beginning of the Covid-19 pandemic through June 2023.
Figure 4 – Aurora, CO Home Price Index
Hours of Work Needed to Afford a Home Mortgage
To measure the impact on the average homeowner in Colorado, CSI calculated the number of hours that one would have to work while earning the average hourly wage ($37.14 in June 2023) to cover the monthly mortgage payments shown in Figures 5 and 6. Over just the last 30 months, an additional 29.6 hours (a 54.4% increase) of work per month is necessary to cover the mortgage on an average priced home as mortgage rates have doubled. The total number of hours required to pay the monthly mortgage on an average priced home in Aurora at the average wage rate is now 84 hours.
Figure 5 – Aurora, CO. Home Prices, Mortgage Rates, Monthly Payment, Wage Rates, and Hours of Work Required to Cover the Monthly Mortgage Payment
| Colorado Home Prices, Mortgage Rates, Monthly Payment, Wage Rates, and Hours Required to Cover Monthly Mortgage Payment | |||||
| Date | Average Home Price | 30-Year Mortgage Rate | Mortgage Payment with
0% Down |
Average Wage Rate | Hour of Work at the Average Wage Rate Required to Cover Mortgage Payment |
| Jun-13 | $218,758 | 4.07% | $1,053.23 | $27.42 | 38.4 |
| Jun-14 | $239,916 | 4.16% | $1,167.98 | $28.13 | 41.5 |
| Jun-15 | $277,534 | 3.98% | $1,322 | $28.26 | 46.8 |
| Jun-16 | $313,285 | 3.57% | $1,419 | $28.94 | 49.0 |
| Jun-17 | $339,596 | 3.90% | $1,603 | $28.15 | 56.9 |
| Jun-18 | $364,555 | 4.57% | $1,862 | $29.81 | 62.5 |
| Jun-19 | $378,797 | 3.80% | $1,766 | $32.27 | 54.7 |
| Jun-20 | $395,902 | 3.16% | $1,704 | $32.46 | 52.5 |
| Jun-21 | $444,581 | 2.98% | $1,868 | $34.35 | 54.4 |
| Jun-22 | $505,137 | 5.52% | $2,875 | $36.61 | 78.5 |
| Jun-23 | $482,954 | 6.71% | $3,121 | $37.14 | 84.0 |
Sources: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US,
Colorado – May 2021 OEWS State Occupational Employment and Wage Estimates (bls.gov).
Figure 6 shows the evolution of monthly mortgage payments on a median-price home and the required hours of work necessary to cover the payment. Required hours steadily declined until 2013 and then gradually increased until 2019, dropped during the pandemic and then began to increase dramatically beginning in November 2021.
Figure 6 – Evolution of Mortgage Affordability in Aurora, CO.
Aurora Housing Supply Shortage
Aurora has failed to build enough housing to keep pace with demand, though the deficit has been reduced significantly in the last five years. Standard housing market reports like those developed by the Colorado Association of REALTORS® track inventory based on homes listed for sale. What those reports do not capture is the total stock of homes needed to maintain a healthy housing market.
CSI estimated the number of homes by select Colorado counties needed to achieve a healthy housing market under two scenarios. Each scenario is intended to measure the difference between the actual number of homes in a county relative to the number of homes needed to maintain a more stable market. The first scenario estimates the housing deficit or surplus based on the low estimate of homes held off the market for purchase by the local population. The second scenario estimates the housing deficit or surplus based on the high estimate of homes held off the market for purchase by the local population.
Housing units and households – Each scenario uses both the estimate of housing units and households from U.S. Census Bureau’s American Community Survey (ACS) and data from the Colorado Demography Office.
Homes held off the market – Total homes held off the market reflect existing housing units not available for purchase by the local population. The estimate includes a range of second homes at the county level released by the National Association of Homebuilders,[iv] along with an estimate of uninhabitable homes from ACS. The high range for the number of second homes in Aurora is estimated to be 4.99%
Desired ratio of total units to local population – To estimate the target number of housing units, the value of 1.1 housing units per household was used to represent a healthy market. This value is derived from the historic average ratio of vacancy rates for the U.S. and was the basis for a housing supply report done for the state of Oregon.[v]
Using the scenarios discussed above, the deficit in housing units in 2022 is estimated to be between 1,340 and 5,166 units. Figure 7 presents summary results for Aurora. CSI will continue to monitor new data as it becomes available and will amend the estimates and methodology as required.
Figure 7 – Housing Deficit in Aurora, CO
| Housing Deficit/Surplus in Aurora in 2022 | ||||
| Region | Housing Deficit 2022 | Deficit as a Percent of 2022 Existing Stock of Housing Units | ||
| Scenario 1 | Scenario 2 | Scenario 1 | Scenario 2 | |
| Aurora, CO | 1,340 | 5,166 | 1.7% | 6.7% |
| Scenario 1 uses the NAHB low estimate of the percent of homes held-off-market | ||||
| Scenario 2 uses the NAHB high estimate of the percent of homes held-off-market (4.99%) | ||||
Building Permits and the Housing Supply Deficit
The housing supply deficit in Aurora began to accumulate in the 1990s as Colorado experienced substantial population growth. After growing fairly consistently through 2018, the deficit started shrinking as increased permitting allowed more housing units, see Figure 8. In 2023 year-to-date, permitting appears to be on track to further reduce the deficit, which should ease pressure on home prices.
Figure 8 – Aurora , CO Population Growth, Permitted Units, and the Housing Supply Deficit
Figure 9 shows the estimated change in population, households, and housing units needed in Aurora through 2028. This data is used to forecast the number of permits that would be required to close the 2022 supply deficit and meet new demand for housing as new residents move in.
Figure 9 – Change in Population, Households and Housing Units Needed in Aurora, CO Through 2028
| Change in Population, Households, and Housing Units Needed in Aurora, CO., Through 2028 | |||
| Region | Population | Households | Housing Units Needed |
| Aurora, CO. | 12,427 | 5,144 | 5,659 |
To erase the estimated statewide deficit and meet new population-driven demand for housing by 2028, Aurora needs an additional 1,166 (6,999/6-years) to 1,804 (10,825/6-ears) permitted units each year. CSI is tracking building unit permits on a quarterly basis to evaluate whether the level of issuance is sufficient to close the existing housing deficit and meet new demand for housing as the population grows. See Figure 10 for the scenario estimates for Aurora.
Figure 10 – Permits Required to Close the Housing Supply Deficit and Meet New Demand in Aurora, CO. by 2028
| Table 5 – Permits Required to Close the 2022 Deficit and New Housing Demand in Aurora, CO through 2028 | |||||
| Region | Number of Permits Required to Close the Deficit Plus New Demand for Housing in Deficit by 2028 | Permits Issued per Year | Deficit/Surplus in Permitted Units Issued | ||
| Scenario 1 | Scenario 2 | 2022 Projected | Scenario 1 | Scenario 2 | |
| Aurora, CO. | 6,999 | 10,825 | 1,433 | 267 | -371 |
| Scenario 1 uses the NAHB low estimate of the percent of homes held-off-market | |||||
| Scenario 2 uses the NAHB high estimate of the percent of homes held-off-market (4.99%) | |||||
Figure 11 shows the number of housing units permits required to close the deficit by 2028 for 2 scenarios, and the number of permits issued monthly so far. The red line shows the average monthly required permits to close the 2022 deficit and meet new housing demand by 2028 for scenario 1. The blue line is for scenario 2. In scenario 1, enough permits have been issued in 14 months to cover the housing deficit and meet new demand for housing by 2028. In scenario 2, enough permits were issued in 10 months. However, permitting is trending down as high interest rates dampen housing demand and builders apply for fewer permits.
Figure 11 – Average Monthly Housing Permits Needed vs. Issued in Aurora, CO
Types of Permits Issued in Aurora by Year
More of the homes being permitted are single family homes than are multifamily.
Figure 12 shows the number and types of permits issued in Aurora since 2011. Forty-one percent of permits have been for multi-family structures, the majority of which are five or more units. Fifty-nine percent of permits have been for single family structures.
Figure 12- Types of Permits Issued in Aurora, CO. by Year
| Types of Permits Issued in Aurora, CO. by Year | ||||||
| Total Units | Units in Single-Family Structures | Units in All Multi-Family Structures | Units in 2-unit Multi-Family Structures | Units in 3- and 4-unit Multi-Family Structures | Units in 5+ Unit Multi-Family Structures | |
| 2013 | 1,751 | 836 | 915 | 0 | 16 | 899 |
| 2014 | 1,024 | 832 | 192 | 0 | 0 | 192 |
| 2015 | 986 | 986 | 0 | 0 | 0 | 0 |
| 2016 | 2,709 | 1,344 | 1,365 | 0 | 0 | 1,365 |
| 2017 | 1,929 | 1,660 | 269 | 0 | 12 | 257 |
| 2018 | 2,615 | 1,424 | 1,191 | 0 | 42 | 1,149 |
| 2019 | 2,328 | 1,523 | 805 | 0 | 25 | 780 |
| 2020 | 2,725 | 2,063 | 662 | 0 | 6 | 656 |
| 2021 | 4,176 | 2,096 | 2,080 | 0 | 0 | 2,080 |
| 2022 | 3,280 | 1,314 | 1,966 | 0 | 0 | 1,966 |
| 2023 | 1,433 | 579 | 854 | 0 | 0 | 854 |
| Total 2013 – 2023 | 24,956 | 14,657 | 10,299 | 0 | 101 | 10,198 |
| Percent | 100% | 59% | 41% | 0% | 0.4% | 40.6% |
Going Forward
As shown in Figure 13, demand for housing has begun to taper off as mortgage rates (black line) have increased since March 2022. In response, many home builders are re-evaluating their plans for new housing development, thus, 30-year mortgage rates (blue line) have declined by 29 percent since March 2021. The October Housing Market Index (HMI) (red line) released by the National Association of Homebuilders, which reflects builder confidence in the market for newly built single-family homes, fell for the 11th straight month to the lowest point since April 2020.[vi]
Though it has been reduced significantly, the housing deficit remains. If builders reduce annual production, which looks more and more likely based on the HMI, the deficit could increase. If population growth in Aurora continues without enough new housing units, the deficit will grow. Developers should continue building higher density and less expensive housing to erase the deficit even in a high interest rate environment.
Figure 13 – NAHB/Wells Fargo Housing Market Index, 30-year Mortgage Rates
REFERENCES
[i]Housing Data – Zillow Research
[ii] Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, July 12, 2022.
[iii] https://www.wsj.com/articles/see-the-full-rankings-for-wsj-realtor-coms-summer-emerging-housing-markets-index-11658779946?mod=article_relatedinline
[iv] The Nation’s Stock of Second Homes, Zhao, Na., May 2013, National Association of Home Builders
[v] Implementing a Regional Housing Needs Methodology in Oregon: Approach, Results, and Initial Recommendations. August 2020. ECONorthwest.
[vi] https://www.nahb.org/news-and-economics/press-releases/2022/07/builder-confidence-plunges-as-affordability-woes-mount