The surge in apartment construction across Colorado is beginning to fade after several years of rapid development, according to a new report from the Federal Reserve Bank of Kansas City.
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The study examined developers’ use of the Low-Income Housing Tax Credit, a federal initiative established in 1986 that provides tax incentives to encourage affordable housing development. Over the past decade, Colorado builders have used the program at a higher rate than the national average, significantly boosting the number of affordable housing units across the state.
Population growth throughout Colorado during that period helped fuel strong demand for multifamily housing, leading developers to accelerate apartment construction in cities and growing communities.
Developers across Colorado relied heavily on the Low-Income Housing Tax Credit program to finance affordable housing projects. As a result, the state saw a steady rise in multifamily developments throughout the 2010s and early 2020s.
The expansion was driven by strong population growth and migration into Colorado, which increased demand for both affordable and market-rate housing.
Economists say the surge in apartment construction during that time exceeded national trends, with Colorado emerging as one of the more active multifamily development markets in the country.
“The surge in multifamily building in Colorado in recent years was far larger than what was happening in the rest of the U.S.,” said Nick Sly, an economist and Denver branch executive at the Kansas City Fed.
“This part of the country, generally, did not look like the rest of the country [in terms of] how much housing was developed over the last couple of years,” Sly said.
Despite the strong development activity in recent years, the market has begun to shift.
By the end of last year, new apartment construction — including both affordable and market-rate units — had dropped sharply. According to the report, the number of new apartment buildings under development fell to levels not seen in nearly a decade.
Several factors are contributing to the slowdown. Developers are facing a growing supply of newly completed apartment units, which has made it more difficult to fill buildings quickly. At the same time, rents in some areas have begun to decline, further reducing the incentive for developers to launch new projects.
Migration patterns are also changing, with fewer people moving into Colorado compared to previous years and some residents leaving the state.
Nick Sly said these shifting trends could reshape the state’s housing discussion going forward.
“The conversation that we're having about housing in Colorado is really poised to change because … those factors are really looking to turn in the coming year,” Sly said.
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The slowdown in apartment development reflects broader challenges facing the multifamily construction sector across the United States. Rising construction costs, higher interest rates and tighter financing conditions have made it more difficult for developers to start new projects.
In Colorado specifically, developers are also grappling with a large number of recently completed apartment buildings that entered the market over the past several years. As those units continue to lease up, many builders are choosing to delay additional developments until demand stabilizes.
However, economists note that affordable housing needs remain significant across the state. Programs like the Low-Income Housing Tax Credit will likely continue to play a critical role in supporting future affordable housing construction once market conditions stabilize.
While the current slowdown signals a shift in the development cycle, analysts say population growth and long-term housing demand in Colorado could eventually lead to another wave of multifamily construction in the coming years.
Originally reported by Sarah Mulholland in CPR.
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