Townhomes are making a comeback in metro Denver, and the current construction wave is skewing more urban and expensive than in past decades.
“Our price point is $400,000 to $800,000. That is what we have been building,” said Donald Caster, principal of Sagebrush Companies in Denver.
Caster said Sagebrush prefers to keep townhome prices below the jumbo mortgage limits of $417,000, which makes it easier for buyers to obtain financing.
But a much higher price tag hasn’t prevented Sagebrush from easily selling the 54 townhomes it has built the past two years in some of Denver’s older and more popular neighborhoods.
Nearly a third of the townhomes recently sold in metro Denver cost $400,000 or more, according to statistics from Metrostudy, which tracks new-home construction.
New townhomes costing $600,000 or more represent about 8 percent of the market, the same share held by new townhomes priced under $250,000.
And that’s for a housing product long viewed as a more affordable alternative for first-time buyers who couldn’t afford a stand-alone home.
Townhomes and paired homes represent about 16 percent of new home construction in metro Denver, down from a peak of 24 percent in 2009, but a share now back in line with historical averages, said John Covert, Metrostudy’s director for Colorado and New Mexico.
The core problem, however, remains: Demand is far outstripping the supply of new housing.
“We are still only 40 percent of the peak year,” Covert said of the 3,202 townhome and paired home starts reached in 2005.
Construction is accelerating. Buyers in metro Denver closed on 1,235 townhomes or paired homes in the 12 months through June 30, a 52 percent jump from closings in the previous 12 months.
Townhomes are grabbing marketshare, not from single-family homes but almost entirely from condos.
Ten years ago, condos accounted for closer to a quarter of new housing starts. Now they are claiming only 3 percent.
Builders blame that drop on litigation linked to the state’s construction-defects laws, which has pushed up premiums on construction insurance.
Townhomes, given their lack of common areas and separate ownership, have proven more resistant to defects litigation.
They are also easier to drop into older urban neighborhoods that are now popular than larger apartment or condo buildings. But they still have enough density for developers to earn a profit.
Up to a dozen row homes can fit onto three single-family lots, Caster said, a trend that is transforming neighborhoods such as Jefferson Park, which has more than 200 townhomes and 1,000 apartments in the works.
The shift from owning to renting is also influencing townhome construction, with build-to-rent becoming more common than in the past.
At East Mississippi Avenue and South Broadway, near the recently demolished Gates Rubber plant, construction recently wrapped up on a 60-unit townhome project called Platt Park North.
Small homes once filled the area, but Gates tore those down in the 1950s to make way for parking lots — a concession to commuting workers who had bought larger homes in the suburbs.
Coming full circle, higher-density housing is springing up on those abandoned parking lots, filled by people who want to live closer to work.
Lance Gutsch, co-principal of Platt Park North developer Pando Holdings, said he and his partners noticed that older homes once available as rentals in Washington Park and surrounding neighborhoods were disappearing.
“Everything getting built is custom homes, and that is taking out rental inventory,” Gutsch said.
With so many more households renting, they also banked on a segment of renters who would want a larger-sized home with more privacy than an apartment.
“You step outside your door and you aren’t in a hallway. You have fresh air,” said Kiely Wilson, a co-principal at Pando Holdings.
But rents aren’t cheap, even by Denver’s rising standards. Two-bedroom townhomes, which have 1,073 square feet, start at $2,400 a month, while three-bedroom townhomes at 1,604 square feet go for $2,900 to $3,500 a month.
About two-thirds of the townhomes are claimed, some by tenants taking on two-year leases, and the expectation is that the rest of the homes will be rented in a couple of months, said Chris Firman of CF Investments, another partner in the development.
The $56 million community could have been built “for sale,” but the partners said renting allows them to share in the upside as the area redevelops.
“We are creating an asset. We love this neighborhood and understand living in this neighborhood,” Wilson said.
When the day comes, separate utilities and metering will make it easier to sell the rental townhomes than the task that apartment owners face converting to condos.
Nationally, townhome starts reached 24,000 in the second quarter, up 26 percent from the same quarter a year earlier and the fastest pace since early 2008, according to the National Association of Home Builders.
New townhomes accounted for 11.5 percent of all single-family starts, still down from the peak 14.6 percent share set in 2008.
Colorado is among the states where builders reported the greatest confidence about the prospects for townhomes.
Given how far demand is ahead of supply, Caster said he expects townhome construction to hold up, and Sagebrush had another 15 townhomes in the works.
But he has his eyes on catching an even bigger wave that he sees coming: condos.
Insurers are getting more comfortable with the quality-control checks and other practices needed to head off defects, and premiums are dropping finally, he said.
Financing for condo construction also is loosening up, and Denver-area rents are rising to the point that not buying will prove costly.
“We will get a huge condo boom,” he said.
Aldo Svaldi: 303-954-1410 or email@example.com