How water access is raising home prices: The view from Colorado
By Matt Bloom | KUNC
Tuesday, June 26, 2018
GREELEY, Colorado – When Nancy and Steven Innis built their new home in Greeley, an hour northeast of Denver, they equipped it with the latest in water conservation tech.
The automatic kitchen faucet shuts off with the wave of a hand. A drip irrigation system keeps yard plants hydrated without the wasteful runoff. Hi-tech toilets save water with different settings for big and small flushes.
Nancy Innis said she had to educate herself about how valuable water is in this part of the country.
“It was a huge factor,” she said. “It’s something we were very conscientious about.”
While all those innovations may help with the monthly bill, it doesn’t do much to curb the cost of getting their water service in the first place. They had to pay the city $38,000 up front for their building permit, which included water plant, meter and sewer fees.
These days, that’s an average price tag for water service to a new home in northern Colorado.
Record-high prices of water rights in the state are driving up the costs. This year, the market price of one unit of water, which is roughly enough to supply two single-family homes each year, from the Colorado-Big Thompson Project hit $30,000, according to the Northern Colorado Water Conservancy District.
Cities and towns are gobbling up those water rights to feed their growing populations and in turn are charging tens of thousands of dollars for individual building permits to offset the expense. That cost is passed directly onto customers, according to Greeley builder Jay Jensen, the man behind the Innis’ new Greeley home.
“As the cost of water goes up, the cost of a house goes up,” he said. “That’s the bottom line.”
When Jensen first started building homes in Greeley in the 1980s, the cost of tapping into the water supply hovered around $7,000, he said. As the cost has grown over time, he’s seen it become more of a barrier to building a new home.
“(Customers) all think, ‘Oh we’ll spend, you know, $200,000 on a house,’” he said. “Well, you’re more than likely going spend $40,000 to $60,000 before you even start building.”
After realizing that, he said, some potential customers walk away.
Not just new homes
The higher cost of water for new homes has a ripple effect throughout the housing market.
Imagine a city street. On one side, there’s a house that was built 10 years ago. On the other, a new home.
In this scenario, the old home’s water tap cost $17,000. The new home’s, $32,000.
According to Bob Sutton, a long-time realtor in Fort Collins, the new home’s pricier water tap drives up the value of the older home by the same amount of money. That’s because the value of the water tap changes as the market rate changes, he said.
“What happens is you have a new home development come in and those homes are priced at $500,000,” he said. “The existing or resale homes around that are going to be reflective of that in some way.”
While the average home costs vary, prices are creeping up in nearly every northern Colorado community. In May, the median sales prices in Fort Collins, 90 minutes north of Denver, hit $420,000, according to industry database Information and Real Estate Services.
A number of factors are contributing to that trend, according to Sutton, such as new tariffs on construction materials, land values — and water prices.
“Fort Collins continues to grow (and) we have the same amount of water we’ve had for many, many years,” he said. “And, so, it’s just a simple supply and demand.”
‘It’s getting harder and harder to find water rights’
Cities and towns know how difficult it is to compete for water rights and they don’t want it to scare off potential developers. Northern Colorado’s population is set to double in the coming decades and the region needs new homes to keep up.
So communities are looking for ways to make building easier.
The Town of Windsor, Colorado, has recently changed its policy to give builders a break. The town will allow developers to pay up to half of their raw water requirements in the form of cash and the city will take care of finding the water rights. That way, the developers don’t have to compete on the open market.
Dennis Wagner, head of engineering for the town’s public works department, said it’s proven to be a very popular option.
“A lot of developers are doing that, because, first of all, it’s getting harder and harder to find water rights,” he said. “So, any time they can pay cash instead of going out and finding it on their own, they will do that.”
Greeley is also considering a full cash-in-lieu of water policy. If put in place, it would allow builders to hand cash over to the city instead of actual water rights, taking the burden of competing on the open market off the developers’ shoulders.
Currently, the city requires new residential development to dedicate three acre-feet of water to the city for each acre of proposed development. Most builders must bring those water rights to the table when looking to build, with some exceptions for smaller projects.
A survey commissioned by the city in 2015 (done every five years) looked at the policies held by the 21 fastest growing communities in northern Colorado. It found a wide variety of approaches to developer-city relationships, from cash-only to water-only.
It also listed the average cost of bringing water service to a new home in each community.
Greeley builder Jay Jensen agrees that cash-in-lieu policies make things easier on the building process. But in his opinion, that doesn’t help with the rising cost of the water itself.
“More people using a finite resource means more people wanting the same thing,” he said.