Examining Expanding Housing Affordability Proposal

Colorado has been facing an affordable housing dilemma for many years now. There is no question that the housing supply has failed to keep pace with demand, leading to housing costs that are unaffordable for a large portion of our population. The debate regarding how to best address the imbalance between housing supply and demand continues to rage on with the city of Denver’s latest effort to tackle the problem: the “Expanding Housing Affordability” policy proposal. This article addresses the EHA proposal and the legislative backdrop that paved the way for the proposal.

Recent legislation paved the way for inclusionary housing policies. In 2000, the Colorado Supreme Court struck down an inclusionary zoning ordinance passed by the town of Telluride, holding that it amounted to a form of rent control. Rent control is prohibited by statute in Colorado. The ordinance would have required developers to create affordable housing for 40% of the new employees generated by the development by constructing new housing with fixed rent, imposing deed restrictions on existing units, paying a fee in lieu of housing, or conveying land to the town for affordable housing. The Colorado Supreme Court found that the ordinance amounted to what is commonly understood as rent control, given the options to build new affordable housing or deed-restrict existing units, despite the fact that it gave developers alternative methods to comply.

The Colorado Supreme Court left open the possibility that the Legislature could enact legislation to allow inclusionary zoning policies such as the ordinance struck down in the Telluride case. Fast-forward to 2021 and the Colorado Legislature did just that. House Bill 21-1117, signed by Gov. Jared Polis on May 28, 2021, paved the way for more robust inclusionary zoning policies, such as the current EHA proposal. Pursuant to HB 21-1117, local governments may enact land use regulations that restrict rents on newly constructed or redeveloped housing units without violating the rent control statute (C.R.S. § 38-12- 301), provided that such regulations provide the developer with one or more alternatives to the construction of new affordable housing. Furthermore, as a precondition to enacting such land use regulations, the local government must be able to demonstrate that it has taken at least one of a number of actions to address the lack of affordable housing, such as, for instance, changing its zoning regulations to increase allowed density or eliminating utility charges, regulatory fees, or taxes applicable to affordable housing.

Denver’s proposal. The city of Denver responded to HB 21-1117 with the EHA proposal, which is making its way through the vetting process. The policy is intended to ensure that as new market-rate homes are built, new affordable homes are also built. If adopted in its current form, EHA would apply to new rental or for-sale residential developments containing 10 or more units and would require that 8% to 15% of the units be affordable depending on the area median income and location of the development (such that more affordable units would be required in higher-cost markets). Specifically, developers subject to EHA would be able to select from the two inclusionary housing options shown on the chart.

A “high market” is a statistical neighborhood in the city that is in the top quartile of rents or sale prices and land values, subject to periodic update. Any market that is not a high market is a “typical market.”

As reflected in the chart, the city has proposed certain incentives to help offset the cost of building affordable units, including reduced parking requirements and permit fees. Additional incentives may be available for those projects that exceed the above requirements, including by-right height increases in all mixed-use and multiunit zone districts that allow three or more stories, parking exemptions within a quarter mile of fixed rail transit stations, and permit review by a dedicated affordable housing team, subject to staffing availability.

As required by HB 21-1117, the EHA proposal includes an alternative means of compliance. A developer, alternatively, can satisfy the affordable housing requirement by paying a fee-in-lieu of building affordable units that would range between $250,000 and $478,000, depending on the type of housing (rental or for sale) and the market area (high market or typical) or entering into an agreement with the city involving, for instance, land dedication for new affordable housing, or off-site affordable housing development.

Under the current proposal, the following projects would be exempt from compliance:

  • Projects subject to site development plan review with a concept site plan submitted by June 30, 2022, and a final SDP approved by Aug. 30, 2023.
  • Projects subject to large development review and/or subdivision requirements that have a final SDP approved by Dec. 31, 2023.
  • Projects under residential review that have a building permit submitted by June 30, with no outstanding plan review fees, and a building permit issued by Dec. 30.

In addition, the EHA proposal includes updates to the linkage fees for the city’s Affordable Housing Fund that would apply to new residential developments with nine or fewer units and nonresidential developments.

The EHA proposal has gone through the public comment process with advocates and opponents weighing in. One area of debate has been whether the EHA program’s incentives are robust enough to encourage developers to continue building in Denver. The concern is that the compliance costs will deter development, despite the incentives, thus perpetuating the problem of high housing costs due to limited supply. Some argue that a more effective approach to tackle the affordability problem would be to increase the supply by, for instance, providing incentives for increased density, abolishing height restrictions and removing barriers to development by allowing a greater variety of housing types (i.e., accessory dwelling units and four-plexes). Others argue that the EHA proposal is unlikely to deter development in the city given the demand, and that affordable housing will not be built without a mandate to build it or provide alternative funding for it. Both sides debate the success of similar programs in other cities, such as Atlanta and Portland, Oregon.

The EHA proposal was considered by the Denver Planning Board on April 6, and Denver City Council will look at it later this spring.

This article was originally published in the May 4 edition of the Colorado Real Estate Journal