Denver Pushes Forward With Yet Another Affordable Housing Plan, With More Room For Multifamily Developers

Denver’s local government is once again setting its sights on an ordinance meant to increase the stock of affordable housing units, as the city's crisis gets worse every year.

The city's latest proposal would ask multifamily developers to either include affordable housing in their developments or pay a fee in-lieu and increase the linkage fees paid for other development types, funneling the money into the city’s affordable housing fund.

The proposal, headed for the legislative process this spring, is the latest iteration of the city's inclusionary housing requirement and seeks to build more affordable housing along with market-rate housing, leading to the creation of mixed-income developments and neighborhoods, Denver Principal City Planner Analiese Hock told Bisnow.

“What the city is trying to change is ensuring that as we’re creating more housing in the city, we’re also creating more affordable housing alongside it,” she said.

Housing affordability has been a growing challenge for Denver since the end of the Great Recession in particular, with home prices regularly making double-digit year-over-year increases for a good portion of the 2010s.

More high-paying companies are moving to the region, often bringing with them coastal employees who see Denver-area real estate as a steal. And they are pricing out longtime residents who used to enjoy the city’s low cost of living. Teachers, nurses and firefighters struggle to find an affordable place to live while software engineers drop their jaws at how reasonably priced the homes are compared with Silicon Valley. 

This housing crunch worsened for years before Covid-19 supercharged it. Economic hardship and uncertainty combined with rapidly increasing rents have made it harder than ever to afford a place to live in many parts of metro Denver, with the city of Denver as home to many of the area's priciest pockets.

People are increasingly living with parents or roommates to afford the rising costs or downsizing again and again. The number of people experiencing homelessness doubled from 2020 to 2021.

Denver isn't alone in this struggle, with cities nationwide struggling to increase inventory amid the pandemic, supply chain shortages and economic uncertainty. Across the U.S., housing inventory began 2022 at a record low of 1.1 million available homes, according to Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors.

"2021 was the best year for the real estate market since 2006 in terms of existing-home sales," she said.

Evangelou also doesn’t see the tide of buyers entering the Denver market slowing any time soon. In 2020, Denver was the second-most-popular area for millennials among the 100 largest metros in the U.S., she said, and many of them are at last entering the homebuying stage of their lives.

Attempts to solve this crisis have resulted in several iterations of plans and proposals. The current one is part of a five-year strategic plan formulated by the city’s Department of Housing Sustainability, enabled in part by a change in state law that occurred last year.

Prior attempts at establishing an inclusionary housing ordinance in the city were hampered by a state law that said the rules could only be applied to for-sale developments, excluding multifamily rentals. Attached for-sale projects, typically condos in urban environments, have been few and far between in Colorado for more than 10 years, with developers and many local officials blaming statewide construction-defects laws that made it too easy for condo owners to sue developers and builders if something went wrong with their property.

But it wasn’t a change to the construction-defects laws that opened the door to this new Denver proposal, Hock said. 

Instead, it was a decision by the state legislature last year to reverse a long-held Colorado Supreme Court decision and allow affordable housing requirements to be placed on rental properties. 

That change paved the way for a whole new world of possibilities for affordable housing creation in Denver, which has seen unprecedented levels of apartment development in recent years in a flood of developer interest that was only partially stymied by the pandemic.

As it stands, the proposal offers options for developers who choose to build affordable homes as part of their overall development. Within each of those options are slightly different income restrictions for rental versus for-sale housing. 

Incentives will also be made available in certain cases, in the form of reductions in the parking requirement, increased height allowances and permit fee reductions for those developers who qualify by adding affordable units to their projects. 

State law still requires that localities offer alternatives to the affordable housing requirement, so a fee in-lieu option for the affordable units also exists, ranging from $250K to $478K, varying by ownership type and market area.

Finally, the proposal builds on the linkage fee system that was established in 2016 requiring developers of all kinds to pay into the city’s Affordable Housing Fund. The fees are paid on a per-square-foot basis and varied by property type, ranging from 40 cents for industrial buildings to $1.86 for offices, hotels and retail. The new proposal would increase these fees over the next three years to range from $2 to $8 per square foot.

Developers in the city are divided in their opinions of the proposal, according to a review of public comments submitted to the city. Some see the plan as a needed way to increase the city's affordable housing stock while others say that the added fees will actually have the opposite effect, driving up the rents they ultimately must charge to make their projects feasible.

By combining these two approaches, the proposal brings together aspects of the last two plans — the inclusionary housing ordinance and the linkage fee — to better meet the needs of the growing city, Hock said.

"[The inclusionary housing ordinance] put the burden on a very small slice of the pie. The linkage fee went the other way to ask a little from everyone," Hock said.

The new proposal broadens both prongs to achieve greater results overall.

The new proposal has almost reached the end of its public comment period, which included the input of residents, apartment owners, housing affordability advocates, members of the development community and others. Now it can begin making its way through the winding corridors of local government, with the goal of reaching city council by June, Hock said.

Not only does the city hope to increase the number of affordable units available, but it would like to see more dynamic developments that serve diverse groups of people, and the new proposal aims to achieve that.