Denver has been in a housing bubble for quite some time now. The cost of renting and owning a home has increased dramatically. This is causing a shortage of housing for people who can’t afford the high costs. So, Denver is planning to build 6,000 new lower income units to help with the problem.
But this created another problem. The city needs to raise around $150 million over 10 years to help fund the program. Denver Mayor Michael Hancock recently announced a proposal to raise the money through a property tax increase and by charging development fees for Denver building contractors. As you can imagine, there is some opposition by the developers and this article from Construction Dive explains more.
Denver builders battle city over proposed affordable housing development fees | Construction Dive
Affordable housing advocates are in favor of the plan — estimated to cost an average of $1,500 per new single-family home and hundreds of thousands of dollars for big residential or commercial projects — and said the Denver fees would be less than those imposed in other cities.
Some builders in favor of the plan told the Denver City Council’s Safety and Well-being Committee that charging developers a fee is a fair move because they benefit so much from the finished property, while some opponents suggested that 100% of the proposed affordable housing program be funded through the property tax increase.
Mandates that require developers to include a certain number of below-market units in each project have been a popular way of boosting a city’s affordable housing stock. San Francisco, which is facing skyrocketing rents and a housing shortage on an ever-increasing scale, recently more than doubled the number of affordable units builders are obligated to include in their developments of 25 units or more, although they can also have the option to pay a fee instead. California homebuilders sued the city of San Jose, CA, over a similar mandate in 2010 but lost that fight when the U.S. Supreme Court declined to review the California Supreme Court’s decision to uphold the requirement.
Other cities like Portland, OR, have adopted a plan similar to the one proposed in Denver and charge a flat fee, which is then funneled into an affordable housing building fund. Portland recently enacted a 1% construction excise tax on most new construction projects of more than $100,000. That tax is expected to raise $8 million each year and was made possible by the lifting of Oregon’s ban on affordable housing mandates earlier this year. Denver builders battle city over proposed affordable housing development fees | Construction Dive
The Denver Post has a more positive take on the proposal to raise the $150 million. You can definitely see both sides of the argument, but at the end of the day, someone has to pay for the plan. The homeowners have already paid a premium price, whereas the developers are the ones making most of the profit. It will be interesting to see how the issue is resolved.
Denver’s affordable housing plan is a good fit
An affordable housing plan announced earlier this week by Denver Mayor Michael Hancock, while it will raise costs for most everyone, seems a good fit for the progressive-minded city.
The plan seeks to raise more than $150 million over 10 years through a mix of developer fees and increased property taxes that average $1 a month for owners of a $300,000 home. In describing the plan, Hancock said the desire to create 6,000 income-restricted rentals and for-sale homes hit “at the heart and future vitality of our city.”
It is a big-hearted goal, made possible by Denver voters who agreed to free the city from property tax restrictions under the state Taxpayer’s Bill of Rights in 2012, a move we supported.
The Denver Post’s Jon Murray has reported that other cities with expensive housing markets — including Boston, San Francisco, and Seattle — have tried to create more affordable options with state and local cash.
Of course, there are trade-offs. Fees charged to developers — and not all of them are happy about this plan — are expected to raise the cost of a new 2,500-square-foot house by $1,500. We doubt that increase will stick to new construction, however. The affordable housing scheme no doubt will raise the floor price for all homes going forward. And developers of commercial property will almost certainly pass along their costs, too.
But we understand the spirit of the ask. Hancock and City Council members Albus Brooks and Robin Kniech, architects of the plan, say the developer fees are low compared to those in other cities. They point to a study that claims the fees won’t risk the profit potential of new developments. They say providing housing for the low-wage earners who do the city’s hardest work is only fair, and that the burden for creating that housing rests with us all.
The plan’s structure divides the costs roughly 50-50 between developer fees and residential property taxes. And developers have the option to avoid the impact fees by building affordable housing units.
The proposed fees would be assessed by the square foot. For example, for new single-family and duplexes, the cost for developers would be 60 cents a square foot. For multifamily buildings, $1.50. For hotel, office and retail, $1.70. Industrial and other uses would face 40 cents per square foot.
Some critics of the city’s plan wonder if it is ambitious enough, given the current rate of Denver’s growth. But perhaps starting modestly will keep the focus on accountability.
In releasing details of the plan, Hancock said, “We can’t afford not to do this. This risk is too high, and the status quo isn’t an option anymore. This is a fair and balanced approach. We tried to make it as simple as possible. It’s equitable, and it’s a communitywide approach so that everybody can participate in addressing this very critical issue in our city.”
We hope it helps. Denver’s affordable housing plan is a good fit
This is a good article about the announcement by the Denver Mayor Michael Hancock, giving additional details on the proposal. He states that it is a huge priority for the city to find a way to make housing more affordable for people in the services industry.