Our work to create more affordable housing options is expanding! Over the last few months, the Affordable Housing Zoning Incentive Project has shifted gears to include other tools, along with zoning, to help address housing needs in Denver. Continuing our work with the Department of Housing Stability, the new Expanding Housing Affordability Project will now involve:
- a citywide zoning incentive for affordable housing
- an update to the city's linkage fee
- preparation for potential changes to state law on inclusionary housing
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We have an immediate and growing need for housing. As costs go up, more families are spending more on housing, and many are being priced out of the neighborhoods they grew up in. To address that need, the city is working to create more options for everybody. This particular project will develop tools to encourage the construction of affordable and mixed-income housing across the city. New housing where people can live near jobs, transit and the services they need will help address housing demands and create a more sustainable Denver.
The project launched in 2020 with a focus on a citywide zoning incentive. It has expanded to include an update to the city's linkage fee and to address potential changes to state law, which currently limits what Denver can require for affordable housing. Specifically, this project will look at:
- a citywide zoning incentive that would allow projects to build taller buildings if more affordable units are included,
- an update to the city's linkage fee, which requires all new development to either include affordable housing or pay a fee that supports Denver's affordable housing fund, and
- potential changes to state law on "inclusionary housing," which refers to requirements that cities can establish for new for-sale or for-rent developments. Currently, state law puts strict limits on what Denver and other cities statewide can require.
The project is part of Community Planning and Development's efforts to fulfill Comprehensive Plan 2040's vision for an inclusive, connected and healthy city. It will also implement recommendations from Blueprint Denver that address the community's strong desire for more affordable housing options.
Objective
To establish market-based programs for new development that complement existing tools and resources, enabling the city to address housing needs for households in every neighborhood.
Guiding Principles
- An equitable program that addresses housing needs for residents and families with low and moderate incomes in every Denver neighborhood.
- A predictable program with clear and transparent processes, requirements, and outcomes.
- A market-based program that responds to varied market conditions.
Project Partners
Process and Timeline
Phase 1: Understanding Housing Needs and Best Practices
Expected timeline: 1st quarter of 2021
The project will study Denver's housing needs and industry considerations. It will also review best practices and lessons learned from similar programs here and in other cities. This work will build on 2020 efforts on incentive zoning, with the added focus on inclusionary housing and linkage fee programs.
We will share what we learn as part of our outreach, focusing resources on connecting with those most likely to be affected.
Phase 2: Market Feasibility Analysis and Exploring Policy Alternatives
Expected timeline: 2nd and 3rd quarters of 2021
The project will develop policy proposals to address housing needs, taking equity and financial feasibility into account. Market and financial feasibility analysis will help refine each of the tools. The intent of the analysis is to ensure the tools work with the market to produce affordable housing. Discussion will start with inclusionary housing and linkage fees to determine the baseline expectations for all new development. Then, we will explore incentives to determine what offsets are necessary and where we can produce more housing affordability.
As we look at ways to use the tools and their feasibility, different approaches will have different trade-offs. Our outreach will focus on understanding community priorities to inform discussions around potential alternatives. Resources will aim to reach a broad audience, with a focus on connecting with those most likely to be affected.
Key Considerations for Linkage Fee
- Fee varying depending on the uses in a development (for example, residential uses, commercial uses, etc.)
- Multiple options for fulfilling requirements
- When new rules would take effect
Key Considerations for Inclusionary Housing
- The number of units in a project that would trigger a requirement to include affordable units on site, rather than paying a fee
- Multiple options for fulfilling requirements
- Development offsets, such as expedited permitting review, lower fees, flexible parking requirements
- Different requirements for different areas based on varying costs and needs
- Percentage of units that must be affordable
- Who would qualify for rental and ownership units (for example, those making less than half of the average income, those making between half and 80 percent of the average income, etc.)
- How long the units would have to be affordable (for example, 60 years or 99 years)
- When new rules would take effect
Key Policy Considerations for Incentive Zoning
- Where incentives would apply
- How much taller buildings could be
- Additional zoning incentives (for example, flexibility with form standards, parking requirements)
- Different requirements for different areas based on varying costs and needs
- Percentage of units that must be affordable
- Who would qualify for rental and ownership units (for example, those making less than half of the average income, those making between half and 80 percent of the average income, etc.)
- How long the units would have to be affordable (for example, 60 years or 99 years)
- When new rules would take effect
Phase 3: Confirming Requirements and Ordinance Drafting
Expected timeline: 3rd quarter of 2021
We will work with stakeholders and the broader community to refine and confirm policy approaches. The final policies will be drafted as ordinance/zoning language.
In our outreach, our goal will be to build understanding of the final proposal and gain community support.
Phase 4: Legislative Review
The public will have a chance to review the proposed changes before review by the Denver Planning Board and City Council. Public comment is welcome throughout the process.
After public review, the Denver Planning Board will hold a public hearing and make a recommendation. The proposal then would move to City Council committee, and eventually the full council for a final hearing and vote.
Additional outreach will focus on successful implementation of the proposed rule changes, if adopted.
This effort is considering three tools--described below--to increase the supply of affordable housing, create a more inclusive and equitable community, and take advantage of current and planned transit investments.
The intent of these tools is to use the private development market to produce and fund affordable housing. To do so, they must respond to market demands and remain financially feasible. Therefore, the project will include financial analysis and outreach to determine program requirements. Each of these important tools can provide solutions to a range of Denver’s housing initiatives. To learn more about the city's housing priorities and programs, and for more on market conditions, housing production, and funding, check out Housing an inclusive Denver and the Denver Affordable Housing Dashboard.
Linkage Fee
What it is: A fee paid by all new development to support Denver's affordable housing fund.
What the project will do: Consider increasing the existing fee to reflect market conditions and bring in more funds for affordable housing.
How it works
Inclusionary housing could apply to all new development.
With all new housing development, some units must be affordable.
The remaining units are market rate.
Inclusionary Housing
What it is: A policy that requires new residential development to include affordable housing units. Currently state law limits use of this tool to for-sale housing.
What the project will do: Prepare to respond to potential changes to this law and study how this policy could be used in Denver for both for-sale and rental housing.
How it works
Incentive zoning could apply in centers, corridors and transit-rich areas. It could build upon a linkage fee or inclusionary housing requirement.
With all new housing development, zoning allows for a taller building. In exchange, more units in the building must be affordable. The remaining units must be market rate.
With new retail, the developer pays increased fee at a time of development. Zoning allows for a taller building in exchange for higher fees that are often used to create more affordable housing elsewhere in the city.
Incentive Zoning
What it is: A policy that provides incentives to projects--such as taller buildings, less parking, lower fees--in exchange for adding affordable housing units. Incentives can also be a part of an inclusionary housing program to offset the cost of providing affordable units.
What the project will do: Create zoning incentives that can be applied across the city, focused on areas with easy access to public transit.
How it works
Incentive zoning could apply in centers, corridors and transit-rich areas. It could build upon a linkage fee or inclusionary housing requirement.
With all new housing development, zoning allows for a taller building. In exchange, more units in the building must be affordable. The remaining units must be market rate.
With new retail, the developer pays increased fee at a time of development. Zoning allows for a taller building in exchange for higher fees that are often used to create more affordable housing elsewhere in the city.
Housing is considered affordable when a resident or family spends no more than 30 percent of their income on where they live. But as a policy, affordable housing isn’t just about who can pay their rent. It also affects the local work force and the economy. Below we address common questions affordable housing and why it matters. We also define common terms related to affordable housing policy so that every can participate in this important conversation.
Common Questions
What is affordable housing?
Housing is considered affordable when no more than 30 percent of a person or family’s income covers the rent or mortgage. This leaves money for other necessities like food, healthcare, transportation, education, childcare and savings.
There are two types of affordable housing.
Dedicated affordable housing units - These are usually created through public assistance and public-private partnerships. They are essential for ensuring affordability in neighborhoods where market rents are rising rapidly. They are also well suited to create inclusive communities and provide affordable housing to households with very low incomes. There is commonly a deed restriction or other regulating mechanism that keeps the rent or sale price low and ensures the cost remains affordable over a period of time. This project will focus on increasing the supply of dedicated affordable units.
Naturally occurring affordable units - These are units that may rent or sell at affordable levels, but are not legally required to stay at a certain price and may grow unaffordable over time. These units are commonly provided by the private sector. Examples include older apartments that have not been remodeled or refurbished. These units become less affordable when housing prices increase because there is more demand. Additionally, they can also be redeveloped into more expensive units that are no longer affordable.
Why is affordable housing important?
As housing costs go up, more families in Denver are spending more of their budgets on where they live or finding themselves priced out of neighborhoods. Citywide plans and policy documents reflect this need and call for new tools to create more housing opportunities.
Additionally, when housing is unaffordable, we see the following things happen:
- Individuals and families are forced to leave their homes and neighborhoods
- Pre-existing inequities get worse when low-income individuals or families can’t live in areas with good access to jobs, multi-modal transportation, parks and other amenities.
- Less money flows into the local economy. This is because when a greater portion of people’s incomes goes into housing costs, less money is left over for other types of spending that can support the local economy.
- Economic growth within the region slows as employers cannot find workers who can afford to live close to their jobs.
- Traffic becomes more congested and public infrastructure costs grow as workers live further away from jobs.
What is AMI and why does it matter?
Area Median Income (AMI) is a measure that helps determine whether a person or family is eligible to rent or buy an income-restricted apartment or house. AMI thresholds are adjusted by the number of people in a household and vary by location. This allows income-restricted housing programs to determine eligibility using income levels that make sense for the area.
For example, the average income for a two-person household in Pitkin County is $88,400. This would be referred to as 100% AMI in Pitkin County. In Trinidad, Colorado, 100% AMI for the same size household is $56,200.
Instead of thinking about AMI as a table of numbers, it’s important to understand that these categories represent people with jobs working in a range of professions who are supporting a range of household sizes.
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Do inclusionary housing policies increase overall housing prices?
Research on the impact of these policies on housing prices and production is mixed. The outcomes depend on what the policy does and on the housing market. Evidence suggests that strong housing markets can make it easier for developers to contribute below-market units or units that more people can afford. When calibrated properly to the market, these policies have not driven up housing costs. Additionally, combining requirements with other incentives such as additional stories, lower fees, and flexible parking requirements can off-set the cost of providing affordable units.
Do inclusionary housing policies slow down housing development?
The pace of housing development depends on numerous factors including population and employment growth, available capital, available land, and developer capacity, among others. An analysis of the permit activity in cities similar to Denver found that permits increase prior to adoption of inclusionary housing policies, decline shortly after adoption, and return to pre-adoption levels typically within one year.
What types of incomes and household types are served by these tools?
Market based tools are best set-up to serve low- to moderate-income individuals and families. For Denver, these are households with incomes between $40,000 and $80,000. These tools are best set up when they complement other programs. Housing for extremely low to very low income households, residents transitioning out of homelessness, and residents with special needs is typically provided by public and nonprofit organizations. That type of housing requires a significant subsidy. In this process, we will further refine the income levels served by these tools.
Does building only market-rate units create more affordability?
Market-rate housing production tends to be associated with higher rental costs in the short run—and lower median rents in the long run. Both market-rate and affordable housing development can contribute to affordability, but subsidized units have a higher and much more immediate impact.
In places with strong housing markets, older market-rate housing becoming more affordable as new units are built happens slowly. It can take decades before those units become affordable for low income households.
Who lives in the units created through inclusionary housing policies?
Inclusionary housing polices tend to target households that earn 60 percent to 120 percent of the area median income. These can be successful in creating workforce housing (the type of housing that is affordable for a range of jobs such as teachers or firefighters) in communities where the cost of living high.
Inclusionary housing is a useful mechanism to give residents the opportunity to stay in their communities and benefit from the amenities and economic opportunities brought by investment. In addition to increasing the amount of affordable housing, these policies can create more mixed-income communities. Research on the effectiveness of inclusionary housing at improving economic opportunity generally finds that these policies increase access to economic opportunities for low income households.
Is inclusionary housing the same as rent control?
Rent control is a cap on rent increases that applies to rental units owned and operated by the private sector. Inclusionary housing takes many forms but generally applies only to a portion of newly built units. It is often at least partially offset by additional stories, fee waivers, and parking reductions. Inclusionary housing also allows rents to move with household income increases.
Where will the zoning incentive for taller buildings apply?
The city’s plans call for creating more housing opportunities that more people can afford in areas near train stations and bus stops. We will also consider using potential incentives in regional and community centers and corridors, where multi-family and mixed-use development is appropriate and where people can live near jobs and amenities. Through this process we will work with the community to decide where it makes the most sense.
Why has housing become unaffordable?
Rising housing costs cannot be attributed to one single issue. They are a result of many different economic factors locally and globally. For example, in recent years, labor and material costs have grown by more than 50 percent. Land costs have doubled in many of Denver’s neighborhoods. Investors have sold homes they rented to new homebuyers displacing renters.
For many in Denver, this means that wages and incomes have significantly lagged increases in housing costs. As Denver looks toward the future, it will have trouble providing housing to its growing workforce in critical industries without creating affordable housing.
Comparing increases in rent, home value and income
Between 2021 and 2019, median rent increased 77 percent, median home value increased 79 percent and the median income for a 2-person household increased 32 percent.
Will these tools serve those experiencing homelessness?
Programs serving individuals and families with very low incomes require significant public assistance funding or subsidy. This would include those who make less than 30 percent of the average income and those experiencing homelessness. Incentives and inclusionary tools serve moderate and workforce housing needs, but the linkage fee can provide increased revenue to meet the needs of our most vulnerable through the creation and preservation of new housing, along with the necessary services to support those individuals and families. Additionally, if these tools are adopted, they can alleviate current HOST resources serving higher incomes and enable for the resources to be re-prioritized to areas with the greatest housing need.
Common Terms
Cost Burdened: Refers to those who pay more than 30 percent of their income for housing and may have difficulty affording necessities such as food, clothing, transportation, and medical care.
Extremely Cost Burdened: Refers to those who pay more than 50 percent of their income for housing and may have difficulty affording necessities such as food, clothing, transportation, and medical care. Additionally, they may be at high risk of displacement.
Change in cost burden
Among renters earning between $35,000 and $50,000 annually (40-60% AMI):
- In 2010, four out of ten were cost burdened.
- In 2019, eight out of ten were cost burdened.
Among renters earning between $50,000 and $75,000 annually (60-100% AMI):
- In 2010, one out of ten was cost burdened.
- In 2019, four out of ten were cost burdened.
Housing Continuum: The spectrum of all possible housing conditions one might experience – from homelessness to seeking affordable and workforce rental housing to attainable homeownership.
Strong Housing Market: The housing market is considered "strong" when there is a lot of demand (people looking to rent or buy) and a lot of supply (new housing getting built). A good housing market provides a good opportunity to use market-based tools, like the three being studied as part of this project, to encourage the creation of more affordable housing.