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DEDICATED AFFORDABLE HOUSING FUND

In Fall 2016, the Denver City Council approved the first-ever dedicated fund for affordable housing in Denver. Through a thoughtful balance of property tax revenue and a one-time fee on new development, the fund is estimated to raise $150 million over the next 10 years to create or preserve 6,000 affordable homes for low- to moderate-income families.

Denver has created a local fund to generate an estimated $150 million over 10 years to support affordable housing development and preservation. Based on a rigorous vetting of possible funding sources and best practices in peer cities, two sources were approved for Denver’s new housing fund--a portion of a property tax mill already approved by Denver voters and a new, one-time fee on commercial and residential development. Together these sources provide a fair, balanced approach that allows every resident to participate in addressing Denver’s affordable housing needs.

The new housing fund will be used to create and preserve housing for households across a wide income spectrum, including people experiencing homelessness and the most vulnerable households. The fund will support permanent housing and supportive services for at-risk residents, low- and moderate-income workforce rental housing, and moderate income for-sale housing.  

There are about 150,000 renter households in Denver; about 61% of these households earn less than $50,000. Half of Denver's renters pay more than 30% of their income for housing; nearly a quarter of these households pay more than 50% for housing. 

For families in this situation, high housing costs can mean there is little left over to save or invest in the future.

For employers large and small, the high cost of living within a reasonable commute--even for very desirable jobs--could eclipse Denver's strong employment base and make talent very hard to recruit and retain.

Housing prices here have been rising at twice the national average. Rents have increased about 50% since 2010. It is not simply the homeless and most vulnerable people who are facing barriers to live affordably, but an alarming range of working families too.

Denver has added a substantial number of jobs in recent years, and income levels have risen as well, but when it comes to housing, even Denver's robust income growth has not translated into greater spending power for everyone.

For more detail on this challenge and the city's efforts to address Denver's affordable housing needs, here is our 2015 Housing Report.

Over the past year, the development of the dedicated affordable housing fund involved a robust public process that was highly deliberate, open, and transparent, including the following:

Rigorous vetting of possible funding sources that ultimately led to these proposed property tax and development impact fees

Significant financial modeling that helped us arrive at a revenue projection of an estimated $150 million and 6,000 units over the first 10 years

Monthly stakeholder meetings, convened starting in September 2015 and ongoing, with a diverse group including housing and service providers, affordable and market-rate residential developers, commercial developers, finance experts and other real estate professionals

- Additional one-on-one outreach with other stakeholders

April 26: Our first public meeting, at East High School, with 350 attendees

- Ongoing update presentations to Denver City Council's Safety and Housing Committee

July 21: Our second public meeting, at North High School.

August 2: Presentation of draft ordinance at Safety and Housing Council Committee.

August 17: More discussion at Safety and Housing Council Committee. 

August 24: Vote to pass - Safety and Housing Council Committee.

- August 31: Mayor-Council Meeting, 9:30 a.m. 

- September 12: First reading at Council.

September 19: Ordinance approved during second/final reading at Council, which included a one-hour courtesy public hearing

After approval, the following were accomplished:

- Nominated and confirmed new Housing Advisory Committee

- High level housing fund priorities set in the 2017 Budget 

- Streamlined investment terms and competitive processes for allocating local funds in 2017

Funds are now flowing into Denver's affordable housing development and preservation fund as of January 1, 2017.

Denver’s proposed revenue package is a balanced approach that relies both on the long-term stability of our property tax along with the opportunity to capitalize on the benefits during economic growth cycles through a one-time fee on development.

We worked to build this approach to generating revenue as flat as possible and as simple as possible.

Here are the approved impact fees:

Impact Fee Type

Category

Per Square Foot Fee

Residential

Single Family/Duplex

$0.60

 

Multi-Family

$1.50

Commercial

Hotel/Office/Retail/Other         

$1.70

 

Industrial/Agricultural                

$0.40


Click here for more information on the development fee, including exemptions and collections start date.

Current modeling estimates housing fund revenue at approximately $150 million over the next 10 years with a balance of the two sources at a 50-50% split (property tax – development fee).

At the approved dedicated property tax of 0.5 mills:

- The impact on a typical homeowner in Denver will be $12 per year on a median home priced at $300,000

- The impact on a commercial property owner will be $145 per year for every $1M of value

Denver’s development fee was informed by best practice research, a leading industry consultant, and months of diverse local stakeholder input.

We used an RFP process to hire a nationally-respected consultant, David Rosen & Associates, utilizing their tested methodology that draws the "nexus" from development to jobs to housing need.

We also considered the perspectives of commercial and residential technical advisory groups of well-respected developers to help inform the nexus study.

The study identified “legally justified maximum fees” ranging from $28.51 to $119.29 per square foot for commercial development and $9.60 to $23.66 per square foot on residential development.

We further lowered the fee ceiling with a feasibility study that was designed to show at what threshold a fee would tip a project into a financially infeasible position based on a Return on Equity analysis.

We lowered the ceiling even more based on additional input and analysis, including comparison to development fees for affordable housing in peer cities:

    San Diego    
    $0.80 to $2.12 per square foot

    Sacramento*    
    $0.50 to $2.58 per square foot

    Boston    
    $8.34 per square foot

    Boulder   
    $0.09 to $9.53 per square foot

    Seattle                
    $5.00 to 17.50 per square foot

    San Francisco      
    $16.01 to $24.03 per square foot

* Sacramento is the only city above that includes new residential development in its fee. The rest do not.

Development fees are a common source of revenue for jurisdictions across the Denver metro area, funding public investments such as affordable housing, transportation, parks and public schools:

Meanwhile, Denver’s property tax rates are competitive compared to other metro area jurisdictions.



This new housing fund is designed to provide flexibility in addressing Denver’s housing needs, allowing the city to respond to changing market conditions and develop creative housing solutions.

A wide spectrum: The primary use of these funds will be the production and preservation of permanent supportive housing, workforce rental housing and for-sale housing. The spectrum of people benefiting from this fund will range from homeless individuals and those struggling to live below 30% Area Median Income ($16,830 for one person) through the income spectrum up to families of four earning 100% AMI ($80,100). 

Income limits: Rental housing projects will serve households up to 80% AMI ($64,080 for a family of four). For-sale housing investments will serve households up to 100% AMI ($80,100 for a family of four). Homeownership programs such as down payment assistance serve households up to 120% AMI ($96,120 for a family of four).

Filling gaps: A limited portion of funds will be available for supportive services such as case managers in permanent supportive housing developments after all other sources such as Medicaid are exhausted first.

Low administrative costs: A small portion of funds will be available for administrative expenses, capped at 8% of the total revenue from the fund but using less than the legal maximum in the first year.

Innovation: Fund deployment will leverage new and existing housing expertise to create competitive programs and streamline investment decision-making. 

A specially appointed 23-member Housing Advisory Committee will provide essential strategic input on uses of the dedicated fund. The committee will meet monthly in publically announced, open meetings.