Denver Development

City Wants Developers to Contribute to Denver's Affordable Housing Stock

Over two decades have passed since the Colorado Supreme Court issued the Telluride Decision, which prevented municipalities from requiring developers to build affordable components in rental developments. In the time since that 2000 ruling, the state has become increasingly unaffordable, especially along the Front Range.

But thanks to a bill passed by the Colorado Legislature and signed by Governor Jared Polis in 2021, the Telluride Decision is no longer the law in this state, and municipalities are able to enact affordable-housing requirements, commonly referred to as inclusionary zoning policies.

Denver got a head start. It's been working for over two years on an inclusionary zoning policy that is now nearing the finish line.

"The city, as a whole, is working to address housing affordability from all angles, and this is one of those angles to ensure, as we’re creating new homes and new developments in Denver, we are also creating new affordable homes for all residents, like teachers and firefighters and other folks," says Analiese Hock, who has been leading the Expanding Housing Affordability project for the Denver Department of Community Planning and Development.

On April 6, the Denver Planning Board will hold a hearing on the policy, put forward by CPD, which oversaw an advisory committee that included for-profit developers, affordable housing advocates and community representatives. The next step will be to put the policy in front of a Denver City Council committee before a final hearing and vote by the full council in June.

According to CPD officials, the vast majority of rental units built over the past few years in Denver have been affordable only for people making 80 percent or more of the area median income; the AMI is now $83,840 for a two-person household. As a result, city officials and councilmembers have been anxiously waiting for this policy to pass. Although by no means a panacea for the affordable-housing crisis in America, proponents consider inclusionary zoning policies a useful market-based tool.

According to the Denver proposal, new residential developments that involve ten or more units will be required to contribute in some way to the creation of affordable units. For developments with fewer than ten units, the proposal includes significant increases in the linkage fee, which is a per-square-foot fee that all developers now pay for new construction; the fee goes into an affordable-housing fund. By 2025, developers of smaller non-residential projects will have to pay $6 per square foot in a typical market and $9 per square foot in a high-cost market; the current fee is just $1.86 per square foot.

Under the proposal, developers will know how much they'll owe in terms of affordable housing based on a flexible formula that's affected by whether a development's units are for sale or rent, whether it's in a high-cost or typical market, and at which income level the units are affordable.

For example, developers building a project with ten units or more of rental housing in a high-cost market could either build 10 percent of the total units at 60 percent of the AMI or 15 percent of the units at an average 70 percent of the AMI.

The proposal also includes incentives for developers to opt in to the affordable-housing requirements; under state law, municipalities must provide developers with opt-outs, such as allowing them to pay a fee in lieu of building the required affordable units.

"This is a very incentive-heavy package," says Hock. Developers who opt in to the affordable housing requirements rather than pay the fee will have access to parking requirement reductions, commercial permit fee reductions and a linkage-fee exemption for the ground floors of mixed-use projects — which often feature commercial entities.

"All three of those are pretty substantial," Hock says.

The final proposal may not win over everyone. In fact, some developers believe that if the policy passes as currently written, the legislation will need to be revisited at a later date to make sure that a robust development industry remains in Denver.

"I think that legislation like this should not be one and done, because the markets are so dynamic that we will need to come back and revisit some of the incentives in the next few years to make sure this is delivering the numbers of units that the city wants and that we’re not constricting development," says David Zucker, CEO of Zocalo Community Development.

Zucker thinks that the city will need to add better incentives to persuade developers to build affordable-housing units.

Hock, however, believes the proposal already has enough incentives. "I think we’ve continuously heard from the development community that they want more incentives, and we’ve been able to show a responsiveness to that," she says.

And even with his concerns, Zucker recognizes that the proposed inclusionary zoning policy won't kill development in Denver altogether.

"Will developers find a way to make this work? Developers are practical cats. We will figure out a way," he says. "I don’t think it’s going to be a wholesale retraction of development in downtown and in Denver, though I'm hearing developers and investors deciding to step away from Denver. Whether that actually happens or is actually the case, I'm somewhat skeptical."

Zucker isn't the only critic of the proposal, although Ean Tafoya, a longtime climate activist in Denver who served on the inclusionary zoning advisory committee, representing the Inter-Neighborhood Cooperation Denver and the Colorado Latino Forum, is coming at it from a different angle.

"It feels like there’s a lot of deference to the developers in this," Tafoya says. One of his main complaints is that the policy doesn't home in enough on two- and three-bedroom apartments, which is what families need in Denver. "Developers like building one-bedroom apartments because they can get more money from them," he notes.

Tafoya, who is lobbying for the process to be slowed down so that city officials can make more tweaks to the proposal, also believes the policy should create more units at lower income levels and should have deeper affordability requirements for neighborhoods that are more at risk of displacement.

"This policy does create the flexibility to provide the units reaching down to 30 percent of AMI," Hock responds. "It’s also really important to note that this isn’t the only tool in the city’s tool kit to address housing needs for people at extremely low incomes." And the housing and development markets aren't different enough from neighborhood to neighborhood to allow for an inclusionary zoning policy that's tied to displacement risks for specific areas, she adds.

While acknowledging that the proposal won't please everyone, Hock concludes, "it's a strong and well-balanced policy."