Last year, we told you about the dearth of condo construction in the Denver metro area. Some say the reason that developers are steering clear of building condos is that most projects end up as the subject of costly construction-defect lawsuits. One of the local policy makers concerned about this issue is Denver Councilwoman Robin Kniech, who spearheaded a recent push to revise the city's Inclusionary Housing Ordinance to encourage developers to build more affordable units.
Does she think the revised ordinance will result in more condos in Denver?
Kniech is most concerned about whether the ordinance will cause developers to build more affordable condos. The handful of projects that have been built in recent years have mostly consisted of luxury condos. The theory goes that because the insurance coverage needed to build condos costs more these days due to the threat of construction-defect lawsuits, the only way that builders can afford to wade into the condo market is to build luxury units and pass that increased cost on to the homeowners.
Before Kniech's recent revisions, Denver's Inclusionary Housing Ordinance, first adopted in 2002, required that 10 percent of all units in projects of thirty units or more be affordable. But there was an out: If a developer didn't want to include affordable units, he or she could pay the city 50 percent of the cost to build them instead.
Most developers chose the latter option. In twelve years, the ordinance resulted in 589 affordable units (including condos, townhomes and single family homes) being built, either by developers or with the money they paid to buy their way out.
Kniech thought the city could do better. Her revisions, which were adopted by city council on Monday after a contentious debate, provide more incentives for builders to build. "We want units," she says. "We don't want your money."
For instance, the ordinance now promotes flexibility in how developers meet the affordable-housing requirements. It allows them to build the affordable units off-site, as long as the units are built in the same neighborhood or within a half-mile of a light rail or commuter rail station. It also allows them to build fewer than the 10 percent of affordable units if those units have more bedrooms or are wheelchair accessible.
The ordinance also splits the city into three zones based on where affordable housing is needed the most. To encourage builders to build in high-need areas, such as Five Points, Union Station and Platt Park, the ordinance-requirement buyout has been increased to 70 percent of the affordable units' cost. But the city will provide $25,000 in cash incentives per unit, up from $5,500 in the original ordinance.
As for whether the changes will boost condo construction, Kniech says, "We should see proportionately fewer developers buying out and see more doing creative things."
She adds: "My support for construction-defect reform is directly tied to the fact that Denver has a policy ensuring that 10 percent of condos will be affordable. Without that policy, I wouldn't be sure that more condos would result in more affordability. Market forces on their own don't point in that direction.
"But in Denver, we don't leave it to chance. In Denver, we have a policy. Because we have that policy, we know more condos will result in more affordability."
"Affordability' is defined as homes that families earning 80 percent of the area median income ($61,350 for a family of four) could afford. And what is that? A studio unit priced at $141,446 all the way up to three-bedroom priced at $209,232.
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"So that's the level this ordinance builds," Kniech says. "I don't think you could find a developer in town who will claim that without this ordinance and without major construction-defect reform, this price point will get built."
Kniech says it will take a minimum of two years -- about the length of a development cycle -- to tell whether the ordinance is working the way she envisioned. She fought so hard for the revisions because she believes affordable housing is key to the city's diversity and economic vitality. "Developers are focused on making one project," she says. "I'm focused on making us an attractive environment for employers for the next couple decades."Follow me on Twitter @MelanieAsmar or e-mail me at email@example.com