Denver: Impact of Revised Affordable Housing Ordinance Unclear

Changes to Denver’s Inclusionary Zoning Ordinance were approved by the City Council by a 7-6 vote. The law, which was originally passed in 2002, requires that for apartment complexes over 30 units, 10 percent of units must be affordable for those who make 80 percent of area median income, which is about $42,000 annually for an individual.  The revisions will not change that percentage however, the cash-in-lieu amount will change and will be tiered depending on the area in which the complex will be built.

The ordinance splits the city up into three types of zones based on the cost and need in the area. For “high” zones, where median for-sale home prices are highest, the cash-in-lieu payment is 70 percent of the sales price. In “medium” areas, the payment will be 50 percent of the sales price; in “low” areas, the payment will be 25 percent of the sales price. But if developers do build affordable units, in return they are given a cash incentive, which also varies under the new law depending the cost in the area surrounding a development.

Under the 2002 ordinance, the incentive was $5,500 per unit. For the “high” zones, this incentive now will be $25,000 per unit, for “medium” zones, $6,500 per unit and for “low” zones, $2,500 per unit — unless the development is located within half a mile of public transit, in which case the incentive is bumped up to $6,500.

However, the new ordinance ignores a key issue — developers are not building large condo projects. CAR was part of a coalition that lobbied to persuade the legislature to pass a bill intended to reduce the risk of construction defect lawsuits, but the leadership ensured that the bill stalled during the waning days of the session. Because of the problems related to possible construction defect lawsuits, developers have opted to build apartment projects and state law prohibits rent control.
Denver faces a shortage of more than 30,000 affordable homes, according to a market analysis performed for the city. In metro Denver, condos make up 2 percent of new residential developments, according to industry estimates. In other cities nationally, it’s closer to 20 percent.

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