The urgency of Denver’s affordable housing problem has become all but impossible for Joe Vostrejs and many other employers to ignore.
The downtown real estate and restaurant investor sees service employees with families struggle to afford apartments or homes on salaries of $30,000 to $40,000 a year. When he tried to hire a new restaurant manager from Wyoming for a higher salary, he said, he was turned down. The recruit couldn’t afford a suitable house.
“For us, it’s turned into a real economic development issue,” said Vostrejs, a partner in Larimer Associates and City Street Investors. “If cities want to have affordable housing, they’ve got to roll up their sleeves.”
As Denver Mayor Michael Hancock and other city officials prepare to launch a new plan to raise at least $15 million a year to subsidize projects that provide income-qualified units, they’re finding support in sometimes-unlikely places, including from Vostrejs. He’s a self-described “free-market guy” who was among opponents of some past housing policies.
The money, the mayor says, would be enough to create or preserve 6,000 affordable apartments, condos and other housing units over 10 years.
To pay for it, Hancock, who announced the goal in his inaugural speech last month, is considering asking the City Council to create a development impact fee and raise property taxes in 2017.
The ambitious housing strategy, which is more forceful than those of metro suburbs facing similar challenges, for the first time would place Denver alongside even costlier cities, including Boston, San Francisco and Seattle. Those cities have attempted to tackle affordability problems with serious infusions of local or state cash.
Seattle Mayor Ed Murray’s recent proposal for an escalation of efforts turned heads and sparked debate. He wants to double a 2009 voter-backed housing bond to $290 million as part of a package of new taxes and fees, plus new affordability requirements for developers.
The overall target there is 20,000 new affordable homes in the next decade, with a local and state investment of $1 billion.
Denver’s plan
In Denver’s more modest plan, the aim is not only to underwrite the building of new housing units but to confront another threat: the potential loss of thousands of apartments and other homes that have been categorized as affordable for decades.
Up to 4,500 units are in buildings with affordability covenants that officials say are due to expire in the next five years. The owners could consider converting them to market-rate or selling them to buyers who would.
The council has begun considering a proposal to expand and toughen the city’s affordable housing preservation ordinance. Officials’ aim is to ensure the city has the first chance to buy those properties and other options to keep some of them affordable. Some of the newly generated funding could give the city more firepower.
Ultimately, though, the goal is to accelerate the pace of affordable projects.
For some housing advocates, the question is whether the plan, which would raise $150 million over a decade, is bold enough.
“I’m so supportive, I think we should be doing more,” said David Zucker, whose Zocalo Community Development recently announced a 200-unit high-rise, income-restricted apartment project downtown in partnership with the Emily Griffith Foundation. “If someone were to ask me, my number is $30 million a year,” given the needs he sees.
Denver city and housing officials say Hancock’s annual $15 million target — he calls it “at minimum” — is an important first step that could be expanded.
But the potential development impact fee could spark resistance. Last year, some developers protested council-passed changes to strengthen the Inclusionary Housing Ordinance for large condo projects, and they again would be asked to shoulder some burden.
So far, developers are scrutinizing the city’s expanded strategy. Some in the industry say, cautiously, that they understand how dire the affordable housing issue has become.
“What we’re looking at is the overall fairness,” said Jeff Whiton, CEO and executive vice president of the Home Builders Association of Metro Denver, which hasn’t taken a position. “It’s a community issue, and we want to make sure the homebuilders aren’t being burdened with all of (the cost).”
What’s undisputed is that Denver-area home prices are soaring. In the last year, the average metro apartment rent increased 13.2 percent, to $1,265 a month, according to the Denver Metro Area Apartment Vacancy & Rent Report.
The city’s much-publicized influx of millennials and others from out of state — helping fuel an estimated city population increase of 60,000 between 2010 and 2014
— is among the factors that have squeezed renters and homebuyers.
The dynamic shows little sign of slowing down.
Sherelle Slater, who works at her family’s restaurant, Lucero’s Mexican Food, says the income-restricted apartment she found two years ago in Chaffee Park allows her to raise her 3-year-old daughter, Charlie, in the same area she grew up. She’d been unable to afford a rent hike at her previous building in nearby Arvada.
Her two-bedroom unit, with below-market rent, is in the newer Aria Apartments, an all-affordable 72-unit project developed by Perry Rose LLC.
“It means everything to me to be in that apartment,” said Slater, 33. “I don’t work just to pay rent. I can work and take my daughter to the zoo and the aquarium. I can afford more things than when I lived in the other place.”
Service-job workers like Slater are a particular concern in Denver’s boom, city officials say. They make between 30 percent and 60 percent of the metro area’s median income. For a single person, that’s $16,800 to $33,600. For a family of four, that’s a household income of $24,250 to $47,940.
Income-qualified condos and other for-sale homes typically are targeted at households making higher incomes. Those are likely to play a role in the housing strategy — along with potential local changes to consumer protections against construction defects that officials believe would encourage more for-sale construction.
“The goal is to have a mix of housing,” said Councilwoman Robin Kniech, who with Councilman Albus Brooks has pushed for recurring funding. “We need homeless units for those who are on the streets, to get supportive services. … (But) the largest focus would be on workforce rental, because that’s where the greatest need is.”
Tough task
For cities, addressing the affordability challenge is a tough task that requires innovation, said Barry Bluestone, director of the Kitty and Michael Dukakis Center for Urban and Regional Policy at Northeastern University in Boston.
“My perception,” he said, “is that the pressure has grown so dramatically since a decade ago, when we had the housing collapse, that it’s a priority of mayors to solve this problem before their cities become hollowed out and have only the very rich and the poor left living there.”
Denver’s plan would expand upon the traditional federal funding and tax credits that long have provided most of the support available to developers of affordable housing projects, though those still would come into play.
Federal support, though, has been declining, creating “a real need at the local level to step up to the plate and generate local resources,” said Ismael Guerrero, executive director of the Denver Housing Authority.
Housing grants and loans, which Denver’s Office of Economic Development this year has budgeted at $5.8 million, typically help close the gaps left by shortfalls in the private financing obtained by developers when units are priced below market value.
Two years ago, after he convened a housing task force, Hancock issued a call for private, nonprofit and government projects to produce or preserve 3,000 income-restricted units in five years. Two dozen projects have been finished, containing 1,368 income-restricted units, city data show, putting the effort ahead of pace.
Of those, 502 units are in new buildings. The rest were rehabbed or were converted from market-rate apartments.
A city economic development spokesman identified 18 more projects in planning that would add 1,584 units, including the 42-unit Terraza del Sol project that just broke ground Westwood.
“What we’re doing now is working,” said Evan Dreyer, a deputy chief of staff to Hancock. “We just need to do more.”
Dreyer is among officials who are sketching out the funding plan to generate recurring money. They say the cost will be shared across a broad base while offering the flexibility to adapt to changing housing needs over time.
Denver arguably is at a disadvantage, since some housing tools common in other U.S. cities aren’t available here without changes to state law or even the Taxpayer’s Bill of Rights. Those restrictions keep Denver from requiring “inclusionary zoning” for rental housing projects (in which developers set aside some units for below-market rent) or from creating a real estate transfer tax. But Dreyer said plenty of options remain.
After rejecting a sales tax hike and other alternatives, including some that would require voter approval, a task force is looking at using a combination of property taxes and the development impact fee, or “linkage” fee, to raise the $15 million a year.
Both will need council sign-off.
For the property tax, officials say the city could tap into an unused allotment, or credit, in the mill levy rate that dates to voters’ passage three years ago of Measure 2A, which freed the city from the spending caps in TABOR to restore cut services.
The city has tapped into most of that extra mill levy capacity, but the unused credit — about 2.2 mills — will grow next year. That’s when the recent property reassessment takes effect, sending values soaring. The city must reduce the mill levy to keep tax collections from exceeding a 6 percent annual growth cap.
But that creates an opportunity in 2017, officials say. Tax proceeds are not expected to grow, so the council could add to the mill levy — and boost property taxes — as long as collections stay within the growth cap, said Cary Kennedy, the city’s chief financial officer. The mayor’s office says the maximum increase they’re considering is 1 mill.
The second potential source is the impact fee, to be assessed per square foot on new residential and commercial projects. The city has not estimated how much it could raise using that fee.
Maximum fee
Officials plan to commission a “nexus” study later this year, Dreyer said, to determine the maximum fee the city can charge.
Such fees, commonly used by Boulder, some mountain resort communities and other cities nationally, are based on estimates of the housing demand that will be created by new jobs resulting from a development project.
The funding plan builds on other goals in the five-year Housing Denver plan, finalized last year, and expands recent piecemeal budgeting for affordable housing that will grow to $8 million in 2016.
Other efforts already underway include a $10 million revolving-loan fund, created earlier this year. It’s projected to make first-round loans to projects producing 600 to 700 new units, before tackling Hancock’s new 6,000-unit goal.
Rocio Canteli, a divorced mother of two, said affordable housing options can be a lifeline for people like her who are weathering changed financial circumstances. But she also hopes it’s temporary.
She moved in June into an income-qualified two-bedroom apartment at the housing authority’s Mariposa District after the rent at her old apartment became unaffordable.
The paraprofessional, who works at an elementary school, has begun a real estate license program.
“I love it and I’m very thankful,” she said of Mariposa, but she hopes to one day be told by the apartment managers: “You know what, you don’t qualify because you make too much money.”
Jon Murray: 303-954-1405, jmurray@denverpost.com or twitter.com/JonMurray
Other parts of housing strategy
Denver’s affordable housing strategy includes Mayor Michael Hancock’s proposal to generate $15 million in annual funding for 10 years for development subsidies, starting in 2017, and proposed changes to strengthen the city’s affordable housing preservation ordinance. Other components include:
• More than doubling the amount set aside for affordable housing efforts in next year’s budget, to $8 million.
• Considering tax and permit fee relief for developers of mixed-income and affordable-housing projects.
• Potentially passing an ordinance that would provide local rules more friendly to developers in dealing with the state’s construction defects law. Developers blame the law’s consumer protections for spurring too many lawsuits, making insurance too costly and slowing condo construction, but homeowner advocates dispute the need.
