Denver, Featured, Peter Blake

Blake: Denver doubles down on ‘affordable housing’ ordinance

Denver City Council is considering doubling down on a bad idea: its “affordable housing” ordinance.

Championed by Councilwoman-at-Large Robin Kniech, the new proposal would include bigger carrots — and bigger sticks.

But it’s still “extortion,” according to one of her colleagues.

The current “Inclusionary Housing Ordinance,” as it’s formally called, was passed by council 7-6 in 2002. It requires developers erecting 30 or more condo units to offer 10 percent of them at a reduced rate for low-income buyers.

But it’s not been effective. According to The Denver Post, only 16 “affordable” units have been sold during the past five years.

Thanks to state law, the ordinance can apply only to for-sale housing, not rental units.

To encourage building lower-cost housing, developers under current law are paid a flat $5,500 by the city for each “affordable” unit built. Eligible buyers for these units must earn between 80 percent and 95 percent of the “area median income.”

But the ordinance allows developers to buy their way out of the requirement by paying a penalty to the city that amounts to half the sales price of each “affordable” unit not built. This is the tack most of them take. Obviously, to recoup that money, the developers have to charge all the other buyers more.

The city is taking in far more in penalties than it is paying out in bonuses. According to Paul Washington, director of Denver’s Office of Economic Development, the balance of the inclusionary housing fund has grown from $260,000 in 2011 to $3.8 million today.

icon_op_edIn addition to the ordinance, there’s another reason developers are leery of building large, economical condo complexes: Colorado’s construction-defects law. It allows only two condo owners, and their HOA board, to file a suit on behalf of all owners. There are three or four attorneys in the area who can find something wrong with any project and sue for damages, collecting 30 percent or more of the award. Developers can’t get the insurance they need to cover the risk of lawsuits.

An effort to modify that law failed in the legislature this spring.

Under the new ordinance, which Kniech explained in a meeting of the council’s Health, Safety, Education and Services Committee June 17, developers would still have to make 10 percent of their units “affordable” if they’re building 30 or more.

The penalty for not building affordable units would still be half the sales price in areas with moderately priced homes. But in poorer neighborhoods, the penalty would drop to 25 percent, and in wealthier ones jump to 75 percent.

The rewards would change, too. In medium neighborhoods the incentive for building an affordable unit would jump $1,000, to $6,500. In poorer areas, it would be cut to $2,500 and in high-priced areas increased to $20,000.

The measure is still being tweaked by Kniech and stakeholders, but is likely to pass when it comes before the full council later this summer. The council is nominally nonpartisan, but remarkably monolithic in political thought.

The most outspoken critic of the ordinance on the council is District 2’s Jeanne Faatz. “It’s my least favorite law in the whole world,” she said emphatically. “It essentially permitted government extortion of developers.”

And it’s one of the reasons local developers prefer building rental apartments instead of condos, she noted, even though Mayor Michael Hancock would prefer more home ownership in his city.

As for the efforts of Kniech to update the law, Faatz said, “It’s very hard to fix something that shouldn’t be in existence at all.”

Faatz wonders just how far government should intrude into the housing market. She noted that the city already has the Denver Housing Authority, which helps to provide homes for very low-income residents, and offers shelter to the homeless. Beyond that, “I don’t think it’s the government’s responsibility.”

She further noted that the region has built a massive subsidized transit system featuring light rail “so there could be mobility and people could afford to get to work regardless of where they lived.”

There may be a need for more housing, but “I can’t find anywhere in the constitution or in ordinances that require government to satisfy this particular need,” Faatz said.

The real estate market is getting hotter, and so developers will continue to buy their way out of the affordable housing law. The penalty they pay to the city is spread out among the cost of other units, driving prices up overall.

Faatz has at least one other ally on council: District 6’s Charlie Brown. The longest-serving member, he was there to vote against the 2002 ordinance. “Worst law we ever passed,” he said.

He wrote an op-ed for the Post before the 2002 bill came to a vote. Suppose two Denver teachers want to buy units in the same condo, he wrote. “The third-year teacher qualifies for one of the three ‘affordable’ units. The other teacher, having taught 12 years, earns more money but can’t afford the inflated price of the non-subsidized unit End result: one teacher benefits from the proposed new policy, another loses. It’s a good example of what happens when the government interferes in the real estate market.

Longtime Rocky Mountain News political columnist Peter Blake now writes Thursdays for CompleteColorado.com. Contact him at pblake0705@comcast.net You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and www.CompleteColorado.com.

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