Developers support affordable housing funding plan.
Trio of developers say $150 million plan buffers funding from real estate cycles.
Development fees proposed by Mayor Hancock, Council members Robin Kniech, Albus Brooks
By Susan Powers, Dana Crawford, Kimball Crangle
As developers with close ties to Denver, we know that sound housing policy is crucial to the city’s long-term growth and prosperity.
An estimated 1,000 new households flock to Denver each month, drawn in part by a strong local economy and steady job growth.
But we are not building enough new housing to keep up with rising demand, especially at the lower end of the market, which has caused rents to skyrocket by 47 percent since 2010.
Sale prices for homes and condominiums are also at an all-time high.
This is not a sustainable environment for our community and its people.
Earlier this month, Denver Mayor Michael Hancock and Councilwoman Robin Kniech unveiled the details of their plan to generate $150 million to support affordable housing for residents of the city. Councilman Albus Brooks also has worked long and hard on the plan.
The funding would come from two sources: a modest increase in property taxes and a new fee on commercial and residential development.
The proposals offered by the Mayor and City Council would meaningfully expand the supply of affordable housing in Denver without slowing growth or the pace of development.
Some have voiced concerns about its impact on the local economy.
We would like like to take a moment to set the record straight.
The proposed development fee would not slow the pace of real estate development.
A key component of the plan is a new fee on future development, which would range from 40 cents to $1.70 per-square-foot depending on the project.
Similar “linkage fees” have been established in Boston, San Francisco, Seattle, San Diego and other cities with little to no impact on local development patterns.
Locally, in nearby Boulder, developers pay a much higher fee than that in the Denver proposal — up to $9.53 per square foot in some developments — yet the city continues to enjoy strong investor demand for real estate and plenty of new construction.
It’s also worth noting that a year-long process of stakeholder and developer engagement informed and influenced the fee levels proposed by the Mayor and City Council.
Additionally, an independent impact assessment concluded the Denver market could sustain a significantly higher fee without negatively impacting the economy.
The plan reduces the financial impact on developers who were building under the IHO
The proposed development fee would replace Denver’s existing Inclusionary Housing Ordinance, which requires developers to create or support for-sale homes that are affordable to low- and moderate-income homeowners. While the existing ordinance only applies to certain for-sale developments, the developer payout requirements in the existing IHO are significantly higher than the proposed fee.
For example, on a typical single-family development, the current ordinance requires developers to pay out amounts that are 4 to 10 times higher than the proposed linkage fee.
Therefore, the plan actually reduces the economic impact on developers.
Further, if developers do not want to pay the linkage fee, there is a “build alternative” that would require developers to dedicate approximately 2 percent of the total units in any given development to be affordable.
Coupling the development fee with a modest property tax increase provides a buffer from market cycles.
And real estate development is a highly cyclical industry.
If we relied solely on one-time development fees to support affordable housing, resources would be scarce during any market downturn — arguably when families are at most in need of help.
That’s why it’s so important to couple the development fee with a more stable and predictable source of revenue.
The Mayor and City Council propose a modest increase in property taxes — the equivalent of about $12 annually on a residential property worth $300,000 — to support affordable housing initiatives in the city.
While we would join others in supporting a full mil rather than a half mil, the fact is that the need for resources far exceeds even the amount that would be generated by a full mil.
It is an extraordinary step to create the development fee but the affordable housing needs are extraordinary as well.
The time for action is now.
As developers, we are proud to have been a part of Denver’s recent boom and we look forward to the city’s continued growth and prosperity.
But, we also believe that great cities are valued not by the pace of construction, but by the conditions of their most vulnerable citizens. By that measure we are falling woefully short.
While the proposal isn’t perfect and for many of our colleagues it is asking too much from our industry, we believe that the economic consequences of doing less, far outweigh the risks of this proposal
We encourage community support.
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