All Denver residents will pay a tax and most builders will pay a development impact fee under Denver’s new affordable housing fund approved by Denver City Council Sept. 19 on a 9-4 vote. But Stapleton builders will be exempted from the fee because Stapleton has a pre-existing affordable housing agreement—and pre-existing agreements are exempted from the new program.

Overview of the new fund

The fund, with a 10-year sunset, bankrolls a plan that calls for the preservation or construction of 6,000 units in addition to the 1,400 or so that its other housing programs are projected to support. The new program replaces Denver’s current Inclusionary Housing Ordinance (IHO) that requires developers of projects with 30 or more units to set aside 10 percent of the units for affordable housing, with a payment-in-lieu opt out. (Forest City’s affordable housing plan requires 10% of homes and 20% of apartments for the project as a whole to be affordable, but does not have a requirement for affordable units or payments-in-lieu by individual builders.)

The development impact fee, also known as a linkage fee, will impose a charge ranging from 40 cents to $1.70 per square foot, depending on the type of new building or expansion project. These one-time fees, charged at the time of the building permit, would range from $1,500 for a standard new house to six or seven figures for large hotels and office buildings. The linkage fee cannot be changed for three years.

The half mill property tax would cost $12 a year for the owner of a $300,000 home.

The two new revenue sources are estimated to raise $156.4 million over the next 10 years with the linkage fee and property tax contributing roughly equal amounts.

Priorities for the first year’s revenue are:

$9.4 million – 533 income-restricted apartments or for-sale homes

$3 million – land acquisition for 120 future units

$1.5 million – emergency assistance to 250 households at risk of being priced out of their housing

Implications & questions for the future

Even fund opponents describe Denver’s affordable housing situation as a crisis and fund supporters acknowledge it will make only a dent in the problem of “housing burdened” households (lower-income families and individuals whose rent or mortgage expenditures exceed 30 percent of their income). The fund’s impact on Stapleton raises its own set of questions.

Will Stapleton benefit from the new tax revenue?

Left unanswered by Denver City Council’s vote is whether any of the funds generated in Stapleton by the new property tax will be expended to build affordable housing in Stapleton. That uncertainty results from at least three factors:

First, actual expenditure decisions will be made by the executive director of the city’s Office of Economic Development with advice from a new housing advisory committee, yet to be formed. One reason Denver sought to establish a permanent housing fund was to create maximum flexibility in how the locally generated monies could be spent. It is unknown at this time to what extent there will be any criteria for geographic dispersion of those funds.

A second factor creating uncertainty is the differential impact of the new legislation on Stapleton; builders are exempted from the linkage fee but property owners are not exempt from the property tax. With less money flowing from Stapleton to the city’s new fund than elsewhere in the city, will the city be less inclined to return funds to Stapleton?

A third unknown is what effect the new program might have on Forest City’s affordable housing efforts. The master developer has been making land dedications for affordable housing along with unspecified cash contributions. Forest City is not obligated by the agreement to actually provide funding for construction of affordable housing, only to “develop or cause to be developed [emphasis added]” such housing “at a pace reasonably consistent with the pace of development of market rate housing at Stapleton.” Through the middle of 2016, affordable for-sale and rental housing in Stapleton has been developed at half the rate of market rate housing.

Forest City’s development agreement with the city assumes that a “public subsidy” will be required to implement affordable housing. The question now becomes whether Forest City will seek to replace its subsidies with revenue from the new fund. If that were the case, the city’s new fund might not create any net benefit for affordable housing in Stapleton even while homeowners and landlords are footing a new property tax.

CAB opposes builders’ exemption

Stapleton’s Citizens Advisory Board (CAB) approved a resolution in early September “strongly” supporting and endorsing the proposed Denver affordable housing fund “but only if Stapleton and other similar properties are not exempt from paying the linkage or development fee.” CAB presented the resolution to the Stapleton Development Corporation requesting the SDC’s support, however SDC took no action. CAB then shared their resolution with Denver City Council members, but it was not mentioned during the floor discussion at the time of the vote. Thus, the exemption language remained intact. Denver staff have not identified how many other developments have a similar exemption.

Other possible revenue sources

Among the several speakers objecting to the linkage fees, Gene Myers, of Thrive Home Builders, urged the council to consider bonding based on revenues anticipated from the property tax, adding this could provide upwards of $300 million in upfront monies at historically low interest rates. Assistant City Attorney David Broadwell reminded the council that bonding would require a public vote.

Market rate home prices will increase

Myers, an active Stapleton builder, also asserted the linkage fee would raise housing prices, pricing out as many buyers of market-rate units as the city’s new fund would support at lower income levels. Several supporters of the new fund disputed his contention, saying the cost increase would amount to less than 1 percent of construction costs.

Application processing delays

CAB and its Housing Diversity Committee have protested alleged delays in the city’s process for qualifying applicants to the city’s affordable housing program. The Office of Economic Development has acknowledged this problem with this response: “Interest in the affordable housing program has grown significantly over the past four years, as our number of applications received has grown by more than 300 percent. While we don’t have data available on the number of applications that have exceeded our target guideline of processing completed applications within 10 working days, our office has adopted measures to curb the backlog of applications.”

The question is whether the $600,000 set aside for administration of the fund will enable the city to keep pace with the expected growth in applications.

Stapleton’s deed-restricted units

The ordinance creating the new permanent affordable housing fund is silent as to how long subsidized units would need to remain affordable. Presumably, the new housing advisory committee will define the terms for the new program.

Affordable for-sale units in Stapleton were originally deed-restricted to remain in the affordable housing program for 30 years, though starting in 2014 some units could be changed to 15 years. CAB has expressed concern that these units will begin transitioning out of the affordable housing program even before Stapleton reaches buildout and Forest City achieves its affordable housing goals. Twenty-eight properties have been converted from 30 to 15 years and the first will phase out of the program in 2019.

New fund doesn’t address gap housing shortage

The affordable housing challenge in Stapleton is compounded by the lack of housing supply in the gap between the highest-priced affordable (subsidized) units and the lowest-priced market rate homes. A local realtor estimates the size of this gap in the $100,000 range by comparing the highest-priced affordable units ($238,000) with the lower-end market rate homes ($350,000). These numbers are admittedly rough, but they do highlight the fact that even this new Denver program doesn’t even begin to address a real-world problem: The incomes of many working-class buyers are too high for the affordable housing program but they can’t afford market rate homes in Stapleton.