Policy & Property: The Widespread Problem and Potential Solutions to the Colorado Housing Crisis | Home & Hood

Over the recent decade, the housing crisis in Colorado reflected a dichotomy of rapid growth, leading to both positive benefits and negative consequences. Colorado has enjoyed a substantial economic boom that allowed many industries to flourish and inevitably attracted many people to the state. But certain policies prevented communities in Colorado from being able to supply the abundance of housing required to support this influx of new residents. This facilitated housing costs rapidly surging to exorbitant levels, which is preventing many cost burdened residents from being able to find affordable homes, maintain financial stability, and contribute to local economies.

Boulder County has especially been impacted by the housing crisis. Though the migration of skilled workers and brilliant thinkers adorns the BOCO communities, the lack of affordable housing and the rise of rent and mortgage prices has become a cost burden for many BOCO residents. Now, community leaders and government officials at the state and county level are collaborating to implement effective strategies in an attempt to alleviate the crisis by providing affordable housing, and enhancing the living conditions of residents, as well as the overall quality of communities.

Approximately 70% of all residential construction projects being built in Colorado are luxury housing properties.

An Economic Boom Spurring Population Growth

Many contexts helped trigger the population growth that Colorado experienced over the last decade. After the economic recession of 2008, public investments and private companies helped many business industries thrive; including the tech, health, retail, construction, oil and information sectors. The legalization of cannabis and the establishment of the marijuana industry, was another magnet that attracted many people to move to Colorado and in hopes of capitalizing on the new industry by cultivating plants, managing dispensaries, or marketing businesses.

Additionally, the favorable working conditions and high employment rates further appealed to people from all over the country. Thus, the very positive circumstances of an economic boom and many thriving industries encouraged even more people to migrate to Colorado and precipitated a rapid population influx that is amongst the highest in the nation.

As a result, since 2011 the booming economy and favorable work conditions caused the state’s population to surge during the ensuing years. U.S. Census records demonstrate that Colorado was averaging approximately 100,000 new residents and a 1.9 percent population increase each year. Overall, between 2010 and 2015 Colorado experienced an 8.5 percent increase in its population, which was second in the nation during that period just behind the much smaller North Dakota population.

The Front Range experienced the highest per capita population increase; as the vast majority of migrants gravitated towards the Denver Metro and Boulder Front Range areas where educational opportunities are prevalent and business industries are robust. In turn, Boulder County absorbed a 10.7 percent population increase from 2010 to 2018, which was the largest in the state during that span.

The population growth has been very beneficial. Having more skilled residents who can contribute to the intellectual, professional, and economic endeavors of Colorado amplifies the growth of its communities. But the construction of new homes and the availability of apartments did not keep up with the rapid population increase that funneled into Colorado, especially in Boulder County.

Soaring Housing Costs in an Exploding Market

This caused a supply and demand effect on the housing market. The severe shortage of available housing accompanied with the high demand among the growing population naturally caused prices to skyrocket on renters and buyers at an accelerated pace.

In Colorado, the rent for one-bedroom apartments has increased 22.4 percent across the state since 2014. Though rent increased in most areas, rent in the Denver Metro and Boulder Front Range areas especially propelled to unsustainable levels. Since 2010, studies conducted by the RealPage.com database show that Denver saw its average rent increase by 48 percent and Boulder had its rent rise by 39 percent, which established the area as having the second-highest rent increases in the nation right behind California’s Bay Area cities.

The market value of home prices in Boulder County also experienced excessive price increases that applied to most cities in the county. This made it much more difficult for buyers to find homes in BOCO that they could purchase for reasonable prices. According to Zillow, during the last decade, residential properties in Lyons rose by 39 percent, homes in Superior increased by 46 percent, and properties in Erie soared by 48 percent. The home values in both Longmont and Ward increased by 58 percent.

This is definitely a seller’s market, which is not beneficial for new residents looking to purchase. But the city of Boulder saw home prices suddenly rise by a whopping 63 percent, Louisville homes increased by 70 percent, and then Lafayette led the entire BOCO market as its home prices rose by 71 percent.

Lack of Affordable Homes for Hard-Working Residents

The housing market trend then instigated a shortage of affordable homes available for low and middle-income residents. From 2010 to 2016, a report by Freddie Mac indicated that the amount of affordable homes available to Colorado residents has decreased by 75 percent.

BOCO is also hindered by a drastic lack of affordable homes available for individuals and because of the expensive prices it has made it difficult for middle-income residents to live in its communities. The Boulder Division of Housing asserts that the inflation of the housing market has made 30,000 more homes inaccessible to low and middle-income renters and buyers. Only 5 percent of homes in the entire county are considered affordable, and surveys indicate that the lack of affordable housing is the top concern among most BOCO residents.

Colorado was averaging approximately 100,000 new residents and a 1.9 % population increase each year.

Policies Pouring Fuel on the Housing Crisis Fire

Many policies have prevented the housing market from being able to meet the demands of the population surge. The state and communities have not built enough new housing to support the growing population, which can seem strange because most people have noticed and discussed the abundance of new residential buildings being erected and new construction projects being built. But despite constructing at relatively high levels compared to the rest of the nation, it has not kept pace with the high population of the communities and the intense demand of housing needs.

Many developers also lament that strict regulatory policies limit the quantity and scope of construction projects. For instance, state and community-level regulations have imposed several zoning, height, and density restrictions that can impair the ability for developers to build a high volume of ideal residential properties. Licensing requirements can also make the process of implementing the projects and building the houses both arduous and expensive.

Additionally, the liability of potential lawsuits for “construction defects” or mistakes made by developers also discourages the construction of condominium units. A 2017 construction defect bill attempted to solve this problem by making it harder for homeowners and property managers to sue developers. But many developers still say that the risk of getting sued for making mistakes supersedes the reward of building these condominiums and also deters them from fulfilling other housing projects.

These constricting policies have led to the affordable housing crisis in two ways. The strict construction regulations significantly limits the amount of houses and apartments that are being built and that are available for residents, which enables the prices on current buyers and renters to rise.

The scarce amount of new housing projects that are being built are generally luxury apartments.  Approximately 70 percent of all residential construction projects being built in Colorado are luxury housing properties that would feature expensive costs and that are only be feasible for wealthy residents. Developers argue that the strict regulations for construction and the high costs of land require them to build luxury buildings as the only way to earn a lucrative profit on the projects. This trend still leaves the overwhelming majority of residents without accessible chances to purchase or rent affordable homes.

Policies that limit government funding are also preventing many areas from increasing the availability of affordable homes. Federal funds being provided to Colorado for housing have been consistently decreasing since 2000 and have not been increased to address the current housing crisis. The Colorado Legislature is also hindered by caps on property taxes and low-income tax credits. These caps along with budgetary restraints minimize the amount of funds that the state can allocate for communities trying to fund affordable housing projects. Additionally, local tax policies often impair the ability for counties or municipalities to pay for the plethora of affordable housing needs of their given areas.

The Colorado rent control policy has also prevented local communities from addressing the affordable housing problem. In 1981, a Colorado state law officially prohibited local communities from being able to impose restrictions on rent increases or pass policies to protect tenants from abusive prices. While a rent control bill was proposed this year and was gaining momentum at the statehouse, the bill eventually failed and local governments are still unable to implement laws that would stabilize rent increases in their communities.

Source: Census ACS; Apartment List calculation

Rising Costs Outpace Stagnant Wages

One of the biggest factors leading to the lack of affordable housing relates to the stagnant wages of Colorado residents. If the wages of workers were growing and the incomes of households were increasing, more individuals and families would be able to afford the more expensive housing costs and the crisis could have been averted. But despite the exponential increase in the costs for renters and owners, the actual wages of Colorado residents have remained stagnant and the income gains for households have been minimal.

According to a study conducted by the Colorado Center on Law and Politics, the median wage of Colorado workers has stayed completely stagnant since 2010. When adjusted for inflation, the report shows that hourly wages have actually decreased. For instance, in 2016 the median hourly wage for Colorado was $18.62, which is lower than the inflation-adjusted 2007 median hourly wage of  $19.70.

The insufficient wage growth is also contributing to Boulder’s affordable housing problem.  Whereas the average resident in Boulder County earns $17 an hour, housing experts contend that at least $24 an hour is required to afford housing in the county and to avoid becoming cost burdened by rent or mortgage payments. This reflects a detrimental dichotomy in which the housing market has elevated prices of housing to exorbitant heights while the job market has not increased wages to help residents more effectively meet those higher price requirements. As a result, the soaring housing prices and insufficient wages causes the majority of Colorado and BOCO residents to become cost burdened by their high rents or exorbitant mortgages.

BOCO would need $25 million more each year – for a $40 million annual total – to achieve the 12% affordable housing  benchmark.

The Plight of Cost-Burdened Residents

The most devastating consequence of this housing problem is that the crisis is forcing most Colorado residents to remain cost burdened. The US Department of Housing and Urban Development (HUD) considers residents to be “cost burdened” when they must spend over 30 percent of their income on rent or mortgage payments. However, in Colorado the majority of residents pay more than 50 percent of their incomes on housing costs. 

The Front Range is also suffering from a high rate of cost burdened residents. While wealthy households might be somewhat immune from becoming cost burdened, the majority of residents in the county are low and middle income residents; which means most individuals and families in the area are hampered by excessive housing costs and debilitated by a lack of disposable money.

Census numbers demonstrate that most low and middle-income residents in the county are cost-burdened and that the number of cost-burdened households has been steadily increasing. For the lower income group earning 20K-35K per year, 89 percent of households are cost burdened and this number has increased by 4 percent between 2010-2015. But the middle income groups are being especially squeezed at increased rates. Between 2010-2015, the statistics show 63 percent of households earning 35K-50K per year are cost burdened and that this number has increased by 13 percent during the timeframe. 

Having cost burdened residents has a negative impact on households, the communities, the economy and the state.

The gentrification trend of substantial housing price increases has pushed many people out of their communities. In 2017, the Colorado court records featured 45,000 filings for evictions, which was the highest number since the anomaly of the recession years. Many people circumvent evictions by simply moving out of their longtime neighborhoods when the housing costs rise above their given income capabilities, which can disrupt the relationships of residents and dissipate the camaraderie of communities. Additionally, gentrification can force many middle-income workers to live far from the job hubs, commute to work, and exacerbate the traffic issues that have frustrated so many communities. 

The lack of economic security is another anxiety-ridden consequence that confronts cost burdened residents. This can prevent hard working residents from being able to achieve domestic comfort and financial stability because after they pay for their outlandish housing costs, only a scarce amount of money is left over for other necessities.

Cost-burdened parents who are raising children might be unable to afford providing their children with a high-quality education or make college tuition payments. This can also increase the number of kids who need to enter the gauntlet of the dreaded student loan system that often hampers them with heavy debts that weigh them down long after they graduate from college and enter the workforce.

The inability to support local businesses is especially problematic for communities. Local businesses depend on being in locations where financially comfortable residents have the disposable spending money required to enter their stores, buy their products, and become consistent customers. Whereas having economically stable residents in the communities increases the amount of customers that local businesses can attract, with businesses being surrounded by cost burdened residents there is a reduction in the amount of customers who can buy their products and support their companies.

On an even larger scale, the cost-burdened trends can also diminish the willingness or ability for households to make more expensive big purchases. For instance, financially strapped residents might be reluctant to purchase new cars or upgraded appliances, and might refrain from taking ski trips to the mountains or alternative vacations with their families.

These overarching consequences help explain why having cost-burdened residents can be so hazardous for the living conditions of the individuals and the economic growth of the communities. But these are also the reasons why Colorado has intensified its efforts to implement effective strategies to alleviate the crisis and assist the residents.

Boulder County has established a comprehensive & ambitious plan to increase the availability of affordable housing.

Colorado Legislators Try to Overcome a Mountain-Sized Problem

The Colorado Legislature focused significant attention on the affordable housing problem during this last 2019 legislative session. Three bills that intend to increase funding for affordable housing passed through the Democrat-controlled House and Senate this session. 

HB 19-1228 doubled the cap on the state’s Low-Income Housing Tax Credit, increasing that tight cap from $5 million to $10 million. HB 19-1245 changed the formula of the vendor fee tax on businesses in a way that allots more of the revenue to affordable housing projects. Then HB 19-1322 established a new state fund that would be filled by various existing revenue sources and devote to supplying affordable workforce housing throughout the state.

The Legislature also tried to further encourage developers to build affordable housing options.  For instance, HB 19-1319 provides financial incentives and lending assistance to developers who are prepared to build residential properties and maintain affordable housing prices.

A proposed rent control bill, SB 19-225, also seemed to be gaining momentum during the session. The bill would have eliminated the ban that prevents local governments from developing policies to control rent increases. The policy would not have specified any particular rent control laws. Instead, it would have allowed local governments to customize the particular rent limits or housing standards that would be most conducive to address the given needs of their communities. For instance, local communities could potentially pass policies to prevent rent prices from reaching certain levels, limit the amount that landlords can increase the rent each year, or provide enhanced protections and rights for tenants. Although, after passing through the committee process the bill died on the Senate floor, the bill is likely to make a return and get a rematch at the Capitol next year.

Boulder Efforts to Provide Affordable Housing

With communities sensing the urgency to take action on their own, Boulder County has established a comprehensive and ambitious plan to increase the availability of affordable housing for residents in BOCO communities. The Boulder County Regional Housing Partnership is a coalition of housing experts and community leaders from all cities in the county. 

The partnership has established a goal of ensuring that 12 percent of all homes for rent or purchase in BOCO remain permanently affordable for low and middle-income residents. With the number of affordable homes currently at 5 percent, the plan intends to gradually increase the number of affordable homes annually to accomplish the 12 percent benchmark by 2035. Additionally, the plan calls for the county to designate 30 percent of the affordable homes for ownership and preserve 70 percent of the housing for rentals.

Boulder County must perform certain construction and acquisition feats to reach the goal. The county must create 800 new affordable homes each year, which they can do by constructing 300 new properties every year and keeping them affordable, and by acquiring 500 existing properties each year and converting them into affordable housing options as well. Additionally, the plan also entails securing more land and suing it for affordable housing purposes.

The county also plans on providing enticing incentives to encourage developers to build affordable homes. For instance, the Housing Partnership intends to relieve zoning regulations and density limits, provide tax exemptions, and expedite fee and licensing requirements for developers who pledge to build residential properties and charge reasonable prices. 

Though these are reasonable strategies, the plan also requires the county to raise more money to fund the program. For instance, building new housing, acquiring existing properties, and securing additional land would inevitably be expensive. Currently Boulder County has $15 million per year that it can devote for affordable housing projects. BOCO would need $25 million more each year — for a $40 million annual total — to achieve the 12 percent affordable housing benchmark.

As a result, the Housing Partnership is creating a county-wide affordable housing trust fund. BOCO plans on filling the fund with sales taxes on products, property taxes on wealthy homeowners, occupation taxes on employers, and other taxes that can generate more revenue for the fund. Some tax policies can be modified at community levels. Many changes to tax codes would require ballot initiatives to be proposed by the governments, discussed by the communities, and voted on by the residents.

Acting Quickly to Prevent a Bursting Bubble

The urgency to act has been magnified by the multitudes of cost-burdened residents and the risk of a bubble-burst. After a decade of increasing prices, in the past year housing values in Denver and Boulder suddenly encountered a relatively steep decline. While rent and purchase prices maintaining reasonably consistent levels would be ideal, extreme swings up or down can both be detrimental. 

The upward swing over the last decade was too extreme in that the wages of cost burdened residents could not keep up with the massive increase of housing prices. But having the rising housing market pierce the limit, burst the bubble, and rapidly decline would also be devastating for the housing industry and Colorado economy. A rapid downward trend could discourage potential buyers from entering the market and purchasing new homes. For instance, they might just wait while assuming they can get better deals as the prices continue to slide, or they might just avoid purchasing homes while being reluctant to purchase property at a time when values are plummeting.

As a result, it is crucial for Colorado housing experts, community leaders, and government officials to address the problem and stabilize the market. Implementing policies that eliminate regulatory barriers for construction can help expand the amount of houses available for residents. Increasing public funding can help the government create and preserve affordable housing options that prevent middle income households from becoming cost burdened by their rent or mortgage costs. Moreover, providing higher wages for workers can also help residents afford more housing options, remain financially stable, and enjoy an exceptional quality of life while contributing to the productive growth of their communities.