Denver’s Affordable Housing Issue: An Insider’s Perspective
- Mar 30, 2020
America’s housing crisis is as real as it gets. High construction and land costs, zoning laws and poor management are some of the issues behind the country’s grim affordable housing situation. Oregon, New York and California have responded to this issue by implementing rent-control laws to increase stability and affordability and lessen the effects of gentrification. However, many landlords and multifamily professionals worry that in the long run, such policies could bring more harm than good to a city’s economy.
According to a recent National Apartment Association study, a 7 percent rent cap would have devastating long-term effects on four major cities: Chicago, Denver, Seattle and Portland. The study suggests that this limit would cause drops in new construction, decreased property values, loss of tax revenue and lower annual maintenance spending. Multi-Housing News talked with Andrew Hamrick, senior vice president of government affairs at the Apartment Association of Metro Denver, to explore the particularities of the potential impact of rent control in Denver. Hamrick explains the current situation and sheds light on the possible solutions government officials should focus on.
The NAA study lists several devastating long-term effects of a 7 percent rent cap. How can Denver compensate for those losses?
Hamrick: Artificially fixing rent rates has a devastating effect on the availability of housing. It drives away investment from both equity and available loans. It discourages building and redevelopment. It removes economic incentives to remodel and maintain properties. It causes rental housing owners to take housing units out of the rental market and sell them. It prevents renters from freely moving from the unit they currently rent to the one they’d rather have. Flexibility is one of the primary reasons a person rents a property rather than buys it in the first place. Since the valuation of a rental property is a function of rent receipts, arbitrarily capping rents lowers the property’s value and the real estate taxes collected on that property. Those real estate taxes fund a wide variety of government spending, perhaps most importantly education.
Every jurisdiction that has enacted rent control has seen decreased housing investment which has caused those jurisdictions to be the most expensive places to live in the country. There is no plan, nor can there be, to fund these economic losses, which extend far beyond the housing markets.
Colorado has had a statewide ban on rent-control policies since 1981. Do Denver’s rent laws need to be updated?
Hamrick: The statewide prohibition on rent control imposed by local governments is good public policy. Because housing is a regional market not typically encumbered by city and county boundaries, the current policy prevents one local government from impacting its neighbors by using localized price fixing. These policies drive one city’s need for new housing into neighboring jurisdictions. When a city imposes an ordinance that limits the ability to meet local demands for housing—whether with rent control, unreasonable development requirements and fees, or rights of neighborhoods to veto new housing development—the demand for that housing increases in neighboring cities. Along with that comes traffic congestion, as people are forced to commute from where they are allowed to build and rent a residence to where they initially wanted one.
Is it likely that Colorado will pass a rent control law?
Hamrick: Most people on both sides of the political spectrum understand the problems caused by the price-fixing of traditional rent control and how it negatively impacts the market by discouraging supply, taking existing housing out of the rental market and reducing mobility for consumers. Consequently, there doesn’t seem to be an outcry for traditional types of rent control.
Where policymakers get confused is around proposals to tax new development, with requirements of rent limitations on a portion of new construction. These plans are commonly called inclusionary zoning. Under these ordinances, a local government requires that a percentage of all new construction—often 20 percent—be rented at a rate below market—sometimes 80 percent of average monthly rent, sometimes 60 percent. If the local government contributes some financial incentive that’s roughly equivalent to the present value of this rent subsidy, then there is no significant impact on the markets. The only relevant question is whether one thinks it’s a good idea to use the government’s funds to subsidize the rent of some, but not others.
However, when the local government imposes these rent restrictions without any contributed incentive, the effect is either the project can’t be built or the rents on the nonsubsidized units must increase. The tragedy in these programs is that they shift the entire cost of subsidized housing to the other residents in the new community who earn too much to qualify for the subsidized units. Pillars of our community like police officers, firefighters and nurses all make more than the requirement for most subsidized rent programs and end up bearing the entire cost of subsidized housing.
Denver is among the metros with the most high-income renters in the country. How does this influence the market overall?
Hamrick: Population growth and people with more money bid up the price of housing when there is not enough to go around. The fact that the Denver metro area has added more than 500,000 people in the last 10 years and many of those people have relocated because of high-paying job growth is the driving force for increased demand and the high price of housing. The limitation on supply is due to the cost and delay of building new units. During these 10 years of unprecedented population growth, the Denver metro area has built 37 new housing units for every 100 persons that have moved here. That imbalance is the root of the scarcity of housing and has caused increases in prices.
In your opinion, how serious is the affordable housing crisis in Denver?
Hamrick: Any new unit, regardless of its price point, helps to reduce the price of housing across the price spectrum. Even though a new apartment may seem like a luxury unit, the fact that it exists means that the person who rents it won’t bid up the price of an existing vacancy, pricing out someone with less money. When new housing arrives, it’s usually more expensive than existing housing, and the average price of all housing may rise, even while many existing units don’t get more expensive. Building a new and expensive unit doesn’t elevate someone’s ability to afford it, but it removes demand for the less expensive unit.
That said, we all agree that the Denver metro area needs additional housing. We are working with local elected officials and community leaders to develop solutions to this issue and educate Coloradans about the drivers of the rental housing market. Colorado’s housing crisis is not just a rental housing issue—it’s a community-wide issue that requires a variety of community-level solutions.
What would be the simplest and most effective way to drive down rent costs?
Hamrick: Increase the supply of housing units. Local governments should be looking at ways to increase housing density, encourage more units overall, get those new units as close to the resident’s desired destination as possible and cut the cost of building those units. For example, Denver is an extremely expensive place to build a new unit. That is the piece that local government officials can influence and where they should focus their efforts.
How do you expect Denver to deal with the affordability issue going forward?
Hamrick: I would like my children to be able to afford to live here. To do that, Denver will need to build enough housing units to meet increasing demand. Unfortunately, it is too easy for a policymaker to go down the path of limiting or taxing new development for the purpose of funding affordable housing. Whenever the mistake is made to increase burdens on new development or limit the market, the result is higher-priced housing.