Rents doubled in Denver during Hancock’s tenure. What can the next mayor do to make housing more affordable?

Since Mayor Hancock took office nearly 12 years ago, rents have more than doubled and the cost of a typical home has risen 165%, pushing out many low-income households and severely stretching others. The next mayor will need to tackle the city’s housing problems in bold and innovative ways, people working closely on the issue say.

“All you hear about from the candidates and in the forums are questions around affordability,” said Jeff Martinez, president of Brothers Redevelopment, an affordable housing developer. “From our perspective, that is the primary issue and the next mayor is going to have to address it quickly and come on strong.”

About three in 10 Denver households are cost-burdened when it comes to housing, meaning they expend 30% or more of their incomes on housing, said Laura Brudzynski, executive director of Denver’s Department of Housing Stability (HOST), which spun out from the city’s economic development office in 2019.

For households earning below 80% of the city’s median income, more than 7 in 10 are burdened, with nearly 4 in 10 devoting half or more of their income to shelter costs. Meeting basic living expenses becomes problematic at that point, much less saving for retirement or setting aside money for children’s higher education.

Denver’s midpoint rent has more than doubled during Mayor Hancock’s tenure, going from $853 a month when he took office in July 2011 to $1,783 a month late last year, according to a dashboard maintained by HOST.

The Zillow Home Price Index, which measures both condos and single-family home values, has risen 165% in Denver since Hancock took office. The median price of a single-family home sold in January in Denver County was $590,000 while the median price of a condo or townhome sold was $430,000, according to the latest numbers from the Colorado Association of Realtors.

Gains in home and condo prices are even more startling, rising so much they are now approaching New York City levels.

Limited land, higher material costs and labor shortages have restricted the ability of developers to provide starter homes and lower-cost apartments and contributed to a focus on higher-cost homes and luxury apartments. Strong job growth and rising incomes have created a pool of buyers for those higher-cost housing options.

RELATED: Here’s what every Denver mayor candidate says about Denver’s lack of affordable housing

But Denver has done a better job than most cities in lifting its minimum wage. A worker earning the federal minimum wage of $7.25 an hour would need to work four jobs or bring in three roommates to comfortably afford a two-bedroom rental, which in the U.S. averages around $1,325 a month, according to an analysis by Zillow. Although a two-bedroom cost more in Denver at $1,825, the minimum wage of $17.29 an hour means that same worker would have to hold 2.2 minimum wage jobs or find one other roommate to be able to afford a typical two-bedroom. For a one-bedroom, that ratio is 1.7 in Denver.

Despite the large number of apartments added in recent years, Denver hasn’t seen a big shift away from homeownership, with half of all residents renting, down from 56% back in 2006. What has changed though is the type of housing being produced and who can afford it.

What the next mayor will have to tackle is the problem of the two pyramids, said Roger Hara, owner of Community Builders Real Estate Services, and a consultant to affordable housing developers. One pyramid reflects incomes. At the base are low-wage and middle-income earners and the pyramid rises higher to a tiny point of very high-income earners.

When it comes to Denver’s new housing inventory, most of what is hitting the market is affordable only to those in the highest income tiers, while housing for those in middle or lower-income brackets can only be supplied with outside help, such as low-income housing tax credits, donated land or grants. Essentially, housing supply represents an inverted pyramid — the second pyramid in Hara’s example — and the new mayor will need to find ways to get it to align better with where incomes are.

Rising wages, combined with lower interest rates and falling home prices, could help better align the two pyramids. But a repeat of the housing crash of the 2000s is highly unlikely and would hurt demand, said Nicole Bachaud, a senior economist at Zillow.

“A more realistic scenario is that prices remain relatively flat or return to slow growth over the next few years, and construction continues at pace to fill the housing shortage. While not a quick fix, that would allow incomes and savings to catch up after they’ve fallen far behind the past few years,” she said.

Some mayoral candidates and most developers argue that anything added, even if it is mostly on the high end, will push down prices and rents overall. Supply is the issue, not what is being supplied. But the problem with that approach is that Denver is running out of land to build on or redevelop. Having higher housing costs than surrounding counties risks creating an exodus of those at the bottom of the income pyramid.

“The question really is who is Denver for and can the market with the city’s partnership deliver the kind of mix of housing that meets the target — particularly in the face of limited availability of land?” asked Jennifer Newcomer, research director at the Colorado Futures Center.

The failure to add more housing affordable to its lower and middle-income residents could push them increasingly out to the suburbs, to other cities in Colorado, and to other states. The outflow appears to be underway. After peaking at 717,488 residents in 2020, Denver’s population in 2021 fell to 711,973 and likely fell again in 2022.

“We are already beginning to lose population. I helped move three families out of Denver to Texas, Oklahoma and Kansas,” said Milford Adams, a Realtor with Lyons Realty, after a debate hosted by the Denver Metro Association of Realtors on Feb. 23.

If the next mayor doesn’t address the housing shortfall and affordability problems, people moving out might, and then the city will have a whole other set of issues to address.

But the Hancock administration has built systems, such as HOST, to work on the problem, and an unprecedented amount of state, federal and local housing dollars will be available for the next mayor to work with. The challenge is unprecedented, but so too is the opportunity to address it.

Remove roadblocks

Mayoral candidates tend to emphasize that the city needs to get out of the way and speed up the time for permit approvals, to simplify the process. From small renovations to backyard accessory dwelling units to mega-apartment complexes, working with the city is overly complicated, and getting a green light can require months longer than expected, developers have complained.

Some of that traces back to the decision to move the permitting process from public works to the city’s planning department. Some of it is due to the loss of expertise because of layoffs following the housing crash. And the shift to remote work, combined with a big surge in permit requests, didn’t help matters. But the biggest problem appears to be the city’s siloed approach to approvals of any kind, housing advocates say.

Approvals move from department to department rather than being expedited by a single team or task force working across jurisdictions. If something wasn’t properly handled or if specifications change, then things get kicked back, adding weeks and months and bogging everything down.

“For the next administration, I would like to see better staffing at city agencies and better communication among those agencies and the creation of teams that would monitor and administer programs for projects,” Hara said.

Even common sense approaches like pre-approving a standard set of designs for accessory dwelling units so approvals can move more quickly have been rejected by city planning officials. And some housing providers question why the city keeps adding more regulations and programs when it isn’t able to handle its current workload efficiently.

For example, the city now requires landlords of multi-unit dwellings to obtain a license and submit units to inspection. Few landlords have complied, and there are serious questions about whether the city even has enough inspectors to handle the task. Two months after the deadline to obtain a license passed, the city estimates it only had 2,822 licensees out of the 25,00 eligible.

A much more efficient and less costly process would have been to create a more robust reporting system, where inspections zeroed in on more problematic landlords, critics charge.

Shifting the affordable focus

In an effort to create more affordable housing, Denver passed an Inclusionary Housing Ordinance that requires projects of 10 or more units to offer between 8% to 12% of the units as affordable to those making around 60% of the median income, a common target under federal programs.

But developers say it represents a mandate without a commensurate carrot — such as tax credits or donated land — although the city is offering smaller breaks on things like permitting fees and parking space requirements. The rent discounts required become a cost of doing business that needs to be recouped in some way, typically through higher market rate rent on the remaining units.

“You can require as much affordable housing as there is government investment,” said Drew Hamrick, general counsel with the Colorado Apartment Association.

The number of multi-family permits in Denver fell from 12,800 in the second quarter before it took effect to only 1,500 in the third, an 88% decline, he said. The big drop could reflect developers trying to get ahead of the new rules, as well as financing complications because of higher interest rates. Yet Hamrick notes that permit activity rose in other metro counties over the same period.

Denver’s ordinance emphasizes creating affordable housing for those in the 60% of median income. Of the city’s 26,125 income-restricted housing units, 10,675 target households earning between 51% to 60% of the median. Only 378 are dedicated to those earning from 81% to 100% of the median income, a bracket that captures many entry-level teachers, police, and firefighters.

“That is where Denver has missed the boat. The shortage in affordable housing is for the 80% to 100% income group. By chasing 60% housing, we have put more pressure on them,” Hamrick said.

At the same time, there is also a sense that Denver is running out of redevelopment opportunities and market forces alone can’t address the problem, the way they have failed to address it for mountain resort communities. The next administration will need to put a greater emphasis on making sure what is built is affordable to the broad spectrum of residents, including workers at the lower income ranges.

As raw land becomes harder to find, new single-family homes have become a much smaller part of the mix in Denver, Newcomer notes. After hitting a peak of around 2,500 single-family homes in 2016, construction was down by as much as two-thirds before the pandemic.

Apartments have filled the gap, primarily bigger projects with 50-plus units, many of them “luxury” or designed to appeal to higher-income tenants. Because condo defects remain a problem in Colorado, one beyond the ability of any mayor to address, apartments have come to dominate in a way they never have before.

Building up and creating density is needed, especially in transit corridors, but it is also the kind of development that can change the character of a neighborhood and generate opposition. Candidates differ in the degree to which they think residents should have a right to block denser developments needed to meet the city’s housing shortfall.

Heather Lafferty, executive director and CEO at Habitat for Humanity of Metro Denver, said the biggest issue the city faces is how to efficiently use the land it has left, and use it in a way that can create the most housing possible.

“We are trying to solve a problem that is bigger than what our numbers today even demonstrate. We need the mayoral candidates to think big, we need them to think boldly and in ways they haven’t thought before. We need courageous leadership that is going to face the system that has gotten into this place. The systems that oppose less dense housing. The future of our community depends on it,” she said.

A lot of the discussion now centers on process — removing bureaucratic hurdles, speeding up permitting, and adding more staff. Candidates also agree on proposals to contribute vacant government-owned lots for the development of affordable units. Some discuss converting empty office buildings into apartments and condos. But the conversation needs to go much deeper, such as removing obstacles that block density and providing the type of housing most needed, to strategies that will flip the inverted pyramid.

“What can we do to reasonably accommodate density in neighborhoods, where it doesn’t crush the neighborhood, where it is not unsightly and not killing the character of a place,” Martinez asked. The next mayor shouldn’t be afraid to tackle the opposition to density.

Lafferty said a growing number of people who would have never sought help in the past are turning to Habitat for Humanity, trying to find answers to a market that has closed the door to homeownership for them.

“We are building a $500,000 home in Denver and it is crazy to think that it is at that price point,” she said of a recent Habitat project. “People in our income qualification range can afford a $275,000 mortgage, so we have more than $200,000 in subsidies that we need to figure out.”

In 2015, a typical home in Denver was affordable to someone qualifying for a $275,000 mortgage.

Support, not just supply

Before he became mayor, Hanock’s city council district covered Montbello and Green Valley Ranch, two of the hardest-hit neighborhoods during Colorado’s foreclosure crisis. Falling home values, an oversupplied market, and dislocated families made it hard to imagine a market where home prices would rise at double-digit rates for years, where home values in metro Denver would approach those seen in New York City and where rents would more than double.

Unexpected population gains were a big reason the city was caught flat-footed and housing costs skyrocketed at some of the fastest rates anywhere. Last decade, Denver’s population grew by more than 112,000 residents. That is how many people were added from 1980 to 2010. And all that growth came at a time when the residential construction industry was still recovering from a crippling blow it suffered during the housing bust.

But focusing solely on more supply could leave mayoral candidates blind to other problems that will become more pressing in the years ahead, especially if the economy enters a recession and unemployment rises.

Jennie Rodgers, vice president for Mountain and Tribal Nations & Rural Communities markets leader for Enterprise Community Partners, has been involved in addressing affordable housing issues in Colorado for more than three decades. She agrees that city processes need to be streamlined, time and land contributed to help development, and more housing supply brought to bear.

But she also argues the next mayor needs to look ahead and roll out more safety nets, especially with the expiration of federal rental assistance provided during the pandemic.

“We haven’t heard a lot from the candidates on how to keep people in the homes they are in right now. We don’t need to have increased homelessness,” she said. “We are hoping the new mayor targets policy interventions.”

It is much more efficient to help a struggling family with a few months of rent or mortgage payments than trying to help them after they are living in a vehicle or in a shelter, she said. And although the job market is still strong, the Federal Reserve is bent on crushing inflation, which could lead to more layoffs in the months ahead and a more unsettled economy.

“Denver residents deserve to feel safe in their homes. Our next mayor should prioritize programs that prevent evictions and foreclosures, preserve neighborhoods, and drive down costs to ensure low-income and working families, who keep our city running, can afford their next mortgage or rent payment,” added Zach Neuman, CEO of the Community Economic Defense Project.

Despite the stresses on housing, the city’s count of residents experiencing homelessness has stayed within a fairly tight range, with 6,358 in 2012 and 6,884 in the latest count. But more people are living without shelter, and how to address that has become a contentious issue in the race. After staying below 1,000 for much of the past decade, the number of unsheltered people in Denver soared above 1,500 in 2020 and last year went above 2,000, according to city counts, which likely understate the problem.

And another stress is emerging for those who own homes. Between June 2020 and June 2022, median home prices in Denver County rose 40%, an unprecedented spike that will go into calculating how much homeowners, no longer protected by the Gallagher amendment, will pay in property taxes in 2024 and 2025.

For some long-time residents of neighborhoods that have gentrified, it could be the financial blow that pushes them over the edge. The issue is one she hasn’t heard mayoral candidates address, said Veronica Barela, executive director of the Denver Metro Fair Housing Center.