CREJ - Multifamily Properties Quarterly - May 2016
It is impossible to discuss today’s multifamily market without acknowledging the affordability crunch. With the average rent for a one-bedroom standing at $1,250, many renters are finding themselves stretched to pay a disproportional amount of their wages to housing. According to the Denver Mayor’s Office, someone is cost burdened if he pays more than 30 percent of his income on housing. And by the office’s calculations, there are 87,000 households in the city that fall within this cost-burdened category, said Evan Dryer, chief of staff for Denver Mayor Michael Hancock. Affordable-housing options are paid for primarily with federal funding. But over the past three years, the city raised funds to support the building of affordable housing. However, these funding sources are temporary and are not enough to meet demand, said Dryer. The mayor’s office is looking to change this with the creation of the first permanent affordable housing fund, explained Dryer and Laura Brudzynski, with the Denver Office of Economic Development, at a Downtown Denver Partnership lunch in April. The program is proposing two dedicated funding sources that would combine to generate $15 million a year, which would allow the office to create and preserve 6,000 additional affordable units over 10 years. The first source would come from restoration of up to one mill of property tax. In 2012, Denver voters approved that the city could keep additional tax revenue (deBruced), so this would just need the City Council’s approval. The program does not anticipate requesting an entire mill. The second source would be the creation of a linkage impact fee, which would be a fee on new development on a square-footage basis. It would be a one-time fee for all projects, residential and commercial. A Nexus Study is underway to determine the maximum legally justified fee, and then a feasibility study will be conducted to determine an appropriate fee range. This type of fee is a best practice in a lot of Denver’s peer cities, Brudzynski said. The goal of establishing something permanent to address the affordability problem seems even more critical as this week we watched construction defect reform legislation talks collapse again, for the fourth year in a row. The studies for this program are anticipated to wrap up in the next two months and a “robust public discussion” will follow. Watch for updates in the next issue of Multifamily Properties Quarterly.