Denver’s Expanding Housing Affordability Policy Increases Need for Pro-forma Due Diligence

The Denver City Council recently voted to pass a proposal known as the Expanding Housing Affordability Policy. The policy expresses a joint effort between the Department of Community Planning and Development and Department of Housing Stability to create affordable housing in the city of Denver. The proposal requires new residential developments of 10 units or more to designate between 8 and 12% of the units as affordable, regardless of whether the home is for rent or for sale.

In high-cost markets, developers can qualify by designating 10% of units as affordable to residents at 60% area median income (AMI) for rental housing and 80% AMI for ownership housing. In typical markets around the rest of the city, 8% of total units must be available for rental residents at 60% AMI, and 8% of ownership units must be available for 80% AMI.

The city is already seeing an increase in concept plans submitted for development before the new rules go into effect, and some observers expect the vote to prompt more plans with affordable housing. Incentives to comply with the new ordinance include permit fee reductions, reduced minimum parking requirements, and exemption from linkage fees for certain street-level commercial uses.

These changes may reduce the return on multifamily properties for rent or for sale in the city and county of Denver and may slow down the rate of development until developers can build these changes into their models. It also makes it necessary to model out every line item on the development pro-forma. There may be a possibility to gain back that return if other line items in the pro-forma are maintained at appropriately lower levels, such as vacancy or property taxes.