Is Denver’s Affordable Housing Ordinance scaring away commercial multifamily development?

Sustainable Design Build onsite at Federal Flats Commercial Multifamily Development.

• In March 2022, Denver Introduced the Expanding Housing Affordability plan
• The plan requires developers to allot 8 – 12% of units designated for low-income housing
• Alternatively, developers can choose to pay an in-lieu-of fee ranging from $250,000 – $478,00
• Three months before the plan’s effective date, 12,800 applications for apartments were received.
• Three months after the plan’s effective date, only 1,500 applications were received 

Three months after the newly released housing ordinance, the Apartment Association of Metro Denver is showing a negative trend in commercial multifamily development. Applications for commercial multifamily development have dramatically fallen by 88%  following Devner’s new affordable housing ordinance. While the goal of the ordinance was to help further the development of new multifamily housing, many experts warned of the opposite effect. It seems now, Denver’s Affordable Housing Ordinance is scaring away commercial multifamily development. 

What is Denver’s Affordable Housing Ordinance?

In 2022, Denver’s city council approved the Expanding Housing Affordability proposal which introduced new fees and options that would expect more from commercial multifamily developers. The goal was to encourage more options in the affordable housing market by placing the responsibility more on land developers. The additional requirements on developers came in the form of increasing the designated affordable housing units per project. The ordinance specifically requires that new residential construction of 10 units or more are to designate 8 – 12% of their units as affordable housing to those who make up to 60% AMI, area median income. Developers are allowed to opt out of designating their units for affordable housing but will instead be given a fee-in-lieu which can range from $250,000 – $478,000. This fee is expected to go directly to the city’s managed affordable housing program which should use the funds to help construct affordable housing units of its own.

Data shows new ordinance disincentivized apartment construction

According to the new numbers from the Apartment Association of Metro Denver, it seems the fears of the new ordinance are coming true. In the three months before the effective date of the new ordinance, a total of 12,800 applications for new commercial multifamily development were submitted. In the three months after the effective date the applications for new commercial multifamily development dropped to 1,500. That dramatic decrease is roughly a 88% fall and is shocking Denver’s goals for new development. 

Developers Are Still Here But Likely Outside of Denver

Development may still be happening in Denver but it is likely that will slow down with the fallout of the new ordinance. The construction of apartments that are seen today is simply from permitted projects that were greenlit months if not years ago. Denver also recorded a ‘mad dash’ for many development and construction companies who made sure to submit their project plans before the cutoff date of when the housing ordinance would go into effect.  Some speculate that Denver will see the effects in the years to come, while others state that this is in non-issue.

New data also suggests that new construction applications have increased, however, only in the Denver suburbs. If true, it means land developers are still around but have shifted their focus to new construction outside of Denver to avoid the new ordinance that was put in place.

The Missing Middle

Some experts suggest that Denver doesn’t need more affordable housing but more middle-of-the-road income housing. Denver’s Housing Affordability Ordinance targets those who are in 60% or less of the Area’s Median Income. But the real deficit in supply for the housing market here in Denver is the households who make 80 – 100% of the area’s median income. This group of people has been referred to as the “missing middle”. The demographics are middle-income earners who do not qualify for affordable housing programs but also don’t earn enough to rent or buy under the current market conditions. 

A Sustainable Amount of Apartment Development is Needed

Regardless of the opinions circling around the construction industry here in Denver, it is still apparent that more affordable housing options are needed. Inventory is still low and multifamily development like apartment buildings and mixed-use structures are greatly needed. Their ability to help with population density and inflow is a necessity for Denver’s growth. Sustainable Design Build has commercial construction projects in the outset areas of Denver and will continue to build multifamily in the future. For developers and investors looking to build in Denver, it will important to see the following effects of Denver’s Affordable Housing Ordinance.