As I have been talking to my friends and neighbors about the upcoming election, I find smart and thoughtful people frustrated in sorting fact from fiction and perception from practice in our affordable housing program. Having spent 32 years shaping, implementing, and advocating for Boulder’s affordable program, I wanted to offer some insight into perception versus practice, in my experience.
Across Boulder County and beyond, the rising cost of renting and buying a home has placed tremendous burdens on our neighbors in communities throughout the region. Elders worry about staying in the community they’ve lived in for decades; families worry the economic choice of paying for rent or paying for health care; and employers worry about where a future workforce will live.
The statistics tell the story: The average monthly rent for a two-bedroom, two-bath unit in Boulder is $2,016, requiring $72,000 in household income and representing an increase of 61 percent since 2010; 63 percent of people living in Boulder are “housing cost-burdened,” meaning they spend over 30 percent of their incomes on housing; less than 15 percent of our housing stock is valued at less than $200,000; the median value of an owner-occupied home in the city is $860,000.
There are now 3,462 permanently affordable housing units in the city of Boulder, equivalent to 7.8% of the housing inventory. Boulder’s affordable housing stock includes 203 shelter beds, 300 public housing units, 2,057 rental units and 902 ownership units. This compares to an estimated need of more than 11,000 additional units.
The city has a goal of having 10 percent of its housing stock be permanently affordable.
“Affordable” means that a resident would not have to spend more than 30 percent of his or her income on housing. Rents and prices on affordable units are designed to meet a variety of income levels, depending on the type of housing project and the funding sources, but generally below 80% of the area median income. Area median income in Boulder is $66,400 for a single adult and $94,600 for a family of four. Most affordable housing for sale is restricted to 80 percent of area median income or lower, and 60% or lower for rentals.
Permanently affordable means that the deed carries a restriction on resale that governs either the resale price or the monthly rental maximums. The deed survives most ownership transfers and runs with the land forever. In rare instances, it can be removed with a full repayment of the affordable funds.
ISSUES
Cash-in-lieu: Why Is So Much Affordable Housing Being Built Off-site?
Perception: Developers are choosing to avoid their obligation to provide on-site affordable rental housing in the Inclusionary Housing program.
Practice: Boulder’s inclusionary housing ordinance, in place since 2000, was never really designed for rental housing. The program requires that new residential projects with more than 4 units make at least 20 percent of the units permanently affordable, or pay cash-in-lieu to the city’s affordable housing fund. This sounds so simple in concept and, in fact, for the first 12 years of the program we never heard a peep about it. Developers built homes for sale and offered 20% of them for sale to qualified buyers.
Then everything changed. With the collapse of the home-buying market in 2008-09, nothing much was built in Boulder for a couple of years. When building resumed, the focus was on apartments and rental communities. Policy makers and developers alike quickly discovered the complexities of managing an inclusionary housing program in a rental scenario. The first test in the new regulatory environment was 29 North. The developer spent more than 18 months trying to make on-site affordable work. It became in impossible because of a 1981 law that prohibits rent control in Colorado, which inclusionary housing effectively is when applied to apartments. Rather than manage a mountain of complexity, most developers have opted to pay cash in lieu. It’s not a lack of desire on their part, or a disagreement with the vision that affordable units be integrated on-site. It’s Colorado law that makes it very, very difficult.
When cash in lieu is paid, however, affordable developers like Boulder Housing Partners and Thistle use those funds and get more buying power out of them by combining them with grants and federal tax credits to create more affordable units than can be developed on-site. Cash in lieu has also proven to be profoundly important when we develop transitional housing for victims of domestic violence and veterans’ housing, for example.
And, Can’t We Buy More Affordable Housing from the Existing Inventory of Apartments?
Perception: There is a healthy inventory of multi-family apartment buildings in Boulder. Let’s buy those instead of building new.
Practice: There is no question that buying existing market-affordable apartments is the greenest and fastest path to increasing our affordable housing inventory. The greenest building we can ever produce is the one we already have. The challenge in Boulder’s economy is one of fierce competition for commercial property. During my more than 20 years of trying to purchase commercial buildings for affordable housing, we were outbid 9.5 times out of 10 by out-of-state institutional investors who could afford to pay cash and could close very quickly. According to an August 2017 article in BizWest “Denver and Boulder have become the investment darlings of the country for institutional investors.”
In addition to our natural assets – great location, great weather, hip culture and deep talent pool – our growth management policies continue to keep the supply curve tilting in favor of investors. In the past 18 months, according to BizWest, “Goldman Sachs, Blackstone Group, Balfour Capital Management, Cress Capital and Crescent Real Estate, all deep-pocket investment groups based elsewhere, have acquired major portfolios in the region.”
Affordable buyers can occasionally rise to the top of a seller’s list of offers, but not with the frequency required to achieve 10% of the portfolio as permanently affordable housing. We have been much more successful in competing for land, either through re-purposing publicly owned vacant land and underutilized parcels, or securing new land through annexation, acquisition or donation. There are many innovative ideas in discussion about how to make affordable buyers more competitive in the acquisition market including a ready source of cash for quick closing, a right of first refusal on certain properties and an enhanced outreach to a seller’s network.
Affordable Housing Linkage Fee: Who Should Pay for Affordable Housing?
Perception: Increasing the commercial linkage fee is the solution for Boulder’s affordable housing challenges.
Practice: The Boulder Valley Comprehensive Plan codifies the belief that growth should pay its own way. Developers pay a wide range of fees to offset the impact of growth. The fees currently paid include:
• Park Land Development Excise Tax
• Transportation Excise Tax
• Housing Excise Tax
• Library Impact Fee
• Parks & Recreation Impact Fee
• Human Services Impact Fee
• Municipal Facilities Impact Fee
• Police Impact Fee
• Fire Impact Fee
• Affordable Housing Commercial Linkage Fee
These fees can be substantial and add to the affordability problem. For example, Solana was recently constructed as a 319-unit apartment complex in the Transit Village. The project is valued at $38 million, and the project paid just over $11 million in fees. This equates to approximately $37,000 per unit in fees.
Boulder’s fees for multi-family apartment are the second highest in the region, behind Loveland/Windsor.
Many candidates suggest that an increase in the Affordable Housing Commercial Linkage Fee should be increased, and that increase could be the major tool in the affordable housing puzzle. They don’t have sufficient potential to be a meaningful part of the solution, let alone the entire solution. Even if the linkage fee increases to its legal maximum of $58 per foot, we fall far short of meeting the equity needs for the housing demand we have. Instead we need a broad coalition of tools, fees and taxes that work together across many sectors to fund our affordable program.
If Boulder wanted to meet a very modest 10% of the 11,000-unit deficit for today’s population (not even considering the working in-commuters), those 1,100 units need $110 million in subsidy. The linkage fee under discussion currently produces less than $1 million annually. Even if, as many suggest, you take the linkage fee up to its legal maximum of $50 per sq foot, you don’t come close to closing the financing gap. Clearly, we need a much bigger and broader base of funding tools. The Regional Housing Partnership is working on just such a plan, which can be found at https://assets.bouldercounty.org/wp-content/uploads/2017/03/affordable-housing-draft-plan.pdf
And, increasing linkage fees combined with the expense of the other fees noted above can have two unintended consequences: 1) stalling any commercial development and actually reducing the total fees collected, and/or 2) driving up rents for our local merchants, restaurants, and family businesses.
Does Density Increase Affordability?
Perception: Additional density won’t convey affordability. Proponents of this belief point to New York City and San Francisco and evidence that compact cities aren’t affordable.
Practice: Increased density is guaranteed to convey greater affordability if the developer produces affordable housing in cooperation with the City’s affordable program and agrees to attach a permanent covenant on the land that restricts rental prices, or re-sale pricing. Every dollar saved in land cost equals a more affordable product. Let’s look at simple math. An affordable housing developer pays $2 million for an acre of land that is zoned for 10 units. That’s a land cost of $200,000 per unit. If the density is increased to 20 units, the land cost has been cut in half, reducing the annual income required to buy the home by $25,000. There are thousands of Boulder workers priced out of our community for lack of an additional $25,000 in income.
Eighty-three percent of Boulder’s residentially zoned land area is zoned for single family homes. If we increase that density modestly, making a single-family home lot into a duplex or triplex home we have necessarily created more affordable housing. The key here is to both lower the cost of the land and increase flexibility in zoning and design that accommodates new family structures, new ways of getting around and a willingness to be a little cozier with neighbors.
Why Can’t Neighbors Have More Influence on Development?
There have been several times in my career that we have left a piece of property sit vacant for several years as development potential for the future. This is often referred to as “land banking”. In each of these cases, this open space has become Open Space in the experience of the neighborhood. Greenfield development, the practice of building in an open field versus redeveloping a structure in place (infill), has become challenging in most communities because that rare vacant parcel in the neighborhood has become either an unused but cherished natural landscape, or a de facto dog park and community gathering place. Naturally, it’s difficult to be the entity that takes that away.
However, unless land has been purchased with the express purpose of remaining open (Open Space) or a park, then someone owns that land and has proprietary development rights attached to it. The fact that there are purchased development rights gets lost in our discussions about open lands. Hogan Pancost and Twin Lakes are great examples of that. Unless the city and county want to purchase those lands for Open Space, which so far they have declined to do, then the land will be developed according to the land use associated with the parcel. Once the land use zoning decision is made, then it’s the developers job to work closely with the neighborhood to create the most compatible project possible that has maximum benefit for all concerned.
Neighbors often feel powerless in development processes. One small part of the solution is to help people understand what’s vested in law, and exactly what the zoning, ownership and intent of a vacant parcel is before you choose to move to a neighborhood. We all lose in the discussions when people perceive open land as Open Space.
Why Don’t We Increase the Inclusionary Housing Requirement?
Perception: If Boulder is to remain economically diverse, 50% of new housing needs to be affordable.
Practice: The City’s current cash subsidies reliably generate between $4-6 million dollars annually. At an average per-unit subsidy rate of $100,000, we can reliably generate 40 to 60 units each year. That is not 50% of everything built. There is no shortage of ideas for how to generate more funds, but per the above discussion on DET, we would have to radically increase revenue to achieve a 50% inclusionary housing requirement. I’m not opposed to it. We should all do the math first before advocating these solutions.
Don’t We Need More Community Land Trusts?
Perception: Community land trusts are a magic bullet because they take the land cost out of the home purchase equation.
Practice: Boulder has long experience with land trusts, and they are indeed effective. But, they don’t achieve greater affordability outcomes than the permanent affordability covenant that the City already administers does and they are quite expensive to administer.
Transportation as a housing cost or savings?
Finally, we must continue to make progress on alternative modes of transportation so that we can manage affordability and traffic at the same time. Transportation is usually the second or third greatest expense for a family. Let’s integrate our transportation plan with our housing to solve our traffic, housing and climate goals together.
Great cities attract innovative and creative people, some who drive cars. Boulder can continue to be great but we need to plan to accommodate some new people. Let’s plan to be great and vital with fewer cars and more affordable housing.
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Betsey Martens was appointed to the Boulder Housing Partners Board of Commissioners in 1985 and has worked continuously on housing and community development policy in Boulder since then. In June 2017 she retired after 20 years as BHP’s Executive Director.
Housers 