Thousands of affordable housing units are at risk in Colorado. A bill would help local governments buy them.  (2024)

For decades, affordable housing in Colorado has been diminishing faster than developers are building it.

The main culprit, as any Colorado renter can tell you, is the rise in prices. Rent in metro Denver has risen faster than any other city since the Great Recession relative to household income, according to research firm Real Estate Witch. Since 2009, the median rent payment has jumped to $1,554 from $856.

But there’s another reason less discussed, that’s baked into how our government funds affordable housing.

The affordability requirements on thousands of publicly funded, low-cost units built decades ago are now expiring — a trend that’s only going to accelerate in the coming years.

Housing advocates say that leaves a large share of Colorado’s affordable housing stock at risk of being snapped up by out-of-state investors, who could then raise rents without legal restrictions.

The Colorado House this month passed a bill supporters hope can preserve some of the most affordable units. House Bill 1175 would give local governments a “right of first refusal” to buy privately owned affordable housing once its rent restrictions expire.

“If we’re using public funds to build affordable housing, those properties should maintain affordability for as long as possible,” Cathy Alderman, a spokesperson for the Colorado Coalition for the Homeless, said in an interview.

The right of first refusal would only apply to multifamily properties with at least five units that are subject to affordability covenants. Local governments would also gain a “right of first offer” that requires many other apartment owners to notify local officials if they intend to sell.

Both provisions represent a change from a more expansive version of the legislation vetoed by Gov. Jared Polis last year. Last year’s version, bitterly opposed by real estate investors, bankers and title companies, would have created a stronger right of first refusal that would have applied broadly to apartments that are at least 30 years old —even those that hadn’t been built with the help of public dollars.

The measure now moves to the Senate, where it’s expected to pass in some form. But its fate will ultimately be determined by Polis, who hasn’t said whether this year’s version has changed enough to assuage his concerns that new regulations could drive up costs and deter private real estate investment in the state.

‘We have to preserve what we have’

Without additional funding for housing, the bill is unlikely to reverse the downward trend. Over the past decade, state housing officials estimate Colorado has lost around 300,000 units of “naturally occurring” affordable housing —meaning homes that are affordable to those with low incomes even at market rates, without public assistance.

And, even accounting for a recent bump in pandemic relief money, federal funding for affordable housing — by far the largest source of housing subsidies for low-income residents — has been shrinking for decades.

A Colorado Sun analysis of U.S. Housing and Urban Development data found that the number of rental units supported by federal assistance has fallen 15% over the last two decades when adjusting for population growth. In 2023, HUD estimates show Colorado had 63,723 such units — or 10,842 units per 1 million people. That’s down from 12,803 units per 1 million residents in 2004.

The HUD data only tracks housing funded with federal dollars, so Colorado likely has more publicly subsidized affordable units than the federal figures show. Nonetheless, affordable housing advocates say the downward trend is clear. And doing nothing will only exacerbate the decline.

“It’s a backstop to a lot of the proposals that we have which are designed to create more affordable housing,” said Rep. Andrew Boesenecker, a Fort Collins Democrat who sponsored the bill. “We can’t lose it on the back end. We need to preserve what we have.”

Rent restrictions face expiration

For most of the 20th century, affordable housing built with taxpayer help had no expiration date. Units remained affordable as long as the government was willing to subsidize and maintain them.

That changed in 1986, with the creation of the Low-Income Housing Tax Credit, or LIHTC, which has become one the nation’s largest funding sources for developing new affordable housing.

The LIHTC program provides developers tax credits in exchange for agreeing to rent units at affordable rates to low-income tenants for a period of time — typically 30 years. The credits are sold to private investors, who provide some of the capital needed to finance construction.

Over the past few years, those affordability windows have begun running out, creating a new headache for policymakers.

Kinsey Hasstedt, the state and local policy director for Enterprise Community Partners, an affordable housing developer that is supporting the bill, told lawmakers at a hearing earlier this year that 5,100 homes in Colorado lost their affordability restrictions in the last decade. Over the next 10 years, as many as 14,500 more could do so.

“With this kind of loss we can simply never build our way out of the affordability crisis our state is facing,” Hasstedt said.

The bill would require affordable housing owners to give a local government two years’ notice before their affordability window is set to expire, then notify the government again if they plan to sell it. At that point, local officials would have 14 days to decide if they wanted to buy the property and 30 days to make an offer.

Supporters envision local governments partnering with nonprofits to help finance the purchase and ultimately manage the property.

Notably, the city of Denver has had a right of first refusal ordinance on the books since 2015. But it’s only been used twice, to acquire a total of 17 units.

Derek Woodbury, a spokesperson for the city Department of Housing Stability, told The Sun that exercising the right of refusal “can be challenging and has been hindered by a variety of factors, including the sales price of the property, the timeline to close and available resources that can be activated quickly to facilitate the purchase.”

Under the proposed state bill, local governments could face even tighter timelines to complete a deal. But advocates hope a new funding stream for affordable housing, approved by voters in 2022, could help local governments with acquisition costs.

Investors push back

Critics of the bill argue it would complicate real estate transactions, drive up costs and deter some investors from doing business in the state.

“We’ve got to listen to capital,” Ted Leighty, the CEO of the Colorado Association of Homebuilders, testified in a hearing earlier this year. “Our biggest fear all along with this has been, are we going to create a chilling effect on capital in the market? Because then we won’t get what we want, which is more affordable housing in the marketplace.”

Polis echoed those concerns in his veto letter from a year ago.

“I support local governments’ ability to buy these properties on the open market and preserve low-cost housing opportunities, but am not supportive of a required right of refusal that adds costs and time to transactions,” Polis wrote.

While supporters of the measure say they don’t believe it would harm the real estate market, they also don’t dispute that it’s intended to deter investment that they view as detrimental to affordability.

“There’s a huge market out there for buying housing that was built with public dollars and using that infrastructure to convert it into market-rate units and make a profit off it,” Alderman said. “That’s exactly what we’re trying to give local governments the opportunity to avoid.”

In recent years, private equity giants Blackstone Group and Starwood Capital have become some of the largest owners of affordable housing in the country, acquiring more than 100,000 units built with public assistance.

News investigations and academic researchers have found that housing purchases by private equity and other investment firms have been linked to rent hikes, displacement and poor living conditions.

One of the companies seeking changes to the bill is 6201 W. 26th Ave Property LLC — owned by Trion Properties, a Florida investment firm.

Trion also owns The Felix, a Denver apartment complex that has come under fire from tenants and government officials for a litany of habitability problems, including frequent water shut-offs, rodent infestations and ceiling leaks.

Trion did not respond to a request for comment Tuesday.

Boesenecker, the Fort Collins Democrat, told The Sun he has been working closely with the governor to address his concerns that the bill could create costly delays for real estate buyers and unintended consequences in the broader housing market.

“We’ve really been working through that veto letter line-by-line, with the intent of addressing that explicitly, recognizing the governor’s concerns, recognizing opposition’s concerns,” Boesenecker said.

A spokesperson for the governor’s office wouldn’t say if Polis supported this year’s version of the bill, which is still opposed by the Colorado Apartment Association, the Colorado Bankers Association and a number of real estate investors.

“The governor will continue to monitor this bill as it moves through the legislative process,” spokesperson Shelby Wieman told The Sun in a statement.