City must preserve existing affordable housing

Block of red brick historic apartments
A historic apartment building in Denver’s Highlands neighborhood recently was retrofitted to preserve its affordability for low- and moderate-income residents. (Courtesy Ben Criswell, ICAST)

Ravi Malhotra
President and founder, ICAST, Denver

Dozens of cranes in the Denver skyline are an encouraging sign for many residents that the city’s economy is booming. New buildings populated with bright, modern apartments and ambitious businesses undoubtedly are important to Denver’s urban development. But another type of building innovation is happening in the city and, in many ways, it’s more important to the communities here. Retrofitting Denver housing to preserve its affordability and availability is crucial to many neighborhoods’ vitality. Retrofits are more cost-effective than new construction, they build on previous public investment in a way that supports local economies, and they counteract the rapid loss of affordable options due to deterioration, abandonment or conversion to more expensive housing.

As more people move to cities nationwide, the rising urban population will increase investment, property taxes and competition for housing. In this article, Denver is used to illustrate developments in similar cities where new investment and the growing demand for housing are inflating property values. Where this shift happens, the number of available housing options that historically have been affordable to low- and moderate-income households can decline dramatically. Addressing this trend is especially pressing given that in the U.S., for every 100 households that earn 30 to 50 percent of their area median income, there are only 65 available and affordable units.

Denver’s housing market. As new construction raises property values and rent throughout neighborhoods, the Denver metro area has seen a significant increase in demand for affordable housing. Homes with base prices above $400,000 now represent 68 percent of the market, an all-time high for Denver, according to a Metrostudy research released in February.

Meanwhile, less affordable housing is being developed and fewer subsidized housing vouchers are being offered than ever before. As a result of this situation, the Colorado Independent reports that, “the affordable housing crisis has moved from the ranks of the impoverished and low-income earners into the ranks of the middle class.”

To ensure that all households, regardless of income level, benefit from the development of urban neighborhoods, practitioners and advocates should work to preserve existing affordable housing, protect renters from rising costs or pressure to move, and ensure new development includes affordable options. We will place emphasis on the first solution, as it is less obvious to many (particularly ribbon-cutting politicians) why preserving affordable housing is more impactful than building it.

Preserving vs. building affordable housing. Across the U.S., approximately 100,000 affordable housing units are built each year. But for every unit built, two are lost due to deterioration, abandonment or conversion to more expensive housing. Preserving housing, rather than building it, has proven to be the most financially sustainable method of reversing this trend of taking one step forward and two steps back.

In cities like Denver, with high land costs and restrictive land use regulations, it can be difficult to build rental housing affordable for low- and moderate-income households. In fact, the cost of building new affordable housing can be as much as double the cost of preserving a city’s existing stock.

Preservation also protects the billions of taxpayer dollars already invested in affordable housing by building on that investment for future public benefit. This makes retrofitting our existing housing stock the most cost-effective investment that the public sector can make to ensure that its citizens have decent and affordable places to live. These efforts create opportunities to work with communities to meet their housing needs. They build upon the character and history of a neighborhood in a way that values rather than erases the past.

Subsidized housing vouchers. Subsidizing rent for low- and moderate-income households through housing vouchers offers another solution to affordable housing shortages. However, in Denver, the near-impossible acquisition of these vouchers makes affordable housing further inaccessible to low- and moderate-income renters. The Denver Housing Authority is estimated to receive an annual budget of $60,000 for subsidized affordable housing vouchers, which will buy approximately 300 vouchers, according to the Colorado Independent.

The Denver Housing Authority opened its lottery for 2017 vouchers on Sept. 22, 2016, and by its close the following day, 21,500 applications had been submitted. What’s worse, of the 300 vouchers awarded last year, only about half were used because many recipients were not able to find a landlord willing to accept their voucher or the rent landlords were charging was still too high.

Recognizing the affordable housing crisis. To recap the situation in Denver, which parallels that of many other growing U.S. cities, greater competition in the housing market is leading to higher rent and an increased demand for affordable housing. Meanwhile there is not enough affordable housing under development to meet that rising demand, and what already exists is becoming less available as vouchers become a rarity. All of this points to a stark shortage in affordable housing and growing concerns over the associated risks to community vitality.

There are policies taking shape in the Colorado Legislature that aim to address this housing shortage. The most prominent bill recently attempting to incentivize affordable housing in Colorado is House Bill 17-1309, which would double an existing filing fee on real estate transactions. While this bill is somewhat controversial in that it imposes a fee on real estate agents and it expands the pool of renters qualifying for assistance to those earning up to 80 percent of the area median income, which some believe to be too high of a threshold, it has the potential to become a crucial asset to the preservation of affordable housing in Denver.

Regardless of how the current legislation fares, plans that emphasize preservation rather than new construction offer the most cost-effective solutions to housing shortages. Because retrofitting housing is much cheaper per unit, protects previous public investment and maintains historic communities, urban housing policies should be designed to encourage an emphasis on preservation. If affordable housing preservation efforts are successfully implemented, Denver will make significant strides toward providing safer, healthier and more equitable housing for citizens who need it most.

Featured in the August issue of Multifamily Properties Quarterly. 

Edited by the Colorado Real Estate Journal staff.