How local growth restrictions impact affordability

In June 2017, Lakewood residents decided to take action by spearheading the Strategic Growth Initiative – a ballot measure that would limit new home permits issued by the city of Lakewood to a 1% annual increase and would require Lakewood City Council to hold a public hearing and vote to approve residential projects with more than 40 units. Courtesy City of Lakewood

Travis Hodge
Vice president, multifamily, capital markets, JLL

Bob Dylan’s “The Times They Are a-Changin’” title track is not only the most powerful pre-electric album, but also it is the perfect anthem for today’s metro Denver – the population is exploding, housing costs are soaring, traffic is getting worse, and, lest we forget, the never-ending maze of construction sites is becoming harder to navigate. To many longtime Denverites, these are unwelcome changes; but, as the saying goes, change is the only constant in life.

New construction has come in various forms – office skyscrapers, industrial parks, food halls and marketplaces – but perhaps the most pronounced growth has come in the shape of new apartments. Since 2010, metro Denver has added more than 67,000 apartment units. Many individuals are sick and tired of the growing pains, and, unfortunately for developers, new apartment projects have assumed the role of whipping boy, taking the blame for all that is wrong with metro Denver.

Rather than sitting on the sidelines and complaining, a faction of frustrated Lakewood residents decided to take action by spearheading the Strategic Growth Initiative – a ballot measure that would limit new home permits issued by the city of Lakewood to a 1% annual increase and would require Lakewood City Council to hold a public hearing and vote to approve residential projects with more than 40 units. After first being proposed in June 2017, Lakewood’s Strategic Growth Initiative was challenged in court with claims that it violated constitutional matters. In December 2018, a judge ruled against these claims, but the initiative was further delayed by an appeal. However, this past April, Lakewood City Council decided to send the initiative to a special election July 2.

It’s not the first time a Front Range community has attempted to implement growth control measures. The city of Boulder is notorious for stifling growth. Boulder’s fight against growth dates back to 1959 with the establishment of the Blue Line – an urban service area boundary restricting city water service to elevations below 5,750 feet. While the Blue Line stymied westward development, the People’s Republic of Boulder quickly realized they could never isolate themselves from reality without also impeding development to the north, south and east. So, in 1967, Boulder became the first city in the nation to self-impose a tax to facilitate the acquisition, management and maintenance of open space, leading to the formation of a 45,000-acre greenbelt that now surrounds the city.

With the open space program paving the path to securing the Boulder Bubble, the citizens continued in the fight against development by gathering enough signatures to force a ballot measure limiting height for new buildings to 55 feet. Why 55 feet? It’s the height of a mature tree in Boulder, of course. The measure passed in 1971, ensuring that developers would no longer step inside the bubble and attempt to outshine Mother Nature. Following the height limit, the Residential Growth Management System was enacted in 1977 to limit residential growth. After several revisions, the RGMS now limits the rate of residential growth to no more than 1% annually.

In 1995, the city of Golden stole a page from Boulder’s playbook and imposed a 1% annual cap on residential construction, and in 2014, the cap was further reduced to 0.9 percent. Golden will have a maximum of only 77 growth management allocations available for distribution this year to allow for the creation of new dwelling units. Many will claim that the imposed cap has helped preserve Golden’s character. While this claim is subjective, we can objectively point to the unintended consequences resulting from this measure as there is no denying that Golden now suffers from a shortage of housing. Golden has 25,146 total employees, yet it has a total population of 20,914 and a labor force of just 11,606. This means that most employees are commuting into Golden from neighboring cities. That imbalance not only puts upward pressure on housing costs, but also causes congestion and a strain on infrastructure. The same can certainly be said for Boulder with its 60,000 commuters entering and leaving the city each day.

These growth control measures might sound good on paper, but the artificial housing shortage they’ve created has had a negative effect on affordability. Through the first quarter, the median sales price for a single-family home in metro Denver was $436,500. That may sound like a lot, but compare that to Golden’s $560,000 and Boulder’s $873,000 and suddenly it doesn’t sound so bad. The same disparity can be seen in the rental market. Metro Denver’s average monthly apartment rent as of the first quarter was $1,464, whereas Golden’s was $1,518 and Boulder’s was $1,688.

Today, Lakewood’s housing costs are relatively affordable compared to metro Denver’s. In the first quarter, the median single-family home price in Lakewood was $409,000 and the average monthly apartment rent was $1,434. However, if the Strategic Growth Initiative is passed, then expect Lakewood to join in the chorus with Golden, Boulder and Dylan: “The line it is drawn/The curse it is cast/The slow one now/Will later be fast/As the present now/Will later be past/The order is rapidly fadin’.”

Featured in CREJ’s May 2019 Multifamily Properties Quarterly

Edited by the Colorado Real Estate Journal staff.