Affordable Housing?

Apologies to my friends in other states, but today we move to a discussion of the Colorado Affordable Housing “crisis”.  This is after the crises of opioid addiction, homelessness, crime, car thefts, declining test scores in our schools, climate change, and the Broncos failing to make the playoffs for the 8^th year in a row.  The one recurrent theme of all these crises is the failure to solve any of them before moving on to the next.

Now this current Affordable Housing “crisis” isn’t about housing for the homeless or even the poor.  We can and should have shelters for the homeless and public housing programs for the poor.  As a caring society, we should provide some type of housing so that people don’t freeze.  This affordable housing crisis is different.  This is an issue that seeks to solve the problem that not everyone can live in any neighborhood or any city they want because they can’t afford the housing that is there. 

In the past, if we couldn’t afford to live exactly where we wanted, we lived in places that we could afford.  These were usually not as nice as we would have liked or perhaps not located exactly where we wished. Our housing arrangements may have required roommates to share the costs or perhaps we lived with family until we saved enough or started making enough to buy or rent a place of our own.  If where we could afford to live was not close to where we worked, we would commute longer distances, or we would get a job closer to where we lived…if we wanted.  This is what we used to call…. life.

At some point someone (and I haven’t figured out who yet) decided that “we”, the government, should involve ourselves in satisfying certain individuals’ desires to live wherever they wanted for the price that they wanted to pay.  It was decided that the market system of supply and demand was no longer equitable or workable or whatever and that immediate governmental action was required to change the laws of economics, mathematics, and common sense.

Look, you don’t need to get an MBA, an advanced degree in math, or B.A.in Theater to understand the basic economics of the housing market.  Short description: there is the cost of building a particular structure on one side and then you have to figure out if you can afford to live there on the other side. 

To get into greater detail (but still pretty basic), a builder pays money to buy the land that the building will be on. It has to pay for all the materials that go into the construction of the building and then has to pay for the labor assemble it all. If there is anything left over for the people who put all this together, we call it profit.  If there was no profit for those folks who do housing projects, then it wouldn’t be worth their time, and they would leave to do other more productive activities like run a marijuana dispensary.

There is no magic to this.  If you want a house to be cheaper you can buy cheaper materials or make it smaller. It is hard to lower your labor costs since pounding a nail is the same whether you are building an “affordable” house or a luxury home. You might be able to lower your land costs by purchasing land that is vacant or further from the metro area.

On the buying side, purchasers have to pay for all costs of the materials, labor, profit, etc.  They also have to figure in the costs to get a loan, interest on the loan, the cost of property insurance, property taxes and housing expenses such as utilities, water, and maintenance.

What is affordable is based on individual desires.  Perhaps a potential homeowner values a house with better materials, more land and a peaceful community with good schools.  In return that potential homeowner is willing to turn the temperature down to save on utility bills, not go to Mexico on vacation, or not buy weed.  For the former, some homes may be more “affordable” than others.

Our legislature has determined that to pay over 30% of one’s income on housing makes you “cost burdened” (where do they get these terms?) thus putting you in a victim category that demands societal relief.  Hey, I can no longer afford to buy Taylor Swift concert tickets, as a result of my desire to spend my money on housing, but I would not suggest that I am “concert cost burdened”.

I can write another whole article on this subject alone, but for the time being, let’s let it go and pretend that our legislature is capable of predicting each individual’s wants and needs and their individual abilities to pay for housing.

As with any crisis identified by a majority of our reigning governmental overlords, the first response is to fix it with money.  In 2022, the legislature passed a bill designed to encourage affordable housing using money that the feds had printed to fight the pandemic.  They took $160 million from federal COVID money to fund several grant programs and hire 22 state employees to manage them.

Later, as result of an initiative passed by the voters, the State got another $300 million per year to fund other programs such as lending money to local governments to buy land, lending money to finance multi-family housing, giving money directly to renters, giving money to mobile home residents who want to buy their mobile home parks, giving money to the homeless, and giving more money to lawyers to prevent evictions.

In Denver where single-family zoning districts have already been abolished, the City Council created a program that required developers to designate 8%-12% percent of the units they built as affordable housing units or pay a “contribution” to an affordable housing fund.

To evaluate how well this program was received by the affordable housing developer community, builders submitted 12,800 applications for multi-family projects in the quarter before the new ordinance was to go into effect which dropped to only 1500 applications in the quarter after the initiative went into effect resulting in an enormous decline of prospective new housing units in the city.  Good job Denver!!!!   No news as to whether the Denver City Council is gearing up to repeal what turned into an  anti-housing ordinance.  I’m not going to hold my breath.

The Governor, unable to buy his way to affordable housing with incentives, began to promote housing legislation for the 2023 session which would remove zoning authority from municipalities so that the State could impose high density apartment projects in residentially zoned areas contrary to the desires of the residents.

Ok. As to the prior affordable housing efforts, there wasn’t a lot of opposition.  Coloradoans have generally given up trying to get its legislature to quit spending money on stupid programs, but now with the proposal to seize zoning authority protections and cram apartment buildings into single-family residential neighborhoods, residents are seeing that this policy is going to hurt and it’s personal.

Under these new proposals, developers can buy a single-family residence, scrape it, and slap up a 12 plex, creating density and driving down the values of the remaining homes as neighborhoods are converted from spacious, safe, desirable places to live to overcrowded areas with traffic, pollution, overcrowded schools and blocked view corridors.  As part of the Governor’s proposal, we anticipate that there will also be a prohibition on any type of required parking which will result in these new apartment dwellers scrambling to find spots on the street most likely in front of your house where your kids and visitors used to be able to park.

In many areas, residents have scraped and saved to carefully choose neighborhoods for the quality of life, good schools, and safety of the area.  Many have spent thousands to improve and maintain their properties and landscaping to be consistent with their other neighbors who have also preserved and enhanced their communities and quality of life.  These neighborhoods are their homes.  It is where they spend the majority of their time, a place to rest, be safe, and raise their children.  It is where they sleep. It is where many have their most significant monetary assets, their homes. Now they are faced with unwanted urban density from which many had previously chosen to escape. And while more apartments will be jammed into residential neighborhoods, there is no indication that any of them will be any more affordable than have resulted from prior failed affordable housing programs.

Despite the current affordable housing focus on giving money away and destroying residential neighborhoods, there actually are actions that government could take which would result in reducing the cost of housing for the benefit of the people, but it will require elected officials to look in the mirror and change some of the policies that they themselves had initiated.  Again, I do not have much hope.

One policy that can easily be reversed to make housing more affordable is to repeal the recent state legislation requiring cities to adopt the 2021 International Energy Conservation Code.  The Denver Metro Homebuilders estimated that the provisions in this code which among other things require that all houses be wired to charge electric cars (whether you have one or not) and be wired for all electric appliances (whether you have them or not) would increase the cost of a 2,200 sf house by $70,000.  Now that’s some real money.  One resident recently bragged in the Denver Post that he rebuilt his house for $700,000 in compliance with the new code which was “only” an increase of 30%, in order to save the planet.  That may be fine for rich people who want to make a climate statement but for the rest of us, perhaps an easy place to start to make housing more affordable would be to not impose this $70,000 to $115,000 penalty on those of us who would otherwise be relegated to being “cost burdened.”

Another reversal of policy that could expand housing significantly is to repeal the Colorado Construction Defects law.  Passed in 2005, developers and housing professionals have refused to build condos, often the first starter homes for young families, since the law imposed unreasonable legal risk for construction of condominium projects.

Then, the government could take a cut to its own bank account and give property tax relief.  As a result of an initiative several years ago and the appreciation of housing values over the last few years, residential property taxes are estimated to sky rocket over 25% in the next year.  When this happens many of us will really be “cost burdened”.  We shall see if our electeds will put their own greed ahead of the goal of affordable housing.

Another area where governments can ease the affordable housing crisis is to do their jobs and review applications for housing permits in a reasonable amount of time.  In Denver, an apartment project can take over 31 months to get permits approved in order to start construction.  Often, the delay in permitting causes the withdrawal of financing as interest rates in the financial market changes which affects the economics of the project.

Then there are the indirect costs of government regulation that drives up the cost of housing.  The legislature could ease its regulation of the fossil fuel industry which would result in lower utility and construction costs, or the State could repeal or pause the 3.25% building materials tax.  The State could also kill the recent bill allowing rent control which passed the State House just this week despite that rent control has been shown to increase the cost of housing and to reduce its availability in any area that has tried it.

Assuming that it is the business of the government to create so called “affordable housing”, instead of redistributing tax dollars that could go toward education or health care or back to the taxpayer (how ‘bout that), our leaders could look at themselves to see what they have already done to artificially increase housing costs to the detriment of the citizens and not accept the latest urbanist fad to increase density and destroy suburban and rural residential communities.  Just sayin’….