If a new proposal passes, a developer building an apartment complex in downtown Denver would need to reserve between 10 and 15 percent of the units for those making less than the area median income.
If they didn’t, for each of the missing units, the developer would have to pay a “fee-in-lieu” of $311,000.
“The fee-in-lieu is really something that we’re kind of putting on the table but trying to discourage as a secondary outcome,” said Denver Principal Planner Analiese Hock.
Those specifics are from the latest version of Denver’s proposed “Expanding Housing Affordability” requirements, which look to take advantage of a state law passed last year that allows municipalities to mandate the development of income-restricted housing units.
This is the second version of the proposed requirements. The city released an initial version of the proposed requirements in October. The proposed changes would affect all developers, not just those building housing.
Hock told BusinessDen feedback from people on the initial draft guided the latest changes.
Requirements for large residential projects
Originally, the city proposed requiring developers to set aside between 8 percent and 18 percent of units, depending on the size of development, for people making between 60 percent and 100 percent of the area median income.
In the latest version, the city is floating two options for residential projects with at least 10 units.
10 percent of total units at 60 percent area median income (AMI) in high-cost markets
8 percent of total units at 60 percent AMI in typical markets
10 percent of total units at 80 percent AMI in high-cost markets
8 percent of total units at 80 percent AMI in typical markets
15 percent of total units for an effective average of 70 percent AMI in high-cost markets
12 percent of total units for an effective average of 70 percent AMI in typical markets
15 percent of total units for an effective average of 90 percent AMI in high-cost markets
12 percent of total units for an effective average of 90 percent AMI in typical markets
Examples of “high-cost markets” within the city are downtown and Cherry Creek, Hock said.
In all cases, units would need to be income-restricted for 99 years in order to meet the requirements.
According to the proposal, Option 2 was revised to allow developments to serve a wider range of low incomes, such as households at both 30 percent and 80 percent AMI, in addition to the market-rate units.
For perspective, an annual salary of 30 percent of the AMI in Denver for one person is about $22,000, and a person making 100 percent AMI is a salary of about $73,000, according to the city’s 2021 income limits.
There would technically be one way around the above requirements. Both the initial and latest proposals allow for developers who fail to incorporate the required number of units to pay the aforementioned fee-in-lieu.
That fee was initially proposed to be between $265,000 to $478,000 per each affordable unit that wasn’t included. But Denver is proposing to reduce that to between $250,000 and up to $295,000 per unit for rentals in “typical” markets, and $311,000 in high-cost markets.
“There were concerns that the fee-in-lieu was going to be too attractive in some products and not attractive in others,” Hock said.
For for-sale units in a typical market, the fee will be between $250,000 per unit, specifically for townhomes, and a maximum of $408,000 for other units.
“The focus of discussion with stakeholders was concerns around townhome development, acknowledging that this is an important type of homeownership opportunity that exists in the city that is still somewhat affordable compared to a lot of other new ownership opportunities,” Hock said.
Developers would have to pay $478,000 per unit in a high-end market for units that are for sale.
Requirements for small residential projects and other development
Developers building things like office buildings or industrial warehouses would still be affected by the proposal.
While they wouldn’t have to incorporate housing into their projects, the proposal would increase the “linkage fees” that the developers pay. Those funds are used to support the creation of income-restricted housing.
Those building small residential projects, like a single-family home, would also pay the linkage fee.
Current linkage fees for development vary between 44 cents per square foot to $1.86. The city is proposing to raise that to between $4 per square foot and $8, except for industrial buildings, which would have their linkage fees reduced to $2 per square foot at most under this proposal.
Residential structures of 1,600 square feet or less would have to pay the lowest fees, according to the revised proposal.
The latest proposal calls for the fees to be phased in through 2024. The previous one had called for the full fee to be charged this year if the proposal became law.
The city is trying to offer some carrots along with the stick.
For projects that meet their affordable housing requirements, the city would reduce permitting fees by $6,500 per affordable unit in typical markets and $10,000 per affordable unit in high-cost markets, according to the latest proposal. Permit fee reductions would not exceed 50 percent of the commercial construction permit fee.
The permit fee reductions would apply to units that are set aside for people making 100 percent of the AMI, not just lower incomes as the first proposal had.
The commercial ground floor of mixed-use projects that opt to build enough income-restricted housing onsite would be exempt from paying the linkage fee.
Denver is also considering giving developers approval to build higher if they exceed their income-restricted housing requirements, and they could be allowed to reduce their parking requirements.
Denver is taking comments on the revised proposal until March 14. After that, Denver’s Community Planning and Development Department will assess the feedback and submit the proposal to the city’s Planning Board, with the expectation it will be heard by a City Council committee by April, Hock said.