Is It Possible to Solve the Affordable Housing Problem That Denver is Currently Experiencing?

In recent years, low-income renters and those earners that are considered to be “middle-income” are facing a vast amount of complications as it pertains to their housing. In an area where demand is high for affordable housing, it is commonly believed that increasing the supply will result in lower rent amounts; however, this has not proven true in Denver. In fact, as the supply grew to meet the demand, the prices across the board on all types of rentals also grew.

Now, the area is experiencing a serious issue with affordable housing availability for low to middle-income earners.

Is there a way to solve this problem? Continue reading to find out.

house budget

Housing Prices Exceed Wages

The first problem related to the affordable housing problem in Denver is that the housing prices are now far exceeding the wages that individuals are earning in the area.

During a 3-year span from 2015 and the year of 2018, the average income increased 8%. The rent prices during that time went up 13%.

The prices associated with homes being offered for sale went up a total of 17%. On average, families are having to spend in excess of 30% of their total earnings into their housing costs – be it rent or a mortgage. This results in far less money being available for these individuals to handle their other month-to-month expenses.

recession and unemployment

The Great Recession

The Great Recession – which was a result of the failure of exceptionally risky mortgage-based products – had a severe impact on Denver as early as the year of 2006. This is when a highly dramatic decline impacting housing prices initiated. During this period, there were actually more housing units than people to fill those units.

Homeowners started losing wealth that they ultimately acquired once they purchased their home as well as their down payment investments. Unfortunately, the amounts charged for rent started to increase after this notable period in history.

At the same time, the incomes of those that rent started to decline. While the amount of people that are eligible for housing assistance grew, the resources available for housing assistance did not. Now, there is an over-abundance of housing units available but they are simply too expensive for low to middle-income families.

Government Programs Not Prioritizing the Poor

While it is true that there are affordable housing programs available through the government, it is also true that the government is not currently prioritizing the poor – in terms of help and resources. For example, there is a tax write-off available for those that are able to own a home. It is referred to as the “federal mortgage interest deduction.” It is geared towards that have the financial means to purchase a home, but not renters who have a low income and are struggling to acquire housing.

In 2013, federal spending ranked at $37.4 billion. In 2018, this had grown to $40.3 billion; however, that is only an increase of 1.5%. To date, there are nearly 18 million households that currently are eligible for rental assistance. This leaves people resorting to having their names placed on a waiting list for rental assistance to open up to them. Many remain on these lists for a long time, sometimes, even years. In the meantime, they continue struggling to make ends meet and to find housing that is within their means. The government is placing a priority on those with money and leaving the poor behind.

new construction builder planning

Lack of New Construction

The next issue resulting in the availability of affordable housing is the fact that there has been a general lack of construction in these types of homes. The main reason for this is that developers are discovering that they are able to profit just as much from a few luxury or high-end housing units as they would if they ran and operated many low to middle-income housing units. Even better, the fewer housing units in operation, the less risk to the developer. If developers focus on high-end units, they can actually charge more for those units which results in both higher profits and a higher level of financial coverage should any type of mishap occur with the unit.

Then, there are those people who make too much to qualify for low-income housing. For these, there needs to be more housing options – such as condominiums – constructed and made available. It is believed that the construction defects law that was put into place in the area has deterred this type of new construction in Denver. Under this particular law, individuals who own condos could gather and easily create lawsuits over any type of construction issue. In turn, this has made acquiring insurance at a reasonable rate for this type of housing nearly impossible. While the law did experience some changes recently and decrees have been implemented, high insurance rates and the increased risk associated with a lawsuit still makes developers standoffish on constructing these types of housing units.

What to Do?

Now that we know all of the problems and burdens surrounding low to middle-income or affordable housing in the City of Denver, what can be done to solve these problems? While most have only a guess at this, the following remedies seem to be productive moves – according to those that specialize in real estate:

  1. Instead of focusing on the construction of condos and all of the associated risks, developers should place an emphasis on constructing townhomes. These have small levels of space, but all of the basics; therefore, it takes less land to build them and far fewer building supplies. Developers may acquire building materials in bulk, for less – which reduces their overhead costs. The floorplans on townhouses are not as comprehensive as those offered in condos and higher-end housing units. By offering more studios, units with less bathrooms, and eliminating basement and attic spaces, money may be saved and less rent may be charged, which means low to middle-income earners will be able to afford the homes.
  2. If developers create condos, they should focus on cultivating relationships with those that buy them. There could be associations developed and an open-door policy put into place that allows individuals to address any concerns that they have over construction with the developers. That way, many will bypass the construction defects law and issues that arise may be dealt with without the risk of an expensive lawsuit coming into play.
  3. Developers may specialize in modular-based construction. Not only is this a cheaper way to build, but the units may be sold at reasonable prices so that a profit is still achieved. In addition to these types of housing units being economical, they are considered to be highly attractive to millennials. According to research, millennials make up the group that currently has the highest level of interest in purchasing homes in Denver because of the seemingly endless array of various opportunities that are present in and around the city.
  4. Many have suggested that the powers that be in and around Denver should focus on lowering the fees associated with planning and permits for developers if those developers would place an emphasis on constructing housing units for those that are considered to be low to middle-income earners. This way, more could afford to pay rent without having to utilize federal rent assistance programs.
  5. Many have suggested that developers should consider purchasing accessory dwellings, granny flats, and similar types of housing units. This would allow more accommodation on smaller portions of land and provide low to middle-income individuals the opportunity to reside in and around Denver, without the additional expense. In some instances, these people could purchase their property and even be provided with loan assistance to help in the purchasing process.
  6. The LIVE (lower income voucher equity program) should be made to be more attractive to landlords who have a desire to help individuals discover affordable housing. This provides city subsidies that allows those earning anywhere between 40% and a total of 80% of the median income of the area could be permitted to move into a home. To date, 17 families have been able to get housing through this means. By making it more attractive to landlords, more families could find a home that meets their needs. One way to make it more attractive is to make it easier for individuals to understand. By increasing understanding and how the system works, more would be willing to try it.

Conclusion

There are many issues surrounding the affordable housing market in Denver. Just as there are issues, there are also possible solutions. The goal should be to make developers and landlords more willing to offer housing to low to middle-income earners. This will put the demand and supply on an even playing field. If you are interested in filling the void that is occurring in and around Denver, we here at Pioneer Property Management are willing to help. To learn more, give us a call today at: 720-839-7482