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Metro Denver’s economy depends on providing workers with housing they can afford, but Denver is facing an affordability crisis like none ever seen before.
An analysis of U.S. census data conducted by the city of Denver found that 100,000, or roughly 25%, of households are cost-burdened, meaning they pay more than one-third of their incomes in housing costs, City and County of Denver Housing Development Officer Haley Jordahl said during a panel discussion on affordable housing at the Bisnow Multifamily Annual Conference 2018: Rocky Mountain Series.
“We see the need being really dire,” Jordahl said.
Fewer households are considered middle income today than there were before the financial crisis, PNC Real Estate Executive Vice President Diana Reid said. In 2007, 60% of all households were middle-income, compared with just 40% today.
“If you are not in the top 25% of household income, you are now needing affordable housing,” Reid said.
Reid said the top five markets feeling the stress of lack of affordable housing are New York, Los Angeles, San Francisco, Miami and Boston. But those markets have faced the problem before, so there are tools in place to address the issue. The tools are not in place for second-tier cities like Denver, Sacramento, Pittsburgh, Tampa and Orlando.
“In some ways, Denver’s success is part of the problem,” Reid said. “There’s been extraordinary job growth and the ability to attract a new workforce to the market.”
Because developing affordable housing is more complicated and less profitable than building market-rate product, fewer developers rise to the challenge.
“You are going to sacrifice revenue if you get into the low-income world,” Greccio Housing Executive Director Lee Patke said. “But if we want a strong economy and stable workers, they need to have a stable home.”
The city’s Jordahl held up Zocalo Community Development’s planned redevelopment of the historic First Avenue Hotel on Broadway into 100 micro-apartments as an example of what can be achieved when developers are willing to take on the complicated business of creating affordable housing.
“We’re excited that this is property that’s going to be serving low-income renters,” she said.
Zocalo President David Zucker said there are eight different financing sources for the project, which could have easily been financed with equity and debt if he had decided to build market-rate housing. He said a market-rate project would have required 500 “people hours” to reach closing, but the affordable project required 2,000 hours.
“Developing affordable housing has to be propelled by a sense of responsibility,” Zucker said. “It’s truly irrational if you’re looking at it in terms of dollars. As the complexity goes, it is torture.”
Bisnow’s multifamily event included four other panels that covered new apartment developments, concessions, capital markets and new construction, development and design.
Affordable housing is one thing the city has to consider, but another side of the story is what developers call “attainable” housing. For many people, that starts with the purchase of their first condominium.
But the Denver market has a “massive undersupply of condos,” said NAVA Real Estate Development President Brian Levitt, citing a Metrostudy report that found the region absorbs 4,200 condos a year but the supply has declined tenfold since 2007. Levitt, who served on the event’s Condo Development: The Challenges & Necessities panel, is developing Lakehouse, a 196-unit mixed-use community on the south shore of Sloan’s Lake.
To be successful developing condos — and protect against lawsuits brought by homeowners associations — it is critical to hire architects, engineers, general contractors and legal teams that have experience developing condos, Metropolitan Homes CEO Peter Kudla said. Kudla also recommends finding a third-party inspector at the start of the job.
“Condos are high-risk,” Kudla said. “You need smart investors and realistic expectations.”
Urban Ventures President Susan Powers said she personally attends the closing of every unit she sells, gets to know the residents of her projects and serves on the HOA boards for each one — which sometimes means she attends two or three meetings a week.
“This is a brain damage strategy, but so far it’s worked,” Powers said. “I never want to hear from their lawyers. I want to be in the room when a problem is being discussed. If something goes wrong, you should go and fix it. It’s the right thing to do, and it will keep you out of a lawsuit.”