An Overview of Denver’s Recently Adopted Affordable Housing Ordinance

In August 2002, after nearly three years of study and debate, the Denver City Council adopted an ordinance amending Chapter 27 of the Denver Revised Municipal Code by adding provisions intended to provide the city with more affordable housing units. This ordinance, also known as the "inclusionary zoning ordinance" or "IZO", requires that all for-sale developments of thirty (30) dwelling units or more include at least 10% of moderately priced dwelling units ("MPDUs") that are affordable to households earning no more than 80% of the Denver area medium income ("AMI") (or 95% of AMI for developments in which buildings are greater than three stories, elevators are provided, and over 60% of the parking is structured), adjusted for household size. To ensure the long-term affordability of MPDUs, the units are subject to covenants limiting the maximum re-sale price and profit available to a MPDU owner during the defined fifteen-year control period.

Under the IZO, the city of Denver will pay a developer a standard subsidy of $5,000 for each MPDU constructed (or $10,000 if the MPDU is affordable to households earning no more than 60% AMI), up to a maximum of 50% of the total number of units in a development. In an effort to help developers recoup some of the costs of providing MPDUs, the IZO also provides expedited processing of development applications and supplemental incentives for developers building in certain zone districts in the form of: (i) a density bonus of up to 10%, and (ii) a parking reduction of up to 20%.

By way of example, under the IZO, if a new development is proposed to consist of 200 units as permitted 'by right' under existing zoning for the underlying land, twenty (20) of those units would have to be designated (deed restricted) as MPDUs that are dispersed and integrated within the overall development (i.e. no clustering of the MPDUs, which are required to be "indistinguishable" from an exterior design standpoint). Further, under the density bonus incentive, this developer would be permitted to build an additional twenty (20) units (10% of 200), two of which would have to be designated as MPDUs under the 10% rule described above. This same developer would also be permitted to construct up to 20% less parking than would otherwise be required by the underlying zoning regulations, with the caveat that an additional MPDU would have to be constructed for each ten (10) parking spaces reduced. (Note that the IZO also employs a 'rounding up rule', whereby a portion of a unit shall result in providing a whole unit: for example, if 33 total dwelling units are proposed in a new development, four (4) of those units would be required to be designated as MPDUs (rounded up from 3.3)).

The IZO does provide alternatives to developers in lieu of building the required number of MPDUs, subject to approval by the Denver Community Planning and Development Agency ("CPDA"), as follows: (i) build the required number of MPDUs at one or more other sites in the same or adjoining statistical neighborhood, as defined by the CPDA, or (ii) contribute to a special revenue fund an amount equal to 50% of the price per MPDU not provided as determined by the CPDA. It is currently estimated that this payment-in-lieu option will cost developers approximately $75,000 per MPDU not provided, and monies deposited in the special revenue fund are to be used to make the $5,000-$10,000 standard incentive payments to developers that build MPDUs as described above.

Creation of the IZO was motivated by the well intentioned goal of providing Denver with more affordable housing units, but it remains to be seen whether the ordinance will have its desired affect or whether it will, as many predict, result in fewer units being built overall, as developers continue to struggle to make their numbers work in an increasingly soft residential real estate market.

Copyright © 2003 , Fairfield and Woods, P.C.,
ALL RIGHTS RESERVED.

Comments or inquiries may be directed to:
James M. Mulligan or J. Christopher Kinsman