A 20-year-old court precedent that has blocked Colorado cities and towns from forcing developers to build affordable housing in new rental projects is no more, after Gov. Jared Polis signed a bill into law Friday.
“Communities are strongest when people who work in a community can live in the community, and that’s something that sadly we have been losing,” said Polis, a Democrat, at a bill signing ceremony Friday.
House Bill 1117 modifies state land use statutes so local governments can require below-market-rate units in new or redeveloped rental projects without running afoul of the state’s rent-control prohibition. It reverses the effects of a 2000 Colorado Supreme Court ruling that restrained local governments for years.
The law comes as Colorado communities, from Front Range urban cities to mountain towns, are facing an unprecedented housing crisis. Colorado has added nearly 1.5 million people in the past two decades, and, as more demand drives up housing prices and new construction lags, it’s largely low- and moderate-income workers who are priced out of housing.
“We know that local governments have been begging us for the tools to be able to encourage more local affordable housing to be built. This bill is a tool to address the affordable housing crisis and to combat gentrification,” said state Sen. Julie Gonzales, a Denver Democrat and prime sponsor of the legislation, at the bill signing.
More than two decades ago, the mountain town of Telluride was already grappling with increasing housing costs, forcing many resort workers to live outside San Miguel County. Town leaders passed an ordinance in 1994 that required developers to build affordable housing for some of the new workers their projects would create.
After a developer sued, the Colorado Supreme Court ruled that forcing developers to build units below market rate in new rental projects is illegal, because it’s a form of rent control prohibited by a 1981 state law.
The new law doesn’t change the state’s existing prohibition on rent control. But it takes advantage of an opening left by the court’s ruling, which said that, while policies requiring affordable housing in developments constitute rent control, the General Assembly still has the power to change or clarify state statute.
In the mountain town of Frisco, local leaders are considering an emergency declaration over the lack of affordable housing, while workers in Crested Butte are discussing a strike in the middle of the busy summer recreation season.
Many Colorado cities and towns already have policies to encourage affordable housing construction. Those programs, known as inclusionary housing policies, typically ask developers to set aside a percentage of units in new developments for affordable housing, although developers are given different options to fulfill those requirements.
Under the Telluride ruling, cities justified these policies as voluntary agreements, not illegal mandates, by pitching in subsidies, offering increased density or other incentives. In Denver, for example, developers can build higher in exchange for agreeing to a certain percentage of income-restricted units.
Now with the signing of House Bill 1117, cities can impose affordable housing requirements on new or redeveloped projects, so long as they give developers or property owners alternatives to building affordable units on-site. For example, they could trade those for affordable units built elsewhere, pay a fee into an affordable housing fund, or any number of other options.
“We are very excited to be able to have make this policy change to allow for inclusionary zoning to be used as a tool to help address the lack of affordable housing, especially for our workforce populations,” said Rep. Susan Lontine, a Denver Democrat and one of the bill’s prime sponsors.
The bill leaves it up to local governments to decide if they want to adopt such policies and what that menu of options for developers would be.
Local governments are also required to take other steps before they can impose affordable requirements on new developments. That includes providing regulatory relief or changing zoning requirements to allow increased density or reduced parking in certain projects.
Opponents of the bill, including the Apartment Association of Metro Denver, argued allowing municipalities to impose affordable requirements on rental developments would only force developers to shift costs to tenants, and result in increased rents.
Drew Hamrick, general counsel for the Apartment Association, said even with changes to the bill that limit when local governments can impose affordability requirements, the group still believes the bill will have negative impacts.
“Colorado needs more housing units to meet demand, not systems that require one group of residents to help pay the rent of another group of residents,” Hamrick said.
Polis said the regulatory relief and zoning changes would offset negative impacts.
“While the evidence I’ve seen shows that inclusionary zoning increases rents and costs, I think that that will be more than offset by the zoning changes that will come out of this bill,” Polis said.
The measure will take effect 90 days after the General Assembly adjourns, which will happen on or before June 12. Opponents of the measure can file a referendum within those 90 days to block it from taking effect. If that happens, voters would have a chance to weigh in at the next general election.