Why Denver isn’t jumping at the chance to buy up affordable housing
A 2015 ordinance gives Denver the right to buy affordable housing units are about to convert to market-rate rents. It hasn’t exercised that right yet.
The restrictions that keep affordable housing affordable are set to expire on some 2,300 units in the next two to three years.
Denver leaders saw this coming back in 2015 and passed a law to give the city right of first refusal to buy these properties before they’re converted to market-rate rents. Since then, the city has not exercised that right even once, but there hasn’t been a massive loss of affordable housing.
Some Denver City Council members are pushing the city to make more use of this tool, but Erik Soliván, director of the Office of HOPE, which oversees housing policy, said the city needs to be “strategic” about how and when it buys up affordable housing. Some of these properties aren’t actually at risk because they’re owned by nonprofits with an affordable housing mission, and others are simply too expensive.
Soliván said preservation of existing affordable housing is a priority, but each individual property “requires us to think critically about how we use our resources.”
Council President Albus Brooks is concerned the city isn’t being aggressive enough in using all the tools it has.
“Housing preservation is one of the most important tools to maintaining affordability in this city,” Brooks said. “What happens is these properties that are deed-restricted and are sold for market-rate — this is displacement. There are hundreds of units in danger of being lost.”
Brooks wants a detailed presentation to the council’s housing committee on Denver’s existing stock of deed-restricted affordable housing and what city officials are doing to preserve it, and he wants the presentation televised on Channel 8.
“It was exciting when we passed (the ordinance), but the implementation needs some work,” he said. “We have not done a good job updating the public or updating council.”
How do these covenants work and why are they expiring?
Affordable housing that receives public subsidies — taxpayer money — during construction comes with a covenant or restriction that requires the owner to rent to people earning at or below certain income levels for a certain amount of time. The length of time varies depending on the amount of public investment and other details of the project, but the most standard agreement under current city rules is 30 years.
Once that time has passed, the units can be converted to market-rate rents with no restrictions on who can rent them.
According to Denver’s Office of Economic Development, five rental properties with a total of 90 units have seen their covenants expire since 2015, when the law was passed. Denver didn’t try to buy any of them.
Why? The owners of four of the five properties, representing 83 units of housing, all said they’ll keep them affordable, even without a covenant on the property. The fifth building had seven affordable units within a much larger market-rate project, and those units have since been converted to market-rate rents.
Denver has also received notice of intent to sell from 14 properties. Derek Woodbury, a spokesman for OED, said a majority of those owners also stated their intent to keep the projects affordable.
Soliván said the ability to buy properties with an expiring covenant is important, but the prudence of buying any particular one depends on a lot of factors.
First, many of the properties with restrictions on rent are owned by nonprofits and mission-driven organizations dedicated to providing affordable housing. They have their own reasons for keeping these units affordable, and it doesn’t make sense to spend city money to buy them up.
Second, given that these properties are now 30 years old, many need repairs and renovations. If the city were to purchase the buildings outright, the city would be on the hook for the purchase price and the renovation, Soliván said. And that often costs more than building new affordable housing, even though new affordable housing costs, on average, a shocking $250,000 per unit.
However, by not buying them when the covenants expire, the city waives that right of first refusal if the property goes on the market later. So if for some reason a nonprofit does sell the building — perhaps they don’t have the money for renovations and repairs and market conditions make a sale look like a good opportunity — those properties could end up back at market-rate rents.
“We would no longer have an opportunity or a mechanism to enforce that affordability,” Soliván said. “There is still a concern that they could go market-rate in the future. That’s where we continue to work with our nonprofit partners to make sure those units stay affordable. That helps us maintain the overall affordable housing portfolio in the city.”
Denver’s draft housing plan describes next steps.
Denver has worked with the Colorado Housing and Finance Authority to develop an inventory of deed-restricted properties and create priority areas based on populations served and proximity to transit and to reach out to owners before covenants expires. The draft comprehensive housing plan uses the word “strategic” a lot, meaning they’re not going to buy every property that becomes available.
The plan calls for Denver to:
- Develop and maintain a list of “priority preservation projects” based on when the covenant expires, who lives in the building and how close it is to rail and bus service.
- Use loans, financing assistance and other incentives to preserve properties that meet the city’s criteria.
- Develop a “bridge finance tool” that combines public and private resources to buy at-risk affordable properties while long-term finance options can be assembled.
“Costs have escalated in recent years, especially for prospective property acquisitions with affordability restrictions that are expiring soon,” the plan says. “The City and its (Housing Preservation Network) partners have identified a need for new, creative sources of bridge capital that can help acquire affordable properties for long-term preservation.”
If the city isn’t using the ordinance much, is it flawed?
Soliván said he doesn’t think so. One of its provisions is that owners of properties with expiring covenants give the city notice of intent to sell a year in advance. That communication is essential to helping city housing officials decide the best course of action. But these decisions don’t occur in a vacuum. Market forces and timing play a role.
And there are other options to keep units affordable besides buying properties outright, Soliván said. Denver could also give low-interest loans to nonprofit owners to do necessary repairs and update the units. By extending more public money, the city could also extend the covenant and guarantee the units remain affordable for less money than purchasing the property.
“Our message that we’re putting out to the different properties is, let us know early so we can work with you to maintain affordability,” he said.