Denver’s auditor is questioning whether its Office of Economic Development is doing its job when it comes to ensuring the city’s residents can find affordable housing.
Auditor Timothy M. O’Brien said in a statement Thursday that “serious errors” had been discovered.
“The Office of Economic Development has not demonstrated they can be certain these problems won’t happen again,” O’Brien said. “It’s time to put stronger internal controls in place over pricing, income verification and recording to ensure the city is taking good care of its affordable housing supply and working to keep units affordable for the long term.”
OED officials, for their part, stressed that the office had cooperated with auditors, took the conclusions seriously and were working to protect and grow the city’s affordable housing stock with steps that have included adding staff.
“We’re not shying away from any of these issues,” Eric Hiraga, who took over OED as executive director 15 months ago, told Denverite. “I commend the staff for identifying and exposing areas where we do have problems.”
Hiraga said his housing division’s staff has more than doubled, to 26, since he took office. The new hires include a chief housing officer, Britta Fisher.
The audit uncovered problems beyond those previously reported regarding stewardship of about 1,400 homes that should have been sold only to people earning below the area’s average median income and meet other requirements. More than 300 homes slipped out of the program because covenant restrictions on their prices were not adhered to when the original buyers sold them. Thursday, OED said 146 of the 306 problem sales had been resolved.
OED was found, for example, to have mishandled the program under which developers who don’t want to build below-market-rate housing themselves can pay cash into a fund to support affordable housing. The city once issued a permit and certificate of occupancy before receiving such a payment, and then took 12 years to get the $1.5 million.
Auditors also tested 23 for-sale homes and found that none of the buyers had had their incomes verified to ensure they could afford monthly payments. The city’s 2002 Inclusionary Housing Ordinance stipulates that buyers of the affordable homes spend no more than 30 percent of their income on housing.
“Even if an affordable housing unit is priced based on maximum prices allowed according to the area medium income, that doesn’t mean the unit is actually affordable to the individual homebuyer,” O’Brien said.
In a statement Thursday, OED said that application of the 30 percent standard “is now included in the income verification process for all affordable housing applicants. Additionally, with assistance from a third-party consultant, OED has researched best practices regarding the use of such a ratio to ensure affordability while not overly cost-burdening prospective purchasers of affordable homes. Staff is actively reviewing a possible revision to rules and regulations to determine best practice for a front-end ratio.”
Ensuring buyers can afford the homes can help prevent foreclosure. In most cases the covenant restrictions meant to preserve affordability are removed in foreclosures in which the bank or other entity that held the first mortgage acquires the property. According to OED figures, 263 homes in the program have been foreclosed since 2005, most of them between 2008 and 2013, during the height of the recession.
Auditors also discovered that because of OED miscalculations, three of 25 affordable home sales examined were bought for more than the maximum allowed. In addition, all 51 homes sold in 2007 may have been sold for less than they should have been — it’s hard to say for sure because OED did not calculate maximum sales prices that year. Rick Padilla, OED director of housing compliance, said Thursday that problem has been resolved since 2014.
Padilla also said the office has resolved problems with its database of affordable units since 2014, though auditors questioned whether it had an accurate and complete archive.
“We do have an accurate inventory of our affordable housing stock,” he told Denverite.
Auditors also cited the issues around covenants meant to ensure homes in the affordable program stay affordable. In a statement responding to the audit, OED said that it was working with the City Attorney’s Office on new oversight options it would present to the city’s Housing Advisory Committee and Denver City Council for review and adoption next year. OED also said that in early 2019 city staff will begin attending closings, one way to ensure the covenants are adhered to.
“This is something that we do take seriously,” Hiraga told Denverite, speaking of the entire auditor’s report. “We’re tackling it head-on and I do believe we’re making a lot of improvements.”