Where have all of Colorado’s most affordable rental units gone?

Robert Davis

(Colorado Newsline) The most recent multifamily market report from a leading commercial real estate firm found that the Denver metro area could add up to 12,000 new apartments by the end of the year, which would represent the largest unit count on record.

This activity comes after RentCafe ranked Denver in the top 11 best markets for single-family rentals in 2022, with 1,869 total units and another 920 rental units planned to deliver in 2023. Other cities such as Colorado Springs, and Grand Junction are also expected to set their own rental unit development records this year.

However, low-income workers in Colorado are finding fewer options they can afford despite that development activity.

Since 2011, Colorado has lost more than 250,000 rental units that were available for $1,000 per month or less, which is the fourth largest decline in the country, according to a recent analysis from Harvard’s Joint Center for Housing Studies. That total includes apartments, townhomes, condos and single-family rentals. Only Arizona, Nevada, and Texas lost more units than Colorado at that price point over the same time period.

Over the same decade, Colorado also added more than 300,000 housing units that rent for $1,400 per month or more. The difference between paying $1,000 or $1,400 for rent adds up quickly. A household needs to earn around $56,000 annually to avoid paying more than 30% of its income on a rent of $1,400, which is otherwise known as being “housing burdened.” For comparison, a household needs to earn around $40,000 to afford a rent of $1,000 per month.

But only about one-third of the jobs in Colorado pay that threshold salary of $56,000 or more, according to data from the Department of Labor and Employment. That means 67% of jobs in the state don’t pay enough for a person to rent a unit at $1,400 without the renter being housing burdened. The burden increases for households with incomes that are further down the salary scale.

“The decrease in the most affordable units certainly affects lower-income workers the most,” Brian Rossbert, the executive director at Housing Colorado, an affordable housing advocacy nonprofit, told Colorado Newsline in an email. “We’re also seeing that more middle-income households are cost-burdened than ever before.”

Experts point to several reasons why Colorado is losing so many low-cost rentals, but one reason they all agree on is that not enough affordable homes are being produced. Between 2010 and 2020, housing production in Colorado decreased by 40% while the state’s population increased by 15%, according to state data.

Sophia Weeden, a research analyst at Harvard’s Joint Center for Housing Studies, told Colorado Newsline in an interview that Colorado has also had a historically low supply of low-cost rentals in the first place when compared to national averages. In 2011, just 17% of Colorado’s rental units fetched $600 or less per month compared to 27% nationally. The state now has the fourth-smallest share of low-cost rental units in the country, Weeden said.

Another reason for the underproduction of affordable homes in Colorado is the state’s construction defect law, according to Kelly Moye, a Realtor of 32 years and a spokesperson for the Colorado Association of Realtors. Colorado passed the law in 2001 in an attempt to regulate insurance claims and lawsuits relating to defects in a property’s design, construction, or general improvement. The law has since been amended several times and currently allows any property owner to file a defect claim against an architect, subcontractor, general contractor, or other parties involved in the construction process within six years of purchasing a newly-built home.

Moye said the law essentially prohibited developers from building new condos and apartments in the past because it dramatically increased the developers’ risk and insurance costs. Development activity started to increase around 2017 when state lawmakers passed House Bill 17-1279 and created additional hurdles for bringing construction defect claims, Moye added.

“The construction defect law really just hung over us as a city and we couldn’t build enough units to meet demand,” Moye said.

The dislocation between rents and wages in Colorado is also a factor in the state’s growing homelessness problem, according to Terese Howard, an activist with the nonprofit Housekeys Action Network Denver. Since 2015, federal one-night count data shows that Colorado’s unhoused population has grown by around 4%, up to more than 10,000 people on a given night. However, rates of unsheltered homelessness have increased by 11% across the state over the same time.

In March, HAND released a survey with responses from more than 800 unhoused folks in Denver that found that 88% of unhoused people need housing for $1,000 per month or less. Howard said that a loss of 250,000 units at this price point means “many of those previously renting these units are now living on the streets (or in) shelters.”

“At the same time as we are losing this much low-cost housing, we are gaining this many and more houseless people,” Howard said. “There is a direct relationship between the loss of these housing units and the increase in houselessness.”