Earlier this month, the first deadline came and went for cities, counties and Native American reservation leaders to apply for the first round of affordable housing funds through Proposition 123, the Colorado ballot measure voters approved last year that requires participating local governments to pledge to build 3% more affordable housing every year for the next three years.
In late July, Colorado affordable housing advocates worried about the low opt-in rate, when only 14 of the 336 eligible local governments had joined the new affordable housing program.
But housing advocates who introduced the measure said they’re relieved to see the number climb to 202 jurisdictions. That means more than 90% of Colorado’s population now lives in a community where government leaders have committed to building more affordable housing in the coming years and in turn will get funding from the state.
The communities that have joined tend to have the biggest populations in Colorado, are more likely to face housing crises and therefore need financial support to address their dwelling shortages, said Zach Martinez, policy advisor at Gary Community Ventures, the philanthropic organization that was behind Proposition 123.
The success of the program hinges on participation from local governments, and the increased commitment statewide is a glimmer of hope when Colorado and the rest of the country are seeing devastating effects from the affordable housing crisis, leaders at Gary Community Ventures said.
“We feel this is evidence that Proposition 123 is critical to affordable housing development and ensuring that we don’t forget low-income renters when we continue to build,” Martinez said.
Colorado voters approved Proposition 123 in November 2022, with 53% of people in favor.
Before it passed, there were concerns about some of the parameters it contained, said Jonathan Cappelli, executive director at Neighborhood Development Collaborative, which advocated for the proposition.
Requiring local governments to expedite permits for affordable housing and mandating they commit to increasing their affordable housing stock by 3% each year could discourage municipal leaders from opting in, he said.
“But getting close to universal adoption is a collective vote of confidence that these are the right things to advocate for,” he said.
The initiative aims to tackle Colorado’s affordable housing crisis by allocating nearly $300 million each year in existing tax revenue to help local governments and nonprofits work on the issue.
The legislation sets aside 0.1% of taxable income each year in existing tax revenue for affordable housing. That’s estimated to be $151 million in the last fiscal year — which ended June 30 — and just over $300 million in 2023-24 and subsequent fiscal years.
When there’s money collected by the state in excess of the Taxpayer’s Bill of Rights cap on government growth and spending, which is determined each year based on population and inflation growth, funding for the measure comes from those dollars, which in turn reduces the amount of money available for state taxpayer refunds. In years when the cap isn’t exceeded, the money comes out of the state budget, though the legislature can choose to waive or pare back the spending on the housing program.
In all, 60% of the funds will help municipalities purchase land and develop affordable housing. The rest of the money will be used to support homeowners and initiatives to combat homelessness, and help local governments plan and issue permits for affordable housing developments. Any money that is left over would remain in the state affordable housing fund and would be spent on affordable housing in the future, Martinez said.
Houses dot a hillside in Steamboat Springs, Aug. 3, 2022. The city council passed a rule in June that could prove to be a model for other vacation towns: A ban on new short-term rentals in most of the city and a ballot measure to tax bookings at 9% to fund affordable housing. (AP Photo/Thomas Peipert)
The measure is important, Cappelli said, because Colorado hasn’t had a sustainable statewide revenue stream for affordable housing.
“Before Proposition 123 passed, Denver by itself, had a bigger affordable housing budget than the state did,” he added. “So that left every jurisdiction across the state having to go it alone and not having a good state partner to help them subsidize the cost of any housing initiatives that they were trying to bring forward.”
How Proposition 123 works
The measure gives grants and loans to local governments and nonprofits to acquire and preserve land for affordable housing development. Funds from Proposition 123 are meant to help develop affordable multifamily rental units, increase homeownership rates in the state and provide down payment assistance for first-time homebuyers. The program also addresses homelessness by funding rental assistance and eviction-defense programs, proponents have said.
“It tries to stand up every possible tool that you would need within one fund to make sure the entire spectrum of affordable housing is funded,” Cappelli said.
Under standards set by Congress, housing is considered affordable when residents pay no more than 30% of their income on housing costs, including rent or mortgage and utilities.
In July, Denver’s monthly rent averaged $2,105, according to the most recent audit done by Denver Auditor Timothy O’Brien’s office.
To spend no more than 30% of their income on housing costs, a Denverite would need to make more than $84,000 per year. This is more than twice the yearly earnings for a person earning minimum wage in Denver, according to the audit report.
According to the state’s affordable housing transformational task force’s 2022 report, there must be 225,000 housing units built for current Colorado residents over the next few years and an additional 100,000 units to accommodate new residents.
State data shows the number of units considered affordable for people making less than $45,000 per year decreased by almost 300,000 over the past decade, according to the report.
Proposition 123 could help provide funds to build about 8,000 to 10,000 affordable housing units per year, but the number fluctuates based on housing market trends and decisions made by the Colorado Housing and Finance Authority, Martinez said.
First programs that launch under Proposition 123 see high number of requests for funding
The Colorado Housing and Finance Authority and the Colorado Office of Economic Development and International Trade are administering the first two programs that have launched under Proposition 123, the concessionary debt program and the land banking program, which help to increase the number of affordable rental units.
The concessionary debt program, which provides developers with loans that have far lower interest rates than they would receive from a bank, helps drive down the cost to build affordable housing, Martinez said.
Some loans available from the concessionary debt program are being offered for terms as long as 30 years at interest rates as low as 3%, which compares to the current market rate of 7.5% to 8%, said Steve Johnson, director of community development at the Colorado Housing and Finance Authority.
Houses dot the landscape near Colorado’s Steamboat ski area, Aug. 3, 2022, in Steamboat Springs. The city council passed a rule in June that could prove to be a model for other vacation towns: A ban on new short-term rentals in most of the city and a ballot measure to tax bookings at 9% to fund affordable housing. (AP Photo/Thomas Peipert)
The Colorado Housing and Finance Authority recently announced that 38 applications submitted proposals under the concessionary debt program. In all, those applicants requested just over $113 million to help build affordable housing, far more than the $32 million available to the program.
“But this is a good thing,” Martinez said. “We can’t build ourselves out of the affordable housing problem we have in one or even five years. This is a 20-, 25-year problem that we have to dig ourselves out of because we haven’t been building at a fast enough rate for the last decade.”
Similarly, the 26 applicants who submitted letters of intent to build housing under the land banking program requested a total of $255 million. The land banking program, which helps local governments and nonprofits purchase land for affordable housing developments, has $24.5 million available.
“Developers have said that it can challenging to find new sites to build affordable housing but what we are learning is that sites are out there, and particularly when you partner with local governments, schools, the faith-based community — entities that are holding excess or unused land, there were some pretty unique properties where it was co-located with existing uses,” Johnson said. “And that’s a pretty encouraging sign knowing that we have this funding tool available going forward.”
The equity program under Proposition 123, which requires the state to take partial ownership of affordable housing developments to help drive down the cost, will launch in January.
Programs for homeownership and homelessness prevention and resolution have also launched under the Department of Local Affairs’ Division of Housing.
The department has received 111 applications with a total request of $74 million for the emergency solutions grant program, which works to prevent homelessness and help people who are homeless or at risk of homelessness move into permanent housing.
The department has awarded almost $10.5 million through the emergency solutions grant program with $8.5 million funded through Proposition 123.
The Department of Local Affairs is also using Proposition 123 money to support and expand existing homeownership programs. The funds help to provide gap-financing for affordable development and rehabilitation projects for homeowners and will help give down payment assistance to Coloradans purchasing homes.
So far, the Department of Local Affairs has awarded a total of $5.3 million to homeownership development projects in Denver, Fort Collins and Leadville, an agency spokeswoman said.
Each of the programs under Proposition 123 restrict how much landlords can charge residents. The cost will be based on the area median income in the communities they are being built in, Martinez said.
“We’re also encouraged by the fact that next year, funding will get closer to meeting demand, with the budget expected to expand to $65 million for the debt program and $45 million to $50 million for land banking,” said Will Holden, director of communications and storytelling for Gary Community Ventures.
But interest from applicants is still expected to surpass existing funding resources, Martinez said, even as the available pot of funds nearly doubles.
“This was an experiment and it’s been incredibly successful and it’s going to take time, but these are the important indicators to show that these tools are going to work and that there’s demand from the developers’ side to build the units that voters expect them to build, which are affordable units for typical Coloradans,” Martinez said.
Replicating Proposition 123
Nov. 1 was the deadline for local governments to apply for the first in the three-year cycle of Proposition 123 funds. The grant application period for funding in 2025 and 2026 closes on Nov. 1, 2024.
When local governments opt in and pledge to increase their affordable housing stock, affordable housing developers then apply for funds to build units there.
Affordable housing developers are excited and many are pushing leaders in the communities they work in to opt into Proposition 123 programs to unlock funds, said Brian Rossbert, executive director of Housing Colorado, which works to find stable housing for people across the state.
“Our housing shortage right now is significant and we can get lost in numbers but when you talk about families who can’t afford to live where they work or in communities that are healthy and safe, that’s where I think it’s really important to get resources to those families and individuals who are really struggling right now,” Rossbert said.
At last one other state is watching Colorado’s program unfold. A coalition of about 60 housing, human service and public policy organizations in Minnesota are creating a ballot measure similar to Proposition 123.
The group would need the state legislature to approve putting the proposal on the ballot before voters could decide whether it becomes a law statewide in 2024, or if it’s unsuccessful then, in 2026 or 2028, said James Haggar, campaign manager for the coalition, Our Future Starts At Home.
If it passes, the law would raise the statewide sales tax by three-eighths of a cent and dedicate about $440 million per year to affordable housing in Minnesota, he said.
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