Colorado home prices are increasingly out of reach for middle-income households. The median sales price in the state is $565,000 and nearly 5% higher than this time last year, according to the Colorado Association of Realtors. To make matters worse, a $1,000 increase in the state’s median home price makes a home unaffordable for 1,305 Colorado households.
It’s tough out there for buyers right now. It’s also challenging for the design and building industries to navigate outdated or inefficient constraints to build at a pace that meets demand. In this blog series, we provide an overview of some of the regulatory and institutional roadblocks that stand in the way of building housing that’s more affordable for Colorado residents.
Table of Contents
- Affordable Housing vs. Attainable Housing
- Land Costs & Residential Zoning
- Is NIMBYism the Final Frontier in Zoning?
Affordable Housing vs. Attainable Housing
The terms affordable housing and attainable housing are often used interchangeably in media reports and analyses. For the purpose of this blog, affordable housing refers to a separate segment of housing offered below market rate with specific household income requirements and government subsidies. Attainable housing is what we are discussing here and includes market-rate medium or high-density housing.
Land Costs & Residential Zoning
Regulations and regulatory fees are complex and costly. Here are some of the major factors that drive up home prices.
Land Costs
Interest rates, inventory, and increased material and labor costs have received the lion’s share of mainstream media attention when explaining what drives the cost of a new home. What doesn’t get talked about as much are land costs and how much they have also increased in the last five to 10 years.
Land prices increased nationally by 60% from 2012 to 2019, according to the U.S. Government Accountability Office. Land share values have risen across the country, and in Colorado they have increased at a faster rate than the national average. The Home Builders Association of Metro Denver is currently collecting this data, but we estimate statewide landshare values have increased to approximately 30 percent. Because land accounts for a large share of home values, the pace of home prices escalates.
Rezoning
If a piece of land’s zoning doesn’t align with a developer’s intended use, it must be rezoned. The rezoning process can be complicated, lengthy, and expensive. It’s also a risky proposition to a developer because there’s no guarantee it will get approved. Here are the main potential rezoning roadblocks:
- Alignment with municipal building or planning departments
- Legislation delays with multiple hearings and revision requests
- Political agendas
- Community feedback
- Results from impact studies
Creating an expedited process for missing middle housing can reduce the rezoning obstacles. This type of housing includes medium-density products like duplexes, triplexes, rowhouses, townhomes, stacked flats, and cottage clusters. Fast-tracking and widening the use of zoning variances, overlays, and conditional-use permits will also speed up construction.
Entitlement Process Timeline
Entitlement timelines aren’t what they used to be, at least in Colorado. What used to take less than one year now takes three years on average, according to our discussions with local developers.
This increased timeframe costs developers a significant upfront investment with no guarantee of success. It also impacts developers’ available resources to pursue additional projects, further reducing their financial capital to build more housing faster.
Impact Fees
Across the state of Colorado, impact fees have risen exponentially over the last 10 years. The increasing cost of these fees places an additional burden on cities, towns, and developers alike and hampers new development throughout the state due to the limited financial resources for these entities to shoulder the upfront costs.
If these high municipal impact fees were included in new home prices, it would price even more Colorado families out of the market. Metro districts have made more homebuilding possible. In fact, nearly 9 out of 10 new homes sold throughout the Front Range in 2023 were within a metro district. Metro districts help growth pay its own way by spreading out these infrastructure costs over a longer period of time in the form of ad valorem property tax payments with built-in transparencies and protections and thus keeping the cost of the home lower by doing do.
Unfortunately, metro districts continue to be met with resistance by both local agencies and community residents. However, without metro district approval, home prices will increase and cities will have to resort to a pay-as-you-go model, resulting in fewer upfront infrastructure improvements and significantly limited amenities within a new community.
Water Access
Water scarcity is prevalent in the west and continues to curb new development. Each state has its own water access procedures when approving new development plans. In Colorado, water appropriation systems are complicated and often require legal consultation. Water rights require petitioning the state’s water courts, district courts that only review water matters. The process can be lengthy, challenging to navigate, and expensive.
Tap fees are also a major cost driving up new home prices in the state. Based on our experience working in many Colorado jurisdictions, we estimate the average tap fee ranges between $30,000 to $35,000. This flat fee costs the same per piece of land, whether the planned structure is a large five-bedroom home, a smaller starter home, or a multi-family building. Scaling tap fees to a structure’s size and estimated water consumption would be a more equitable way to distribute these costs and lift the financial burden from the entry-level market.
Is NIMBYism the Final Frontier in Zoning?
When it comes to zoning amendments and rezoning, a city or town’s residents can be a development’s biggest champions or detractors. People tend to fear what they don’t fully understand. When some residents hear “density” they envision a certain type of renter or household, more traffic, and unkept neighborhoods. Given these misconceptions, there is often a negative knee-jerk reaction and resistance. Resident opposition influences local politics, resulting in fewer project approvals or lengthy delays (or BANANAS = Build Absolutely Nothing Anywhere Near Anything).
Some of this pushback can be prevented with communication and education about the benefits of attainable housing. Many people who will purchase attainable homes are teachers, nurses, first responders, and service providers who want to live in the communities where they work. More attainable housing will allow young Millenials and early-career Gen Zs to buy their first home. More homes in a community will also bring more amenities, new businesses, and economic growth — all benefits most residents can get behind and support.
Next Up: In Part Two of our Housing Attainability Blog Series, we’ll review how building codes are another piece of the housing affordability puzzle.
