With each new headline about rising rents in Denver, you hear again the lament: “We need rent control.”
We don’t have it — and we won’t get it — because of a 2000 Colorado Supreme Court decision, Telluride v. Lot Thirty-Four Venture.
The state prohibition on rent control actually goes back to 1980, when Boulder tried to impose rent controls. The next year, the legislature passed a law banning the practice.
But it’s what happened in Telluride that really created the current situation.
Like a lot of mountain towns, Telluride has a big shortage of affordable units for people who work there.
To change that, Telluride wanted to try something a little different — and it might not sound immediately like rent control. The town created a new requirement that developers set aside a certain percentage of new construction as affordable units.
That’s a policy that Denver and many Colorado cities have even today. It’s called inclusionary zoning or inclusionary housing.
But it matters whether that policy is applied to units intended to be sold or intended to be rented.
A developer building a rental project sued the city of Telluride, saying that requiring him to set aside units at below-market rates was the same thing as rent control.
The case went to the Colorado Supreme Court, which sided with the developer. The state prohibition on rent control didn’t just apply to existing units, but also to new construction.
“Although the ordinance has the laudable purpose of increasing affordable housing within the communities where lower-income employees work, the ordinance nevertheless violates the plain language of the state prohibition on rent control,” Justice Rebecca Kourlis wrote for the majority.
The majority said the state legislature could change this by changing the rent control law, but it hasn’t done that. (In a dissenting opinion, two justices said Telluride’s ordinance wasn’t a rent control measure but a land use policy. That argument did not prevail.)
Since then, Telluride has been a thorn in the side of policy makers trying to get more affordable housing in Colorado. Traditional rent control isn’t particularly popular with economists or policy makers, but any policy to require affordable housing from the private sector has to be viewed through this lens: “Does it violate Telluride?”
This is one reason Denver’s inclusionary housing ordinance hasn’t produced very much affordable housing.
A lot of people complain that developers in Denver don’t meet their affordable housing requirements and instead pay for an exemption. Because of Telluride, the city can’t actually make developers of apartment buildings include affordable housing. And in the last few years, since changes were made to the construction defects law, most development in Denver has been rental.
City officials have made reform of the construction defects law a priority and linked that policy to its affordable housing goals.
However, it’s important to keep that policy in perspective. Affordable condos tend to be for people at the higher end of the affordable spectrum. Sometimes, they can make much as 80 percent of area median income or $57,500 for a family of three. That’s fine — those folks are having a hard time in this market too — but fixing construction defects won’t help Denver’s poorest families.
But there is still affordable housing in Denver where rents are restricted.
Why doesn’t that housing run afoul of the prohibition on rent control? That’s because the government can make rental restrictions a voluntary condition of receiving public money for a project. This doesn’t count as rent control because the developer doesn’t have to take government money. He or she could just build entirely with private financing and charge market rents.
But if a developer is going to take taxpayer money, then the government can place conditions on that money.
“Typically what you’ll see in our investments is up to a 10 percent gap that needs to be filled for the deal to pencil out,” said Rick Padilla, Denver’s director of housing and neighborhood development. “Then we negotiate an agreement.”
Developers who receive public money agree to restrictive covenants that keep units affordable for 20, 40 or even 99 years in a land trust model, where the land is owned separately from the units.
The Colorado Housing and Finance Authority administers federal low-income tax credits for which developers apply. Projects that received tax-credit financing have to offer rents considered affordable to people earning 60 percent of area median income or lower. That’s $43,200 for a family of three.
Denver also has several pots of money that fund affordable housing.
Affordable housing isn’t a requirement to receive money from the Denver Urban Renewal Authority, for example, but it is a high priority of the city, which is why so many of the projects going in along Welton Street include an affordable housing component. DURA is technically a separate legal entity created in 1958 to handle urban renewal projects, but it’s organized to carry out city redevelopment goals.
There’s also a fund specifically for transit-oriented development, and Denver’s Office of Economic Development oversees a revolving loan fund for affordable housing that gets money from developers paying cash in lieu of building affordable housing under the inclusionary housing ordinance. In recent years, the city has also put general fund money into this pot.
Last year, the city committed $7.8 million to nine projects that will bring 622 affordable units on line in the next two to three years. An additional $135.5 million in private and other public investment will also go into those projects. More than 500 units have opened since January 2015 from funding commitments made in earlier years.
Denver plans to phase out inclusionary housing and increase the money available to affordable housing with a new property tax and fee on all new construction. That proposal goes to City Council next month.
Nancy Burke, vice president of government affairs for the Apartment Association of Metro Denver, said the organization has suggested its own version of restricted rents: Landlords will agree to limit rent increases if the city gives them a break on property taxes.
But it all boils down to this: We can have rent control if we subsidize it with public money.
None of that addresses the question of whether rent control works.
Is this actually the policy we’re looking for?
Rent control works for the tenants who have units where their rent won’t go up more than the rate of inflation, but most economists don’t support it, at least in its traditional iterations, because of the perceived downstream effects. Those include:
- Discouraging the construction of new apartment units because developers and landlords won’t make as much money.
- Encouraging the conversion of rental units to ownership, such that they leave the affordable market entirely. (This is the story of many co-op buildings in New York.)
- Reducing mobility and allocating housing inefficiently. For example, a widow whose children are grown and gone might stay in a three-bedroom apartment that could be used by a young family because her rent is controlled. Or a worker might not move closer to a new job — or might not take a new job farther away from home — because he doesn’t want to give up his rent-controlled apartment.
- Creating incentives for black- and gray-market practices from finder’s fees to straight-up bribes to get into rent-controlled units.
- Making landlords more likely to discriminate against racial minorities because they think it will be harder to get rid of a problem tenant and they have racist ideas about who is more likely to be a “good” tenant. Landlords might also be more likely to discriminate against families because they’re less likely to move, and landlords won’t get the chance to re-calibrate rent to the market as often.
Those objections, though, can seem abstract and theoretical when families are losing housing every day. The appeal of rent control is likely to remain strong in a market where the median rent has increased 52 percent in five years.
Subscribe to Denverite’s newsletter here.