Dirty Dozen: 12 Passed Laws that have increased the cost of housing in the last 3 years

Legal / Legislative,

The cost of housing has increased dramatically in Colorado. The average cost of buying a house has gone up 49% in the last 5 years (10% per year). The average rent rate has increased 18% over that same period of time (3.6% per year). Perhaps because many people own houses, the increased cost of purchased housing is often celebrated. However, the less volatile and slower rising cost of renting one of those purchased housing units is uniformly viewed as a problem that needs to be corrected and is the central theme and talking point for every type of law change that’s harmful to rental housing providers.

Housing costs are a function of supply and demand. When there’s more people demanding housing and housing units cannot be built to meet that demand, the price of housing gets bid up. Housing is a game of musical chairs, and Colorado is not building enough chairs for all those playing. Driving it all is a Colorado population growth of nearly 800,000 people between the last 2 censuses, almost exactly double the population growth rate of the nation as a whole.

The only source of revenue for a person selling or renting a housing unit is the customer paying the purchase price or rent. Consequently, any law that makes it more difficult or expensive to build a housing unit or to loan that housing unit to somebody else raises the cost of housing. Unfortunately, when elected officials consider and promote ideas with a goal of decreasing the cost of housing, they often end up passing laws with the unintended consequence of increasing the cost of housing and making the problem worse.

Our core message is that affordable housing results from policies making it less expensive to build housing units and rent them to customers. When engaged having conversations with policymakers and the public on
this issue, it’s helpful to have examples of the many and growing number of policies that do the exact opposite.

Here are a dozen examples of laws passed in the last several years that have or will have the effect of increasing the cost of housing for Coloradoans.

1. Anti-growth measures (various, including Lakewood Question 200)

Some of the legal changes are as straightforward as outlawing building housing units altogether. Lakewood’s limitation that growth in new residential units cannot exceed 1% annually means less housing units. The resulting cost of housing is not only greater in Lakewood, but in all the surrounding communities that are commutable to and from Lakewood.

2. Development Fees (various, including Castle Rock Ordinance 2021-014)

Many local governments have direct and transparent taxes and fees on building new housing units. The most recent example is the pending Castle Rock requirement of a $7 per square foot fee on all new residential housing.

3. Source of Income Discrimination (HB 20-1332)

The Federal Housing Choice Voucher Program (formerly calledSection 8) is a voluntary program where people below certain income levels can get the federal government to pay that portion of their rent which would exceed 30% of their income. For a housing provider, the program is glitchy, expensive to administer and full of opportunities to lose money on the lease transactions. Consequently, many housing providers had elected not to participate in the program. Colorado now requires that landlords participate in the normally voluntary program. The cost of this program, like any operating cost, is ultimately paid by all Colorado renters, whether they’re in the subsidy program or not.

4. Affordable Housing Requirements (HB 21-1117)

Local governments have been authorized to require that a percentage of newly constructed rental housing be rented at below market rates to individuals who make less than average income levels. A typical formula is a requirement that 20% of the new units be offered at a 40% discount to people making less than 60% of average income. By artificially limiting the rent revenue that can be earned by a new rental community, fewer
communities are built. The development will only become viable after inflationary pressures build up to make the rent 10% higher on the unsubsidized units (to offset the 40% discount given on 20% of the units). 80% of the renters end up paying 10% more rent to subsidize the rent of the poor. The real tragedy of these ordinances is that the residents paying higher rent are not particularly rich themselves.

5. Late Fee Limitations (SB21-173)

Customers paying late as a cost to a housing provider. Industrywide, the cost of a customer being more than 3 days late with their rent payment is 8% of the past due payment. Late fees have been statutorily limited to 5% and cannot be imposed until 7 days late.  By preventing the housing provider from passing full the cost of the delinquent payment on to the defaulting resident, all the other residents who pay their rent on time end up with higher rent to cover this operating loss.

6. Raising Rent Once Per Year (HB21-1121)

Rent rates can only be raised once each 12-month period, regardless of the length of the lease contract. This has little effect on rent rates for one-year leases (since the lease contract prevented a change in rate for one year anyway). However, there will be increases on all shorter-term rent rates (9 months, 6 months, 3 months, one month) because the housing provider will have to be willing to honor that short-term rate for at least 12 months.

7. Rental licensing & Inspections (various, including Denver Council Bill 21-0420)

A number of localities (most recently Denver) have enacted requirements that anyone renting a property pay for a license to do so and pay to have the property inspected. Both these operating costs end up being passed on to the customer in the form of higher rent.

8. Energy Benchmarking (HB 21-1286)

This new law will impose fines on existing large multifamily residential buildings that are not in the lowest energy usage grouping. As originally proposed, 75% of existing buildings would’ve been subject to minimum fines of $365,000 per year. Both the fine amount and the number of buildings that will be fined have been deferred to a task force and remain to be seen. But every dollar paid for a perceived lack of energy efficiency will lead to higher rent. This future administrative cost is particularly tragic, because multifamily housing is far more energy-efficient than single-family housing and this cost is only imposed on multifamily units. It is also misguided because housing units that have the highest energy usage have higher occupancy levels (which tend to be poorer households).

9. 10-Day Demand (HB 19-1118)

For more than 100 years, Colorado housing providers have been required to bring an eviction lawsuit before forcing a resident to move if there was a payment default. Prior to initiating that lawsuit, the housing provider was required to give the 3-day demand for the money due. This law change required a 10-day demand instead, which equates to 7 days more free rent for any resident in default. The cost of this free rent is paid by all other residents (that are paying on time) in the form of higher rent.

10.  Eviction Moratorium (various Executive and Administrative Orders)

By preventing housing providers from recovering housing units from nonpaying residents, these units were effectively eliminated from the housing market for the full combined length of the various moratoria. Since the beginning of the various government-imposed virus closures (March 2021) eviction filings have been only 38% of normal. This translates into approximately 23,000 housing units being removed from availability to be
rented to those in need of housing. The cost of the reduction in housing units, comes in higher rent for all the rest of us competing for scarce housing.

11.  Right to Counsel (various, including Boulder Ordinance 8412)

These laws require housing providers to pay for lawyers to represent their customers when they’re in default. In the case of the Boulder initiative, the cost is $75 per rental unit (annually) and causes higher rent for the non-defaulting customers. Everyone pays higher rent, so that those who can’t get a free attorney.

12.  Higher Property Taxes (Repeal of the Gallager Amendment)

By repealing the Gallagher amendment to the state constitution,residential property tax assessment rates are 7.1% rather than 6.8%. This increase in annual property tax is paid by Colorado’s renters through higher rents. Colorado’s consistent march towards greater expenses for building and operating housing units translates to higher housing costs.

Most of us want our kids to be able to afford to live in Colorado. For that to happen, we must continually remind our elected officials to concentrate on making it less expensive to build housing units and less expensive to loan those housing units to someone.