Denver’s Low-Income Homeowners Are Losing Ground, but Policies Can Help Stem That Loss

by Diana Elliott, Tanaya Srini, and Carl Hedman

Denver’s economy is thriving. The city’s unemployment rate (2.9 percent) is a percentage point lower than the national average, and wage and salary increases are tracking above other areas in the US. Colorado’s economy was recently ranked first in the nation because of its growth, employment, and business-friendly environment.

The downside of such economic success is the challenging housing market for low-income families, many of whom are leaving because of escalating costs. As documented in Urban Institute’s report Denver and the State of Low- and Middle-Income Housing, between 2000 and 2015, the renter cost burden, or the share of households who paid 30 percent or more of their income on housing costs, increased from 60 percent to 82 percent among very low–income households, or those making less than half of the area median income.

Last week, we released new data showing that very low-income homeowners have lost ground, too. Between 2000 and 2015, the share of very low–income homeowners in the city dropped from 29 percent to 18 percent of all homeowners.

Our research in Globeville, a historically working-class neighborhood in Denver, found that displacement of residents out of the neighborhood and the city was common and increasing in frequency. This reflects both economic opportunity and hardship.

A survey of Globeville and adjoining neighborhood residents found that 64 percent of homeowners had been approached about selling their home. Home values escalated almost 26 percent in Denver from 2015 to 2017, with more affordable neighborhoods seeing some of the largest increases. Higher valuations mean higher property taxes, and low-income homeowners in affordable neighborhoods like Globeville may see an opportunity to sell their house for tremendous financial gain, or they may feel increasingly constrained by rising taxes if they stay.

Policies are being explored in Denver and other “hot market” cities that can stem the disruption of these communities and the displacement of their homeowners.

1. On-ramps to homeownership for very low–income renter families

Homeownership continues to be beneficial for families to increase their financial security and build wealth. But very low–income families especially need help to overcome the significant transaction costs that accompany buying a home.

Homebuyers education and assistance courses are helpful, such as the one Denver already offers, and can provide crucial gap funding for very low–income families who need down payment and closing cost assistance. But in Denver, this program has high demand and only provides a grant for up to 4 percent of the loan. In hot-market cities like Denver, expanding the reach and amounts available to these homebuyers would be a worthwhile investment.

2. Accessory dwelling units to boost homeowners’ income and offset property taxes

For homeowners having trouble paying their housing costs, accessory dwelling units (ADUs), often called carriage houses or granny flats, can be an important income generator while increasing the stock of affordable units in the city.

These units, which can be attached or detached from the main house and generally include bedrooms, bathrooms, and living spaces, are affordable options for very low-income renters and add significant value to a homeowner’s lot.

To help very low-income homeowners add ADUs to their properties, Denver is piloting a program that aims to address many potential barriers, such as connecting homeowners with loan products to finance backyard units, streamlining permitting processes, and identifying vetted contractors to build the units. Once these units are built, the additional rent may stabilize neighborhoods where a lack of affordability and rising property taxes contribute to residential turnover.

3. Property tax abatements to help longtime, low-income homeowners stay in their homes

Though ADUs can generate income, they can inadvertently increase the property values of homeowners already facing skyrocketing tax increases across the Denver metropolitan area. This is especially true for very low-income homeowners in Denver, who have experienced the largest increases in home valuations and property taxes in the city.

A Philadelphia program aims to address a similar phenomenon by providing tax abatements for homeowners whose property taxes increased by a certain percentage from one year to the next and have lived in their homes for 10 years or more. This income-limited program helps longtime residents remain in their homes even as the surrounding neighborhood increases in value.

A program like this, coupled with tax abatements for housing developers who will keep a certain number of units affordable at a fixed price (like a Chicago program for affordable rental development), can maintain very low-income affordability in certain neighborhoods in the short term while strengthening long-term pathways to homeownership.

4. Community land trusts to preserve affordable homeownership

In the long term, community land trusts (CLTs) could promote very low-income homeownership in Denver. In the CLT model, a nonprofit, community-based organization creates a trust that owns the land upon which homes are built or preserved, and the trust maintains ownership of the land permanently.

Prospective homeowners have long-term, renewable leases with the trust (rather than traditional sales). If the homeowners sell, they split the increased property value with the trust, which allows the homeowner to build wealth and the trust to maintain the property’s long-term affordability for future very low-income families.

A few trusts already operate in Denver, and a new trust just launched with $24 million in initial funding to acquire 700 homes over the next five years. While capital intensive at the outset, CLTs maintain affordable units in perpetuity while promoting low-income homeownership.

Why economic development and affordable housing are parts of an integrated whole

Very low-income families struggle to stay in cities like Denver because their income has not increased at the same pace as housing costs. Should Denver be chosen as the winning bidder for Amazon’s second headquarters, the new jobs will be filled primarily by high-wage workers relocating from other cities, which will further strain housing affordability for current residents without a comparable boost in income.

All cities, not just Denver, should view workforce development, economic development, and affordable housing as parts of an integrated whole. Families can stay and thrive in cities when they are given the opportunity to stave off escalating housing costs and improve their economic prospects.

This post was originally published on Urban Wire, the blog for the Urban Institute.