IP-10-20024 (December 2004)
Author: Stephen Hackman

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Executive Summary

Government policies threaten the American dream of affordable homeownership in the Denver metropolitan area. Because of these policies, the Denver region is the least affordable major urban area in the interior United States.

According to the National Association of Realtors, Denver’s median housing prices are considerably higher than prices in Atlanta, Dallas, Houston, Las Vegas, Phoenix, or Salt Lake City. This is not because Denver has an especially high quality of life or is a particularly fast-growing region: all of the above-listed regions are growing as fast or faster than Denver.

Denver also rates poorly using standard measures of housing affordability—that is, the price of housing relative to average regional incomes. According to the National Association of Home Builders’ housing opportunity index, which measures the percentage of homes that are affordable to a median-income family, Denver is the least affordable of any major housing market in the interior U.S. As Tom Clark of the Metro Denver Chamber of Commerce notes, “we have the highest housing prices of any state without a coastline.”
Denver’s affordability problem is getting worse, not better. In the last decade, housing prices have increased throughout the U.S. But Denver’s prices have nearly doubled, while prices in other housing markets listed above have increased by only 50 to 70 percent.
Such high housing prices create problems for many residents of the area. While the price of a starter home is typically $170,000 to $200,000, the average black or Hispanic household can only afford to pay about $120,000 to $130,000 for a home. Many professionals such as school teachers, police officers, and truck drivers are also unable to afford the price of a starter home.

Many people assume that houses are expensive simply because land is expensive. Yet there is plenty of land that could be used for housing in the Denver metro area. In The Impact of Zoning on Housing Affordability, Harvard economist Edward Glaeser and Wharton Business School economist Joseph Gyourko note that the real problem in many areas is that housing has become expensive “because of artificial limits on construction created by the regulation of new housing. The barriers to building create a potentially massive wedge between prices and building costs.”
This is what has happened in Denver. The barriers created by government policy include:

1. Obstacles from zoning and design-review processes;
2. The urban-growth or urban-service boundary imposed by the Denver Regional Council of Governments’ (DRCOG) Metro Vision plan;
3. Efforts to protect open space; and
4. Impact fees.

While these policies may have been imposed with good intentions, they produced the largely unintended consequence of driving up housing prices. While some people may think this is a good thing as a way of preventing “sprawl” or slowing growth, the darker view is that these policies greatly benefit the “haves”—those who are wealthy enough to already own their homes—while they harm the “have nots”—those who must rent their housing. Since the haves are overwhelmingly white while most minorities are among the have nots, one accurate description of these policies is that they represent “the new segregation.”

Some cities have responded to high housing prices with inclusionary zoning policies that require homebuilders to include a certain percentage of “affordable” housing units in any development. Yet these policies force builders to increase the cost of other housing in order to cover the losses from the affordable units. This drives up the cost of housing for everyone but the few lucky families who get to purchase the affordable homes. Inclusionary zoning is just one more “feel good but do harm” policy that makes housing less affordable.
To fix these problems, this paper recommends:

1. Municipalities should streamline the land-use regulatory process so as to minimize the time required to get permits to build new housing.
2. DRCOG must reconsider its Metro Vision plan by making housing affordability a higher priority than maintaining an urban-growth boundary.
3. Open space programs should focus on providing recreation areas, wildlife habitat, and watershed conservation, not on trying to prevent so-called sprawl.
4. Impact fees should be reduced to the amounts actually needed to cover any capital costs that would not otherwise be covered by taxes paid by new residential or associated commercial areas.
5. Inclusionary zoning and other so-called affordable housing programs that actually do more harm than good should be eliminated.