Climate

Opinion: If Colorado ties the knot with ADU zoning, the real work lies ahead

Like any good love story, ADU tales have characters we cheer for when they find their housing match: A financially challenged friend, back in college, living in their dad’s backyard studio; a divorcing elected official who landed softly in a historic carriage house; the doubled-up Latino family able to move their adult daughter and grandchild into the new backyard casita.

Colorado legislators and Gov. Jared Polis have proposed legalizing ADUs (accessory-dwelling units) in Colorado’s urban and suburban cities as one solution to Colorado’s housing crisis for the second year in a row, citing 78% support among Coloradans.

But even when we’re head over heels, it’s a good idea to pause and confirm long-term compatibility and future goals before getting hitched. Pre-marital counseling and advice from longer-married cities and states could help Colorado avoid disappointment after the honeymoon of “just passing” ADU legislation wears off if we make it past the altar this year.

Because any good union should be evaluated on how many Coloradans struggling with housing affordability are helped.

Research points to gaps ADU zoning reform would fill and demonstrates there is potential good reason to allow accessory-dwelling units on more lots. The land-use change can provide a gradual supply of relatively affordable housing for some cost-burdened Colorado renters.

But we will face the same barriers as elsewhere to meaningfully and equitably boost production to make a significant dent in the housing crisis or to reach lower-income households.

Colorado could deliver more fully on the promise of ADUs for more struggling Coloradans if $8 million already prioritized for low- and moderate-income homeowners and zoning are paired with additional programs linking homeowner assistance to affordable rents. Collaborative work to expand private financing and strong local implementation will also increase success.

As a fellow for The Bell Policy Center, I recently completed a first-ever analysis of ADUs. I found that in 32 of the largest Colorado cities covered by pending legislation, 19 are already allowing ADUs, but most at rates below peers who’ve reformed zoning. Many others have no ADU zoning or the zoning rules are so restrictive they are almost unusable.

In California, which has implemented the most sweeping legislation and seen the largest uptake nationally, just 2% of property owners among the lowest fourth of earners have permitted or completed ADUs, compared with about 40% in the two highest income brackets. Permitting in heavily Latino Los Angeles has been strong, in part with retroactive permitting of previous illegal garage or basement conversions. But permitting by Latinos lags that of white homeowners statewide. These racial disparities mirror patterns of inequitable access to home financing credit, also documented by the Bell Policy Center in Colorado.

On rental affordability, in his state-of-the state address, Gov. Jared Polis described these homes as “inherently affordable.” ADUs tend to be cheaper than single-family homes because they are smaller studios or one-bedrooms. As such, the target population is described as the growing number of smaller households cross the U.S. and in Colorado, especially older adults.

One in five Colorado seniors are already “doubled up” with family or another household, according to Colorado Futures Center. But those over 65 are overwhelmingly homeowners, so they’d be giving up equity and stability to rent. Only 15% of ADU occupants in California are older adults.

New Hampshire passed less stringent ADU zoning legislation but has had unexpectedly strong outcomes from a sample of cities with permit data. Their success has been attributed to larger homes, higher median income, and a higher rate of older homeowners, some of whom move into an ADU they financed to be near grandkids in the main house. These indicators point to market ADUs as an important choice for a modest percentage of Colorado seniors with adequate means.

About a quarter of all kids in Colorado are living doubled up with families living two-to-a-unit, and without these doubled-up families, the number of children under age 6 in this state would not have seen any growth when compared to previous years.

These families could be especially well-served by ADUs, but won’t be by the market-rate studios or one-bedrooms the market produces on its own. Only 11% of ADUs in California’s survey are occupied by children and only 21% have two or more bedrooms.

To help cost-burdened and doubled-up families like these in West Denver, many of which are part of our state’s large Latino population, a Single Family+ pilot with Denver’s Housing Authority leveraged innovative private financing, public subsidy and deep technical assistance on ADUs. They’ve successfully helped families build or permit 12 two- to three-bedroom ADUs. The average rent across all of the ADUs they have built to-date is $957. The vast majority of their owners are moderate-income themselves. Zoning was necessary but didn’t produce these outcomes on its own.

Based on rents in other states with ADU reforms and Boulder, the “inherent” affordability of ADUs is likely for those earning around 80% of Area Median Income (AMI). That’s two people earning around $62,000 in Colorado Springs, $72,000 in Fort Collins, or around $76,000 in metro Denver/Boulder. Affordable rents for those incomes would range from $1,300 in Mesa County to just below $1,800 in metro Denver for one bedroom.

But half of Coloradans earn less than $75,000. More than 650,000 households statewide face significant levels of housing cost burden, most needing rents lower than these market rates. Typical ADU rent would be out of reach for the vast majority of these renters. For example, most burdened renters in Grand Junction or Pueblo need rents below $815 and those in Colorado Springs would struggle if they exceeded $914 for a one-bedroom. State and local action beyond zoning would be necessary to help ADUs reach these families.

California has given owners $120 million toward building ADUs, with the last $25 million restricted to those below median income, though without requiring affordable rents. In addition to West Denver’s Single Family+ pilot, other models we could replicate pair forgivable loans or cash in exchange for renting to families who are rent burdened, or with housing vouchers.

Colorado has proposed $18 million to be split between local governments and direct financing of ADUs, a start, but it will be spread thin state-wide. These funds will be prioritized for low- and moderate-income owners. In addition, creating programs with rent standards would help Colorado reach more of the households struggling in our state to meet the promise of ADUs.

As a former city council member, I’m sympathetic to the concerns of local government officials about the state’s sweeping approach. For example, they worry ADUs will just be rented short-term in our tourism-dominant state. Many Denver homeowners have relied on short-term rentals to pay back exorbitant ADU construction costs in the absence of more affordable financing. However statewide policy brings leverage to create better financing pathways that city-by-city approaches don’t. And cities can prohibit or regulate short-term rentals. California doesn’t prohibit them statewide, but local governments can and do: only 8% of California ADUs are rented short-term, and low- and moderate-income ADU owners are the least likely to do so.

Another legitimate concern is whether upzoning will make low- and moderate-income communities of color more vulnerable to developer speculation and exacerbate displacement. Evidence of this was not found in communities with expanded ADU zoning, likely due to the long timelines and difficulties that remain in building costly, one-of-a-kind units, resulting in a slow and low return on investment.

Evidence points to gradual development not an onslaught. If Colorado eventually got to the pace of California’s current statewide production it would be 3,500 to 5,000 ADUs per year statewide. The best prospects for low- and moderate-income homeowner ADUs would be more affordable and less noticeable basement conversions or additions, not detached units.

In the end, if Colorado ties the knot with ADUs, like any new marriage, the real work will be ahead of us. Every budget cycle we’ll have to renew our vows if we want to really deliver on affordability and outcomes for the families struggling to afford housing. It will take a broader village too, such as better financing from banks and credit unions.

And no one relationship can fulfill all needs. Colorado needs many other housing strategies to address affordability. A multi-family building of fifty, a hundred or more apartments or condos can be built in about the same time it takes to build two ADUs.

So, if we’re talking about the housing struggles of nursing assistants for our aging population, restaurant servers, universal pre-school teachers, transit drivers and others, we’ll need to put even more energy into our multi-family apartment relationships: zoning, affordability standards, renter protections, and sustainable funding.

Many of the cities and states leading on ADU reform actually led first or simultaneously with those policies and we should follow all the best practices.

Robin Kniech was an at-large Denver city councilmember from 2011-23 and sponsor of Denver’s Affordable Housing Fund, Homelessness Resolution Fund and many other affordable housing and zoning measures. She is a Bell Policy Center Economic Mobility fellow. Read full reports @robinkniech through Substack or Medium.  

Denver’s ADU Program

West Denver Single Family+ Pilot Program

Within the Denver Housing Authority, the ADU pilot program works with homeowners at all income levels to make accessory dwelling units more accessible and affordable in every part of Denver. Below is the data from the West Denver Single Family+ pilot program’s third-year report.

Requirements

• Land must be zoned for ADUs and have a clear area in the rear 1/3 of the lot for a detached ADU in any Denver neighborhood

• Deed restriction and affordability requirements for those receiving subsidies: Rent must be priced at less than or equal to 80% of AMI; Homeowner or ADU occupant must make less than or equal to 80% of AMI for cash subsidies and compliance.

Homeowner Participants

• 75% BIPOC (Black, Indigenous, or People of Color)

• 45% female head-of-household

• Median income of 73% of AMI

ADU and Renter Outcomes

• Represent 14% of all ADUs constructed in Denver in 2022

• Average rent of $957 a month, or 34% of the annual AMI maximum rent by unit size

• 12 of 24 ADUs completed, partially constructed or in predevelopment are 2-3 bedroom ADUs

• 95% chose to build initially for a family member

Average ADU development cost after subsidies

• $247k for owners 120% of AMI

Value of program

• 20 homeowners and 40 households positively impacted by an affordable ADU

• Since 2021, 6,000 have explored general ADU feasibility via a custom online app, hundreds of homeowners have received ADU technical assistance and education

• 2021-23 $2.56 million in total ADU construction financing; homeowners finance on average 83% of development cost

• 2024 projected $4.3 million in total ADU construction financing

Examples of Subsidies and Financing

• $30,000 – $55,000 HOST Affordable ADU subsidy based on bedrooms, owner or renter ≤ 80% of AMI

• Infrastructure grants (sidewalk, sewer expansions, electrical grid upgrade, permit costs), owner or renter ≤ 140% of AMI

• Interest-only payments during construction

• Includes rental income towards debt-to-income ratio when qualifying

• Discounted closing cost for low- and moderate-income neighborhood residents

• Interest rate buy-downs and special program interest rates

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