Regulations, land costs called obstacles to missing-middle housing

BOULDER — Onerous regulations and high land costs are limiting the availability of housing attainable for “missing middle” area residents, municipal leaders and developers said Thursday at BizWest’s Boulder Valley Middle-Income Housing Summit at the University of Colorado Boulder.

The challenge, said David Ensign, who served five years on Boulder’s planning board and now spearheads the advocacy group Better Boulder, is to help “people like teachers, nurses, first responders, young professionals who earn too much to qualify for many affordability programs but still can’t realistically purchase a home in communities like Boulder.

“We do not have a silver bullet, but we have lots of ideas,” Ensign said.

The idea of the summit was to bring together leaders with varying perspectives to turn those ideas into action.

“A developer sees feasibility challenges. A planner sees regulatory barriers. A nonprofit sees affordability needs. A policy maker sees community priorities,” Ensign said. “We need all of those perspectives together as we work through this problem.”

Participants in a Colorado Business Roundtable reported that “regulatory uncertainty is no longer their biggest concern,” said DJ Summers, director of communications and research operations for the nonpartisan Common Sense Institute. “Now it’s housing uncertainty.”

Added Robert Smith, director of economic vitality and development for the City and County of Broomfield, “Housing is such a fundamental part of economic development. Houses are where jobs go to sleep at night.”

To find solutions, Smith said, “we’re not going to get where we need to get until we get everybody involved.”

The solutions must come in the face of the startling statistics Summers presented.

Colorado, he said, now ranks second to last in the nation for housing costs, ahead of only Hawaii.

“It’s been that way every year for the past nine years,” Summers said.

The state is the ninth least affordable and ranks among the worst for net businesses lost and net employment lost, he said. “Colorado was one of only six states with declines in both.”

Those figures contrast with the fact that in 2015, Colorado ranked seventh in the nation for pay growth. “We were the hottest state,” Summers said.

“What was the triggering moment that went from balance for middle-income people to not? There’s an absolute direct correlation between the cost to build housing and when there were regulatory requirements put in that slow growth intentionally,” said Rob O’Dea, co-founder of the Boulder Development Group.

“We’ve gotten here very deliberately. It wasn’t an accident,” O’Dea said. “Voters have created these barriers and driven up these costs because they want to preserve what they have. So it’s like, ‘I’m in. I’ll close the door behind me, and good luck to you.’ 

“Solving this problem is going to take leadership,” he said. “It’s not going to take simply doing what your constituents want or think they want. It’s going to take stepping back and understanding the economics of this industry and working with the development community on some of these root causes.”

Since 1981, he said, “income has outpaced the cost of construction significantly” in the Boulder area. “The only thing that’s changed here is the cost from a regulatory standpoint to develop housing. And that’s time for permitting, inclusionary housing costs and energy policy.

“If that’s the root of what’s going on here, we can’t solve the problem for housing across this area – or anywhere – by simply making it more expensive to develop housing,” he said. “That’s true on the zoning side, on the regulatory approval side, and on the impact-fee and energy-cost side.

“Regulatory uncertainty and regulatory intervention are what has driven up the cost of housing and diminished the supply, particularly in the missing middle.”

Added Scott Rodwin, principal of Rodwin Architecture and CEO of Skycastle Construction, “Right now we have deliberately, over the past 50 years, created a system that has made it harder, more expensive and more uncertain to build in this area.”

The area has an oversupply of homes selling for more than $1 million, Summers said, as well as those priced at between $500,000 and $1 million.

But for middle-income homebuyers looking for housing in the $300,000 to $500,000 range, he said, “the only housing that is really affordable at that range is a starter home with a very low footprint — or condos, and we’ve had some of the nation’s most onerous condo defect litigation laws.”

To afford to live in Colorado, he said, “a single-income household is effectively extinct unless you make a very high income.”

Steep housing costs in Boulder force middle-income workers east, said Erie mayor Andrew Moore.

“We are affordable housing for Boulder. I say that only half jokingly, but it’s true,” Moore said. “People who can’t afford to live in Boulder come to Erie. People who can’t afford to live in Erie go out to Frederick, Firestone, Dacono or Brighton.”

O’Dea’s researchers “tore apart the economics of a development deal, from start to finish,” he said, “and when you take all of the fees, the 915-day average entitlement period here in the city of Boulder, and you lay in the $30,000-per-unit impact cost of the energy policy, and you factor in the inclusionary housing cost and all of the 26 fee categories that the city of Boulder has, the actual impact on an average 200-unit multi-family product is $1,750 a month just for a developer to clear the cost of getting the right to build that property.

“So when you look at the gap in affordability, especially in that middle market,” O’Dea said, “the only place that can fix that gap is lowering the fee structure from the city to get there.”

Regulatory reform has been a tough nut to crack, Moore said, but Erie has tried by repealing a requirement that new homes had to have internal fire sprinklers.

“We repealed that about a month and a half ago on a 4-3 vote,” he said. “It was fascinating to me that the three members on our council who didn’t vote for it are the three members who talk about affordable housing the most.

“You may say, ‘Holy cow, you’ve repealed sprinklers inside the home? You just created a safety hazard.’ Well, yes, maybe to a very small percentage,” Moore said, “but fire alarms and new building codes do a really good job. We cut somewhere between $10,000 and $15,000 per house of the cost” by repealing the requirement.

“What I said to the council at the time was that if safety is really the matter, then we should lower the speed limit in Erie to 10 miles an hour on every single road because we would increase safety, but at what cost? There’s a balance we have to strike.”

Chipping away at some building codes is happening in Boulder as well, said Mayor Aaron Brockett.

“In Boulder we have an abundance of regulations, but not an abundance of housing opportunities,” Brockett said. “We’re looking forward to a potential rewrite of our land-use code. Things happen slowly in Boulder, but we’re working on it.”

Boulder, Brockett said, “viewed every potential for delay or saying no as a positive. It’s decades and decades of culture that we’re gradually reversing. There’s a place for regulations like safety and energy, but they should be predictable so you know what you’re going to have to deal with, you can design a project and get it built.”

Incentives are a tool governments can use, said Erin Bagnall, a partner at Sopher Sparn Architects. 

“If we’re trying to go for smaller middle-income homes, we need to incentivize that,” she said. “If we want to see smaller units and cottage courts and smaller homes around a garden, maybe we take some of the regulatory burden away from some of the things that we want.”

Rodwin agreed. 

“Start with the results that you want — more attainable housing, more vibrant communities, passenger rail, whatever it is — and then design a system of regulatory processes and policies that make that the easiest, cheapest and fastest natural result,” he said.

The popular concepts of adding density sometimes conflict with reality, Moore said.

“Higher density, put it in, get approvals done and make it happen. That works on paper,” Moore said. “But Erie has recently rejected at the council level, after going through the planning commission, three of these types of infill because they didn’t transition from the neighboring developments.

“You can’t just look at it and say, ‘Hey, we can do this here.’ You have to really look at what you are going to impact on the side,” he said. “We have to have some balance, otherwise it makes it hard for us as selected officials to get it through.”

Last year’s actions in the state Legislature could help developers build more condominiums. The state’s condo defect laws are now primarily governed by the Construction Defect Action Reform Act, which sets procedures for resolving defect disputes outside of court. Builders are incentivized through the Multifamily Construction Incentive Program to offer express warranties and resolve claims before costly litigation occurs.

However, noted Rodwin, “builders don’t believe it yet.”

Added Smith, “The position they generally take is, ‘We want to let it go through the courts, so we know what’s going to happen. Somebody’s got to jump first, build it, and then have the court case, but nobody wants to be that guinea pig.”

The panelists cited another driver of high housing costs as well.

“At the end of the day, while regulatory issues and energy efficiency and all these things layer on incremental costs, the thing that underpins all of them is the cost of land,” Rodwin said. “If we can reduce the cost of land by allowing more units by right, that is the fastest and more direct way to bring down the base cost of each dwelling unit.”

Moore said the logic of reducing land costs runs into a local reality.

“One of the things we love in Boulder County is open space,” he said. “You can’t have both. If you want affordable housing, you’ve got to have affordable land. If we’re not willing to give up open-space land, then you’re not going to have affordable housing.

“When I come to Boulder (from Erie), I drive through 10 miles of open space,” he said. “If you were to open that up and make that all developable, you’d see land costs plummet. Obviously, we’re not going to do that, and so there’s got to be a balance between affordable housing and open space and what we want for society in that balance.”

O’Dea said he’s been working on a project in which the fee burden from the city of Boulder exceeds the land value on a 3-acre parcel.

“When you have anti-growth policies, you’re creating artificial scarcity. Scarcity drives the cost up; that’s just basic economics,” O’Dea said.

“Historically, there is no more inefficient deployer of capital than government,” he said. “It doesn’t help when we have policies that are in complete conflict with the stated objective.

“Capital goes where there’s opportunity.”

Share on Facebook on LinkedIn