HomeMy WebLinkAboutMemo - Mail Packet - 7/25/2023 - Memorandum From Meaghan Overton And Susan Beck-Ferkiss Re: Updates On Inclusionary Housing: Hb21-1117 Legislation And Policy Implications For Fort Collins
Social Sustainability
222 Laporte Ave.
PO Box 580
Fort Collins, CO 80522
970.221.6758
MEMORANDUM
DATE: July 17, 2023
TO: Mayor and City Council
THRU: Tyler Marr, Deputy City Manager
Jacob Castillo, Chief Sustainability Officer
Beth Yonce, Social Sustainability Director
FROM: Meaghan Overton, Housing Manager
Susan Beck-Ferkiss, Social Policy and Housing Program Manager
RE: Updates on Inclusionary Housing: HB21-1117 Legislation and Policy Implications for
Fort Collins
Bottom Line: This memo provides information about the 2021 Inclusionary Housing legislation
(HB21-1117) passed at the State level and explores possible policy implications for Fort Collins,
including the feasibility of implementing an Inclusionary Housing Ordinance (IHO) for new
construction. It also summarizes the City’s 2020 Feasibility Study for Inclusionary Housing and
Affordable Housing Linkage Fees and includes a 2021 update to the study that recommends
exploration of IHO in Fort Collins (attachment). Staff proposes a phased approach to designing an
IHO policy, beginning with the housing-related Land Use Code (LUC) changes currently in
progress.
Background: HB21-1117
This bill is the Colorado General Assembly’s response to the Colorado Supreme Court’s ruling in
the 2000 case Town of Telluride v. Lot Thirty-Four Venture, L.L.C., in which the Court ruled that a
local land use ordinance enacted by the town to create affordable housing by requiring a developer
to build deed-restricted, affordable units as part of a new development (often called an Inclusionary
Housing Ordinance, or IHO) was “rent control” in violation of a state statute that prohibits local
governments from enacting any ordinance or resolution that would control rent on private
residential property. The Court noted that its holding would not prevent the General Assembly from
amending the rent control statute to permit local ordinances like Telluride’s in the future.
HB21-1117 was signed into law on May 28, 2021 and took effect on September 6, 2021. The
legislation clarified the Telluride decision, stating that local governments are now permitted to
require affordable rental units in new developments or redevelopments if two conditions are met:
The owner/developer must have a choice of options or alternatives to building the
affordable units on the project site. (Example: an option to pay a fee in lieu or build off-site)
The local government must have already taken one or more other actions to increase the
number and density of housing units, or to promote or create incentives for building
affordable units, in its jurisdiction. A list of the acceptable actions that would qualify are
listed on pages 3-4 of the attached bill text.
HB21-1117 permits IHO only on newly constructed or developed housing units and cannot be
applied to existing private residential units. As written, the bill does not define affordability or place
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limits on the percentage of units that are required to be affordable. These definitions and criteria
are instead the purview of individual municipalities such as the City.
Policy Implications for Fort Collins
The City has already implemented one or more Land Use Code (LUC) or Municipal Code
provisions from the list of acceptable actions in the bill, including: maintaining a robust land bank
program (condition k in footnote 1); providing incentives for affordable housing such as a density
bonus, fee credit, and impact fee delay (conditions i, j, l); and permitting accessory dwelling units or
carriage houses (condition c).
It is also important to note, however, that the City is currently updating LUC regulations to further
increase housing supply and improve housing affordability. Coordinating policy development for an
IHO policy with the pending LUC changes will help staff more accurately assess the impact of an
IHO policy, evaluate potential tradeoffs, and ensure that these complementary efforts are designed
carefully to reinforce and support the City’s adopted housing goals.
Implementing an IHO policy would require City Council to adopt an Ordinance that outlines the key
elements of the policy. There are several critical choices that will need to be considered and
evaluated:
What amount (%) of affordable housing will be required for new developments?
What income levels (% AMI) should the required affordable units serve?
Should developments under a certain size or number of units be exempt?
Will the City adopt a separate impact fee for nonresidential and/or exempt developments?
What options does the City wish to provide in lieu of building the required affordable units
on site? (Examples: fee in lieu or building offsite units)
What kinds of additional incentives does the City wish to offer? (Example: density bonus)
How will the City administer and monitor compliance with this requirement?
2020 Feasibility Study for Inclusionary Housing and Affordable Housing Linkage Fees
In August 2020, Economic & Planning Systems, Inc. (EPS) conducted a Feasibility Study that
analyzed the economic viability of implementing IHO and established a rational nexus for adoption
of an Affordable Housing Linkage Fee for residential and nonresidential development.
EPS created a financial model that measured the impact of affordability requirements and
incentives (e.g., number of units required to be set-aside, level of affordability by AMI, density
bonus, and amount of property tax abatement) on the Internal Rate of Return (IRR) across a
variety of project types including single-unit, townhome, 3-story, 5-story, and 10-story. The study
investigated both for-sale and rental models in anticipation of the State’s passage of HB21-1117.
The Feasibility Study showed that various housing types could feasibly support set-asides at the
60% AMI level of between 4-12% (e.g., requiring that 4-12% of units be affordable to renters who
make 60% of Area Median Income or lower – see Table 35, page 68).
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At the time of the study in August 2020, EPS found that conditions in Fort Collins did not support
successful implementation of an IHO policy for several reasons (page 73). At a work session in
April 2021, City Council reviewed the study findings and recommendations from the Feasibility
Study. Council supported staff’s recommendation to pursue an impact fee alongside capital
expansion fee updates and to monitor conditions and periodically evaluate policy appropriateness
of IHO. Staff did not recommend the development of an IHO policy at that time. Capital
improvement and transportation expansion fees will undergo study updates in 2023.
2022 Updated Considerations on Inclusionary Housing and Linkage Fees
In January 2022, Staff requested a memorandum from EPS that contained updated
recommendations following the passage of HB21-1117. This memorandum has been included as
an attachment. EPS noted in their recommendations that the City should strongly consider
developing an IHO policy, and suggested a set-aside of 10% at 60% AMI for rental units and 10%
at 100% AMI for ownership units. The consultants also noted that there are a number of policy
decisions the City will need to consider in the design of an IHO program.
Next Steps
The passage of HB21-1117 means that the legal conditions from the August 2020 Feasibility Study
have changed, and that another evaluation of an IHO policy is appropriate. Staff proposes a
phased approach to exploration and design of an IHO policy, beginning with the housing-related
Land Use Code (LUC) changes currently in progress. Affordable housing incentives are a key topic
of the LUC updates project and will set the foundation for future policy decisions about appropriate
set-asides, applicability of an IHO policy, fees in lieu, impact fees, program administration, etc.
Attachments
Updated Considerations on Inclusionary Housing and Linkage Fees (memorandum)
HB21-1117 bill text
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$32253ca00dde$C0ACF9F3010C4A8A8D31A1B1BFBEA849.docx
M E M O R A N D U M
To: Sue Beck-Ferkiss, Social Policy and Housing Program
Manager
Meaghan Overton, Housing Manager
From: Brian Duffany, Principal
Subject: Updated Considerations on Inclusionary Housing and
Linkage Fees
Date: January 3, 2022
This memorandum provides updated housing market data and
policy considerations for implementing inclusionary housing (also
referred to as inclusionary zoning) and affordable housing linkage
fees. This memorandum was prepared as a follow up to the study
“Feasibility for Inclusionary Housing and Affordable Housing
Linkage Fees” (Study) prepared by EPS for the City of Fort
Collins in 2020. The findings were presented to City Council on
March 24, 2020, two weeks after a national emergency was
declared and two days before Governor Polis issued a mandatory
shelter in place order in response to the COVID-19 pandemic.
Two key factors warrant this update and a reconsideration of the
Report’s recommendations by the City: a change in State Law to
expand the allowed application of inclusionary zoning (IZ) to
rental housing, and the continued and accelerated escalation of
housing costs during the pandemic.
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Memorandum: IHO/Linkage Study Update
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Inclusionary Zoning Law
In 2021 HB 21-1117 was signed into law. This law provided a legislative reversal of the
Colorado Supreme Court’s “Telluride Decision” that banned IZ as applied to rental
housing. The Court previously ruled that rental inclusionary zoning was a form of rent
control which is illegal in Colorado. This new law specifically allows inclusionary zoning to
be applied to new rental and for-sale housing. This is significant as many housing experts
believe that IZ is most needed in rental housing and is most effective and economically
feasible in higher density housing types such as apartments.
When the Study’s recommendations were drafted, IZ was only allowed to be applied to
new for-sale housing in Colorado. At that time EPS did not recommend that the City
adopt an IZ ordinance to be applied to for-sale housing and we could not recommend IZ
for rental housing due to the law at the time. EPS’ recommendation was based on the
overlap of pricing expected between deed restricted (and appreciation-capped) units
created from IZ and the pricing of market rate units. There was, in EPS’ opinion, too
much overlap in pricing and potential buyers of IZ units would likely determine that they
were better off competing in the free market which would then allow them to benefit from
potential appreciation gains. Now, IZ can be applied to new for-sale and rental housing
which broadens options for the City.
Housing Costs
The Foreword to the 2020 Study referred to speculation that the pandemic would result in
a recession and softening of housing demand which is often accompanied by higher
vacancy rates and lower prices. While the economy did slow, it has rebounded to near
pre-pandemic levels in many areas of the state. Continued in-migration, job growth, and
a shortage of materials and labor all combined forces to increase housing costs
dramatically over the past 2 years.
Since the first quarter of 2020, average rents in Fort Collins increased by 12 percent or
nearly $160 per month (Table 1). While the supply of apartments increased by 3.8
percent (+635 units), the vacancy rate dropped to 3.9 percent. Anything below 5.0
percent is considered a tight market with a supply shortage.
Table 1. Apartment Market Indicators, Q1 2020 through Q4 to date 2021
Fort Collins
Apartments 2020 Q1 2021 Q3 2021 Q4 Change % Change
QTD
Inventory (units)16,610 17,245 17,245 635 3.8%
Avg. Monthly Rent $1,285 $1,440 $1,442 $157 12.2%
Vacancy 5.6%4.0%3.9%-1.7%---
Source: CoStar; Economic & Planning Systems
Z:\Shared\Projects\DEN\2019 Projects\193158-Fort Collins IZ and Linkage Study\Data\2021 Update\[193158-CoStar Data_10-15-21.xlsx]Table
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Economic & Planning Systems, Inc.
Page | 3
The for-sale market also experienced large price increases. From 2019 through 2020, the
median single family home price in Fort Collins increased from $430,000 to $455,000 or
5.8 percent (Table 2). From 2020 through September 2021, the median single family
price increased by 17.6 percent to nearly $535,000. Townhouse and condominium sale
prices increased 11.9 percent from 2020 through September 2021.
Table 2. Median Home Price, Fort Collins, 2019-Sept. 2021
Home Price Distribution
A major reason for the recommendation against IZ in the Study was the overlap between
deed restricted prices and free market housing prices. The assumption is that most
affordable housing produced through IZ regulations will be deed restricted to incomes in
the 60 to 100 percent of AMI range (or potentially up to 120 percent of AMI) and
appreciation capped (2.0 to 3.0 percent per year typically). The issue is that when there
is housing available on the free market that overlaps with the income targets for IZ
housing, deed restricted housing is less appealing and less marketable. Buyers who can
afford housing in those price ranges will likely compete in the free market to take
advantage of potential appreciation and no restrictions on re-sale.
In Figure 1, the sales data from 2019 is re-analyzed and combined with 2021 sales data
through September. In 2019, 22 percent of the sales were priced at levels affordable to
people earning 100 percent of AMI or less. Combined with the likelihood that some
buyers would also chose to commute from more affordable areas, the Study
recommended against for-sale IZ because of this price overlap.
So far in 2021, the price appreciation has reduced this overlap. Now only 12 percent of
housing is priced at levels affordable to households earning 100 percent of AMI or less.
EPS believes there is a stronger case now for for-sale IZ than in 2019.
There are however two considerations. We do not know if we are in a housing price
bubble like in 2008-2010. The pandemic has seen dramatic rapid home price appreciation
over a very short time period. That said, desirable places in Colorado have tended to
maintain value.
Median Home Price 2019 2020 Sept. 2021 Change % Change
Single Family Detached $430,000 $455,000 $534,978 $104,978 24.4%
Ann. % Change 5.8%17.6%
Townhouse/Condo $299,900 $315,000 $352,500 $52,600 17.5%
Ann. % Change 5.0%11.9%
Source: Economic & Planning Systems
Z:\Shared\Projects\DEN\2019 Projects\193158-Fort Collins IZ and Linkage Study\Data\2021 Update\[193158 Median Home Price Update 12-21-2021.xlsx]Sheet1
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Memorandum: IHO/Linkage Study Update
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Figure 1. Affordable Home Sales by AMI Range, 2019 and 2021 YTD (Sept.)
Recommendations
The City can now apply IZ to rental housing and should strongly consider doing so. The
Study found that the need for affordable rental housing is twice as great as the need for
affordable for-sale housing. EPS suggests a set aside of 10 percent at 60 percent of AMI
or based on the results of the feasibility modeling completed in the 2019 study (page 68,
Table 35). For ownership housing, a 10 percent set aside is recommended at 100 percent
of AMI or less.
There are a number of other considerations the City will need to address in designing and
IZ programs in for-sale or rental projects.
Fee in lieu – should the program require the provision of on-site units or allow for a
fee-in-lieu payment? The City will also need to determine the appropriate fee-in-lieu
based on the financing gap to construct affordable units. That was not fully addressed
in the 2020 Study.
On-site or off-site – Must the developer provide units within the project or can they
be provided by acquiring other existing units or constructing them off-site?
Threshold – Should the project apply to all sized rental or for-sale projects or have a
project size threshold? For example, a threshold of 10 units would exempt smaller
developments and “missing middle” housing, but not necessarily incentivize
affordability as those projects are not necessarily less expensive to develop and can
still command premium sale prices and rents.
Linkage fees – The City and County of Denver is considering a policy to require on-
site affordable housing of 8 to 12 percent in projects of 8 units or larger. For projects
7 units or smaller, the Denver would apply linkage fees if the policy is adopted. Fort
Collins could consider a similar approach. The 2020 Study recommended linkage fee
levels of $5.00 per square foot for residential and $1.00 to $2.00 per square foot for
nonresidential development.
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HOUSE BILL 21-1117
BY REPRESENTATIVE(S) Lontine and Gonzales-Gutierrez, Kipp,
Weissman, Bacon, Benavidez, Bernett, Bird, Caraveo, Cutter, Duran, Esgar,
Exum, Froelich, Herod, Hooton, Jackson, Jodeh, Kennedy, McCluskie,
McLachlan, Michaelson Jenet, Ortiz, Roberts, Sirota, Tipper, Titone,
Valdez A., Valdez D., Woodrow, Young, Garnett;
also SENATOR(S) Gonzales and Rodriguez, Buckner, Danielson, Fields,
Jaquez Lewis, Kolker, Lee, Moreno, Pettersen, Story, Winter.
CONCERNING THE ABILITY OF LOCAL GOVERNMENTS TO PROMOTE THE
DEVELOPMENT OF NEW AFFORDABLE HOUSING UNITS PURSUANT TO
THEIR EXISTING AUTHORITY TO REGULATE LAND USE WITHIN THEIR
TERRITORIAL BOUNDARIES.
Be it enacted by the General Assembly of the State of Colorado:
SECTION 1. Legislative declaration. (1) The general assembly
finds, determines, and declares that:
(a) In 2000, in Town of Telluride, Colorado v. Lot Thirty-Four
Venture LLC, 3 P.3d 30 (Colo. 2000), the Colorado supreme court held that
a local land use ordinance enacted by the town of Telluride to promote
affordable housing in new developments violated a state statute that
Capital letters or bold & italic numbers indicate new material added to existing law; dashes
through words or numbers indicate deletions from existing law and such material is not part of
the act.
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prohibited counties and municipalities from enacting any ordinance or
resolution that would control rent on private residential property or private
residential housing units; except that, in that decision, the supreme court
made clear that, although the Telluride ordinance constitutes rent control,
the general assembly is not prevented from amending the rent control statute
to permit local ordinances such as the ordinance at issue in that case.
(b) Nothing in this act is intended to affect voluntary agreements to
promote affordable housing stock entered into pursuant to section
38-12,301 (2), or any land use regulation adopted prior to the effective date
of this act that meets the requirements of this act.
SECTION 2. In Colorado Revised Statutes, 29-20-104, add
(1)(e.5), (1)(e.7), and (1)(e.9) as follows:
29-20-104. Powers of local governments - definition. (1) Except
as expressly provided in section 29-20-104.5, the power and authority
granted by this section does not limit any power or authority presently
exercised or previously granted. Each local government within its respective
jurisdiction has the authority to plan for and regulate the use of land by:
(e.5) REGULATING DEVELOPMENT OR REDEVELOPMENT IN ORDER TO
PROMOTE THE CONSTRUCTION OF NEW AFFORDABLE HOUSING UNITS. THE
PROVISIONS OF SECTION 38-12-301 SHALL NOT APPLY TO ANY LAND USE
REGULATION ADOPTED PURSUANT TO THIS SECTION THAT RESTRICTS RENTS
ON NEWLY CONSTRUCTED OR REDEVELOPED HOUSING UNITS AS LONG AS THE
REGULATION PROVIDES A CHOICE OF OPTIONS TO THE PROPERTY OWNER OR
LAND DEVELOPER AND CREATES ONE OR MORE ALTERNATIVES TO THE
CONSTRUCTION OF NEW AFFORDABLE HOUSING UNITS ON THE BUILDING SITE.
NOTHING IN THIS SUBSECTION (1)(e.5) IS CONSTRUED TO AUTHORIZE A
LOCAL GOVERNMENT TO ADOPT OR ENFORCE ANY ORDINANCE OR
REGULATION THAT WOULD HAVE THE EFFECT OF CONTROLLING RENT ON ANY
EXISTING PRIVATE RESIDENTIAL HOUSING UNIT IN VIOLATION OF SECTION
38-12-301.
(e.7) NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION,
A LOCAL GOVERNMENT SHALL NOT EXERCISE THE AUTHORITY GRANTED BY
SUBSECTION (1)(e.5) OF THIS SECTION UNLESS THE LOCAL GOVERNMENT
DEMONSTRATES, AT THE TIME IT ENACTS A LAND USE REGULATION FOR THE
PURPOSE OF EXERCISING SUCH AUTHORITY, IT HAS TAKEN ONE OR MORE OF
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THE FOLLOWING ACTIONS TO INCREASE THE OVERALL NUMBER AND DENSITY
OF HOUSING UNITS WITHIN ITS JURISDICTIONAL BOUNDARIES OR TO PROMOTE
OR CREATE INCENTIVES TO THE CONSTRUCTION OF AFFORDABLE HOUSING
UNITS:
(I) ADOPT CHANGES TO ITS ZONING AND LAND USE POLICIES THAT
ARE INTENDED TO INCREASE THE OVERALL DENSITY AND AVAILABILITY OF
HOUSING, INCLUDING BUT NOT LIMITED TO:
(A) CHANGING ITS ZONING REGULATIONS TO INCREASE THE NUMBER
OF HOUSING UNITS ALLOWED ON A PARTICULAR SITE;
(B) PROMOTING MIXED-USE ZONING THAT PERMITS HOUSING UNITS
TO BE INCORPORATED IN A WIDER RANGE OF DEVELOPMENTS;
(C) PERMITTING MORE THAN ONE DWELLING UNIT PER LOT IN
TRADITIONAL SINGLE-FAMILY LOTS;
(D) INCREASING THE PERMITTED HOUSEHOLD SIZE IN SINGLE FAMILY
HOMES;
(E) PROMOTING DENSER HOUSING DEVELOPMENT NEAR TRANSIT
STATIONS AND PLACES OF EMPLOYMENT;
(F) GRANTING REDUCED PARKING REQUIREMENTS TO RESIDENTIAL
OR MIXED-USE DEVELOPMENTS THAT INCLUDE HOUSING NEAR TRANSIT
STATIONS OR AFFORDABLE HOUSING DEVELOPMENTS;
(G) GRANTING DENSITY BONUSES TO DEVELOPMENT PROJECTS THAT
INCORPORATE AFFORDABLE HOUSING UNITS; OR
(H) ADOPTING POLICIES TO PROMOTE THE DIVERSITY OF THE
HOUSING STOCK WITHIN THE LOCAL COMMUNITY INCLUDING A MIX OF BOTH
FOR-SALE AND RENTAL HOUSING OPPORTUNITIES;
(II) MATERIALLY REDUCE OR ELIMINATE UTILITY CHARGES,
REGULATORY FEES, OR TAXES IMPOSED BY THE LOCAL GOVERNMENT
APPLICABLE TO AFFORDABLE HOUSING UNITS;
(III) GRANT AFFORDABLE HOUSING DEVELOPMENTS MATERIAL
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REGULATORY RELIEF FROM ANY TYPE OF ZONING OR OTHER LAND
DEVELOPMENT REGULATIONS THAT WOULD ORDINARILY RESTRICT THE
DENSITY OF NEW DEVELOPMENT OR REDEVELOPMENT;
(IV) ADOPT POLICIES TO MATERIALLY MAKE SURPLUS PROPERTY
OWNED BY THE LOCAL GOVERNMENT AVAILABLE FOR THE DEVELOPMENT OF
HOUSING; OR
(V) ADOPT ANY OTHER REGULATORY MEASURE THAT IS EXPRESSLY
DESIGNED AND INTENDED TO INCREASE THE SUPPLY OF HOUSING WITHIN THE
LOCAL GOVERNMENT'S JURISDICTIONAL BOUNDARIES.
(e.9) THE DEPARTMENT OF LOCAL GOVERNMENT SHALL OFFER
GUIDANCE TO ASSIST LOCAL GOVERNMENTS IN CONNECTION WITH THE
IMPLEMENTATION OF THIS SECTION.
SECTION 3. Act subject to petition - effective date. This act
takes effect at 12:01 a.m. on the day following the expiration of the
ninety-day period after final adjournment of the general assembly; except
that, if a referendum petition is filed pursuant to section 1 (3) of article V
of the state constitution against this act or an item, section, or part of this act
within the ninety-day period after final adjournment of the general
assembly, then the act, item, section, or part will not take effect unless
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approved by the people at the general election to be held in November 2020
and, in such case, will take effect on the date of the official declaration of
the vote thereon by the governor.
aA,....'"""....
Alec Garnett
SPEAKER OF THE HOUSE
OF REPRESENTATIVES
L_ 1 ))
obin Jones
CHIEF CLERK ' THE HOUSE
OF REPRESENTATIVES
APPROVED
Leroy M. Garcia
PRESIDENT OF
THE SENATE
eti) -de- -Cie Thattecaa
Cindi L. Markwell
SECRETARY OF
THE SENATE
1, 2_07.1 ,O d 0--03 W
(Date and Ti
Jared i
GO OR OF
PAGE 5 -HOUSE BILL 21-1117
\
STATE OF COLORADO
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