Colorado faces a housing crisis. Why? We simply have not built enough housing to meet rising demand, and the law of supply and demand is now playing itself out as home prices and rents increase dramatically.
In early 2014, 27,000 homes were for sale statewide with an average price under $300,000. In March, about 5,000 homes were listed for sale with an average price over $500,000. Recent reports showed that only 18,000 of the total housing units in Denver (including rentals) were affordable to the over 102,000 working family households in the area who earn less than $75,000 per year. We aren’t building enough housing, and what we are building isn’t affordable to working families.
The rise in home values has caused a corresponding rise in property taxes, putting added financial pressure on Colorado households. Something should be done.
Our most immediate priority is to tackle the current housing shortage by creating new workforce housing supply. However, given rising prices for land and new construction, such projects won’t be built without government help.
Other states have started to look at using social impact bonds to finance 100% of the development costs for workforce housing in a way that doesn’t create any risk to taxpayers. In exchange, the property owner agrees to only rent to families making 80 to 120% of the Area Median Income and to charge no more than 30% of a tenantap income as rent, ensuring those units stay affordable to working families. The real estate developer, not the government, would take the risk in exchange for an appropriate economic return. We even could make some of these projects lease to own over a period of 10 to 15 years.
In the meantime, we should be extremely wary of a new ballot measure proposed by some in the business community, modeled after California’s infamous Prop 13, that would artificially cap property taxes in Colorado. Such property tax limits do nothing to solve the underlying housing problem and instead restrict the sources of local government revenues needed for schools, firefighters, parks, police, etc.
This proposal would cap property tax growth at 3% annually, regardless of the actual value of a property and regardless of sale. Because the cap would apply to all property types, and makes no distinction between home ownership and rental properties, however, the primary beneficiaries of the measure actually would be landlords and high value property owners.
For example, if this initiative had been in place over the last five years, property tax bills owed by residential landlords would have grown by a maximum of only 12% while monthly rents in Denver during that same time increased by 46.5% or $555 (from $1,195 in 2017 to $1,750 today for a one-bedroom apartment). Landlords would have been the big winners, pocketing the extra money saved with lower tax bills, while renters still would have been squeezed.
Proponents of this new measure now argue, just as the backers of Prop 13 in California claimed 44 years ago, that limiting property tax increases would quell rising housing costs without impacting local funding. Prop 13 failed miserably on both counts because it did nothing to increase housing supply, so home prices still skyrocketed (California today has some of the most expensive housing in the country) while gutting local government funding. Property tax limits meant that revenue over time grew slower than the actual cost of providing essential local services, like public schools.
Solutions to address rising tax rates should be targeted to low-income and working families and to small business owners. For example, we could limit the growth of property taxes for long-term residents of a community to offset the impacts of gentrification and agree to cap growth rates for homes and businesses under a certain square footage, while looking to the high-value market as a source for offsetting revenue.
There are smart and responsible ways to fix our housing problems, but an across-the-board cap on property tax growth that primarily benefits the wealthy is not one of them. Letap find creative ways to increase the supply of housing in our state and target property tax relief to those who need it most.
Chad Asarch is a national affordable housing developer based in Denver.
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