Helping Low-Income Homeowners Become Landlords in Denver

In expensive, fast-growing cities, housing affordability advocates—in both the public and private sector, and on multiple parts of the political spectrum—tend to traffic in big numbers and big projects. We recently devoted a week-long series to Austin, Texas, where planners identified 135,000 as the target number of new homes to build in ten years—and a failed attempt at a “grand bargain” would have situated most of those along a few high-density corridors.

An innovative proposal out of Denver, Colorado takes a refreshingly different stab at addressing that city’s affordability woes and its gentrification worries at the same time. It involves an idea that is all over the urbanist playbook these days: accessory dwelling units (ADUs).

I’ve written about ADUs for Strong Towns before, including very recently, when I wrote, as a brief side note in an article about regulatory barriers to ADU construction:

The biggest hurdles to building an ADU may be things that don't directly have to do with the zoning code. The ease or difficulty of financing, access to design professionals and contractors (or easily replicable templates), and the knowledge and confidence required to undertake a major project in your own backyard all have roles to play.

If anything, this was downplaying the issue. ADUs are a wonderful addition to most neighborhoods, and a gentle and incremental approach to infill development. But actually putting one on your property is a formidable ask. It requires a person to act as a developer who likely isn’t fully equipped to be a developer. It’s one thing to buy a house that already has an ADU; it’s another entirely to go through the financing and construction logistics involved in creating one.

This is probably the biggest reason that since 2010, just 139 ADUs have been built in Denver. According to Denverite:

It’s really expensive and nearly impossible to get financing. By the time you account for hiring an architect and waiting months for permits, it can cost around $250,000 to build a 600 square foot unit, and banks generally won’t issue loans for them because they can’t repossess a granny flat if you default.

“That’s not acceptable,” said Renee Martinez-Stone, director of the West Denver Renaissance Collaborative [WDRC]. ADUs have ended up being a “tool of privilege,” she said, but it doesn’t have to be that way. “This is a tool that could keep people in place. It shouldn’t just be for people who are capitalized and connected to contractors.”

Martinez-Stone’s group, the WDRC, wants to kill two birds with one stone. By connecting low-income homeowners in nine neighborhoods to the resources necessary to make a backyard ADU a reality, they promise not only to provide much-needed new market-rate housing in Denver, where low-income homeowners and renters alike are feeling the squeeze of high housing prices fueled by intense demand. Their proposal also promises low-income homeowners a way to benefit financially from their neighborhood’s newfound desirability—a way other than by selling their homes and leaving their community behind.

Participating homeowners in the pilot program, called the West Denver Single Family Plus Initiative, will be connected to services including a team of planners, financial analysts, homeowner counselors, and an ADU design team to finance, build, and manage a new ADU or tandem house. Resources will be made available to help homeowners understand zoning and other site requirements, development costs, and financing criteria.

According to US News and World Report:

Working with partners that include Habitat for Humanity, Martinez-Stone has designs for ADUs that are relatively cheap, in part because they involve prefabricated elements. The west Denver designs are to be pre-approved for what would normally be a laborious and expensive construction permitting process.

The homeowners also will receive help getting loans for construction and training on managing the property they will rent at below-market rates. 

The project has won funding from Fannie Mae as part of its Sustainable Communities Innovation Challenge, which promised $10 million for innovative proposals to help address America’s affordable housing shortage.

Martinez-Stone views the ADU pilot project as one promising response to a question she told US News she has heard often from residents of West Denver: "Why do we have to rely on developers to fix our problems when this is our own neighborhood and we own the land?"

So many problems in growing cities stem from the misalignment of incentives: we might all recognize the need for change in theory, but when those who live in a neighborhood and those with a financial stake in its development are not the same people, things get thorny in practice. Even when low-income people own the land they live on, rising home values might not be entirely welcome: higher property taxes can become a financial burden, and gentrification can result in the loss of community.

This proposal, if it can succeed and scale, marries the benefits of community with the financial stakes—those who live there can stay, can build wealth, and can help deliver affordable homes to a new generation of neighbors. No big developers required.

We’ll be watching with interest to see how this pans out. It seems like a fantastic experiment.

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