Colorado faces a housing crisis. Why? We simply haven’t built enough housing to meet the growing demand, and the law of supply and demand is now playing out as house prices and rents rise dramatically.
At the start of 2014, 27,000 homes were for sale statewide with an average price below $300,000. In March, around 5,000 homes were listed for sale with an average price above $500,000. Recent reports showed that only 18,000 of Denver’s total housing units (including rentals) were affordable for the area’s more than 102,000 working family households who earn less than $75,000 a year. We are not building enough housing, and what we are building is not affordable for working families.
Rising home values have resulted in a corresponding rise in property taxes, putting additional financial pressure on Colorado households. Something should be done.
Our most immediate priority is to address the current housing shortage by creating new supply of workforce housing. However, given the rising prices of land and new construction, such projects will not be built without government assistance.
Other states have begun to consider using social impact bonds to fund 100% of workforce housing development costs in a way that creates no risk for taxpayers. In exchange, the landlord agrees to only rent to families who earn 80-120% of the area’s median income and to charge no more than 30% of a tenant’s income as rent, ensuring that these units remain affordable for working families. The developer, not the government, would take the risk in return for an appropriate economic return. We could even arrange for some of these projects to be leased with an option to buy for a period of 10 to 15 years.
In the meantime, we should be extremely cautious about a new ballot measure proposed by some in the business community, inspired by California’s infamous Prop 13, that would artificially cap property taxes in Colorado. Such property tax limits do nothing to address the underlying housing problem and instead restrict local government revenue sources needed for schools, fire, parks, police, etc.
This proposal would cap property tax growth at 3% per year, regardless of the actual value of a property and regardless of the sale. Since the cap would apply to all types of property and make no distinction between home ownership and rental properties, the main beneficiaries of the measure would in fact be owners and owners of high-value properties. .
For example, if this initiative had been in place for the past five years, property tax bills owed by homeowners would only have increased by a maximum of 12%, while monthly rents in Denver over the same period would have 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 from lower tax bills, while tenants would still have been squeezed.
Proponents of this new measure now argue, just as proponents of Proposition 13 in California argued 44 years ago, that limiting property tax increases would quell rising housing costs without affecting local funding. Proposition 13 failed miserably on both counts, as it did nothing to increase housing supply, so house prices soared even further (California now has some of the most countries) while cutting funding for local governments. Property tax limits meant that revenues over time grew more slowly than the true cost of providing essential local services, such as public schools.
Solutions to deal with rising tax rates should be targeted at low-income and working families and small business owners. For example, we could limit property tax growth for long-time residents of a community to offset the impacts of gentrification and agree to cap growth rates for homes and businesses below a certain square footage, while considering the high-value market as a source of compensatory income.
There are smart, responsible ways to solve our housing problems, but a blanket cap on property tax growth that primarily benefits the wealthy is not one of them. Let’s 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