“There’s plenty of housing being built, but none of it is affordable.” (gleaned from public testimony)

Opponents of the most recently adopted City land use code continue to stress that for all its intent to the contrary, there are no provisions within the document that requires new housing units to be affordable.

If you ask business owners, residents, and civic leaders to name the most pressing issues facing our community, most will cite “lack of affordable housing” at the top of their list.

So what does the term “affordable housing” actually mean and how is it achieved? “It’s all very complicated” is the short answer. Another short response might be, “if the property is occupied, there’s a good chance it’s considered affordable to someone.”

The longer answer incorporates federal standards and programs, state and local regulations, market dynamics, economic principles, and personal perspective. For many people, it seems the latter is most relevant. After all, it’s far easier to apply opinion based upon personal circumstance than dig into, absorb, and reconcile all the other factors. But let’s try.

If you ask an industry practitioner, “affordable housing” refers to the provision of rental housing to households at or below 60% of area median income (“AMI”), such that no more than 30% of their gross monthly income is spent on rent and utilities. For-sale housing should be priced such that households at or below 80% of AMI are not spending more than 30% of their gross monthly income on principal, interest, property tax, insurance, and homeowner association fees.

In Larimer County, 60% AMI means a 4-member household earning no more than $71,280, while 80% AMI equates to $95,040. These annual income limits are published by the U.S. Department of Housing & Urban Development each year and adjusted for household size, meaning the threshold increases in relation to the number of members within the household. You can find a more detailed schedule here.

Aside from industry norms, the practical answer is that if a household is spending no more than 30% of gross monthly income for housing, it’s considered affordable regardless of AMI classification. However, personal preference may dictate a lower portion of income dedicated to housing cost, which may be ideal.

Relative to meeting the housing needs for those that cannot reasonably afford prevailing rents or home prices, financial subsidy is necessary. Though the private sector does participate, the vast majority of subsidies derive from taxpayers at federal, state and local levels. The workhorse in the rental housing arena is Low Income Housing Tax Credits (“LIHTC”, pronounced as “Ly Tek”).

Essentially, the program allows a developer to offer a reduction in state or federal tax liability to a corporation in return for cash that can be used to lower the amount of debt the project has to service. This allows the developer to lock in “below market” rents to income-qualified households for a fixed period of time.

Though developers in Colorado can access both state and federal LIHTC programs, the amount of credits available are finite and not pegged to inflation. Consequently, the process to secure an award of tax credits is highly competitive and requires a developer-applicant to meet lofty standards for livability, energy efficiency, resident amenities, and access to transit, schools, and services. Moreover, these same programs are utilized to bring fresh subsidy to older income-restricted properties in need of rehabilitation.

The combination of these factors has steadily reduced the number of new units that can be brought online as demand ratchets up with population and uneven growth in household incomes. In Fort Collins, there are currently enough income-restricted rental housing units available to serve roughly 5% of households, though approximately 30% of all area households would qualify for such housing.

While there is no equivalent program to subsidize for-sale housing, there are financial models and public funding sources to deliver a minimal number of homes for qualified households. Most prominently, organizations such as Habitat for Humanity marry significant levels of private-sector capital, volunteerism, and discounted materials with public subsidy to lower the amount of debt a select number of families can afford. Under most execution structures, the amount of equity a homeowner can retain upon subsequent sale is lower than a typical fee simple transaction. While this seems fair and reasonable, it does limit the ability to build generational wealth normally associated with homeownership. However, the model does offer long-term housing stability.

“The City doesn’t dictate the price of housing. The market does. Cost does not equal price. The City can lower its cost burdens, but that doesn’t mean the price will be lower. Besides, it’s not the responsibility of the City to make certain everyone who wants to live in Fort Collins can afford to live in Fort Collins.” [paraphrasing a member of City Council]

Technically, these statements are correct. What is missing, however, are important distinctions. Our local housing market reflects the time-honored economic principle of supply and demand. Where supply is unable to meet demand, the price of housing will increase proportional to the level of unmet need. In that sense, the market does dictate price regardless of the underlying cost to build a home.

According to a report released by Common Sense Institute in 2023, the City would need to permit between 1,580 and 2,197 new housing units each year through 2028 to close the current supply deficit and meet future demand attributed to population growth. From January 2022 through April 2024, a total of 1,904 residential permits have been issued. Clearly, inadequate supply is a major contributor to our housing affordability challenge.

Here’s the rub. A well-functioning and disciplined financial marketplace discourage Fort Collins, or any municipality, from fully balancing the supply of housing with demand. The closer the market gets to equilibrium, the higher the risk exposure to developers, lenders, and capital providers. Since none of these players want to be left holding the bag should supply exceed demand, they will look for deeper markets elsewhere as that gap shrinks. Nonetheless, our economic health is severely compromised by the stark imbalance in our current housing portfolio.

While your Chamber has pressed the City to reconsider its schedule of fees and hidden costs attributed to regulatory requirements, we’ve been even louder about reducing and/or eliminating barriers to increasing the supply of housing. We have been very clear that improving processes and relaxing our high standards must apply to all housing types and configurations regardless of price point. We further believe it should not be the role of the City to make housing less affordable for people who do, in fact, live here.

Until we reach a point where the cost of housing better reflects the capacity of households to reasonably afford shelter under prevailing wage and income levels, increasing supply is paramount. Embracing greater density and encouraging private-sector innovation are key elements for offsetting the demands of public subsidy to achieve housing affordability, however you might define the term.