Colorado has continued pushing for statewide zoning in the last several legislative sessions. The new proposal, House Bill 26-114 would radically alter every community in Colorado. The new bill mandates 2k foot min lot sizes statewide (no exceptions for any cities). For example, if someone had a one-acre lot with a house in Steamboat, they now could put 21 housing units on this lot with no exceptions. What is in the new bill? What does this mean for every community in Colorado?
What is in House Bill 26-114
This bill, effective October 1, 2031, mandates that any local government, referred to as a “subject jurisdiction ( any lot that is served by city sewer and water)” cannot require a parcel of land to be larger than 2,000 square feet if it is intended for a single-family home, aiming to increase housing affordability by reducing land costs which are a significant driver of high housing prices.
The bill acknowledges that smaller lot sizes make starter homes more affordable and provides specific definitions for “exempt parcels,” which include properties not connected to public water and sewage systems, those served by wells not part of a distribution system, properties with septic tanks, or historic properties outside of historic districts, meaning these exempt parcels are not subject to the new 2,000-square-foot minimum lot size. Importantly, this legislation does not prevent local governments from enforcing existing standards related to infrastructure, life safety codes, environmental health, impact fees, water service capacity, or design standards for historic districts, ensuring that other essential regulations remain in place.
Essentially this new bill would apply to any parcel in any municipality in Colorado. The same rules would apply in Aspen as in Denver or Greeley. It is one size fits all.
The legislative push for higher density?
It seems that the state of Colorado’s primary objective to resolve the housing crisis has been to build more housing units. Whether it is higher density in transit areas, duplexes on single family lots, accessory dwelling units, etc… The underlying goal in Colorado is volume regardless of the price point. The theory is that increased volume of housing units would help resolve the housing crisis in both the front range and many of the ski towns. We all know from basic economics that this does not work in high demand communities like Boulder, Aspen, Telluride, or any other ski or highly desirable area in Colorado.
What actually happened in real life due to density requirements?
The million-dollar question is what happened when the state has continued to encourage density, has this actually solved the housing crisis?
As you can see from the chart, the numbers do not work in the markets that need housing the most. The numbers clearly show that increasing the density in high cost areas will only increase the population and do nothing to solve the affordable housing issues facing each of these communities.
For the analysis, I assumed that a builder/developer would buy an existing house as each of these communities that needs affordable housing is basically built out. As you can see even under optimistic scenarios, the cheapest unit would be around 500k. This is far from an affordable housing unit in Denver. Furthermore, in Aspen, the cost would be 2.2m, I doubt many baristas, teachers, or police officers could afford this.
| Statewide Zoning changes for affordable housing | |||||
| *** assume build a triplex; 1k each unit *** | |||||
| Average home price | $/ft to build | Build Cost | Total Cost | Cost/unit | |
| Boulder | $ 1,100,000 | $ 600 | $1,800,000 | $2,900,000 | $ 966,667 |
| Denver | $ 800,000 | $ 400 | $1,200,000 | $2,000,000 | $ 666,667 |
| Steamboat/Vail | $ 2,000,000 | $ 1,500 | $4,500,000 | $6,500,000 | $ 2,166,667 |
The numbers above play out exactly how I thought they would. The picture above is of a single family lot that was turned into a duplex in a ski area. Each side ironically is selling for 2.2m (almost dead on my predictions above). 2.2m is hardly affordable for workers in Steamboat or Vail!
Statewide Zoning has enormous impacts on every Community
- Huge growth in desirable areas, let’s use an example of Boulder. If now every lot can be redeveloped into 10-20 units this will radically increase the number of people. None of these units will be affordable to the cashier at the grocery store or thousands of other workers. Unfortunately, the buyers of these properties will need even more services as builders are not building work force housing, they are building market rate housing.
- Large increases in taxes to support new growth: Somebody is going to have to pay for all the infrastructure improvements from more water to roads to police/fire, etc… The areas that are already struggling with growth like Boulder or Telluride will have an even harder time with the large increase in people
- Radical changes in suburban areas: think of many suburban areas, they are on large lots from ½ to and acre in places like Castle Rock or Boulder, Longmont, Brighton, etc… if all of the sudden now 20 houses can be put on one lot, there is no way there could be any setbacks and neighborhoods would be drastically altered. I know I wouldn’t want to have a house next to a 20 unit development which is why people moved to the suburbs in the first place.
- Gentrification on Steroids: Smaller less expensive houses will quickly get snapped up for development leaving lower income renters and buyers out of luck
- Does nothing to solve affordable housing issues: Places like Boulder will have 3 times the people that will need even more teachers, baristas, grocery store workers, etc.. that still will be unable to live in the area therefore exacerbating the current housing issues.
- Currently no requirement for affordable housing: The proposal would be drastically different if there was a requirement that any property “upzoned” could only be done so for affordable housing.
What should the legislature do to prevent these issues?
The state legislature first should get out of statewide zoning, it is a bad idea that has unintended consequences. Denver is considerably different than Boulder or Steamboat or Alamosa. Second local governments should differentiate density.
There is no point in increasing density for more expensive properties that will further constrain local resources. Take the duplex picture above, adding two 2.2 million dollar residences instead of one 4 million dollar residence has actually made matters worse in high cost areas as there are now more visitors and part time owners as opposed to just one. The increase in people will require ironically more people (grocery workers, police, etc…) that still do not have housing further exacerbating housing issues.
Local governments in high cost areas need to differentiate housing for worker vs second homeowners/visitors and not allow high density building just for the sake of more housing. If a builder wants to build a duplex on a single family lot, then the only way to allow this should be that the units are affordable for workers in the area, if not, there is no reason to build more housing as it will further exacerbate the housing crisis.
Colorado statewide zoning is a disastrous economic policy
Unfortunately more often than not, our state, local, and federal governments do not look at what will happen in real life from their actions. As we can see from the goal to mandate zoning/density on the state level, the consequences are huge. There is this theory that if you increase the number of houses, somehow this will alleviate the housing shortage.
Real life once again proves the theory of just adding housing supply does not work. The reason is that in high-cost desirable areas, demand will continue to outstrip supply, so prices are not falling. Look at the picture and example above, the duplex is selling for 2.2m, what did this accomplish for affordable housing?
Why is the government mandating higher density without ensuring this density is for housing that is attainable for the local workforce? Unfortunately, our state and local governments have done the opposite of their intention and have made the housing crisis worse in high-cost areas. Local governments need to be in the driver’s seat to best address their unique market needs without influence/direction from the state of Colorado.
Additional Reading/Resources:
- https://leg.colorado.gov/bills/HB26-1114
- https://coloradohardmoney.com/new-colorado-bill-shakes-up-local-land-use-rules/
- https://coloradohardmoney.com/denver-min-wage-jumps-20-hour-impact-on-real-estate/
- https://coloradohardmoney.com/20-dollar-beers-will-radically-alter-colorado-real-estate/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Glen resides in Colorado, lends in Colorado, owns property in Colorado, and services loans in Colorado which provides a unique real estate prospective of what is actually happening on the ground both in Denver and throughout Colorado. My goal of this real estate blog is to provide an honest assessment of what I see happening in Colorado real estate and how it will impact real estate owners, buyers, realtors, mortgage professionals, etc…
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