For the last 20 years Denver has been an amazing rental market with increasing house prices and in turn increasing rents. The tides have suddenly changed with prices stagnating and rents also falling in many areas. But the biggest changes killing property owners are the new regulations. A new bill in Denver County would allow Denver County to dictate maintenance and replacement schedules on properties without a court hearing. What is the new bill? Will this bill make it unprofitable to own a long-term rental in Denver?
What is the new habitability bill in Denver
The proposed ordinance, introduced by Councilmembers Shontel Lewis and Darrell Watson, would give the Department of Public Health and Environment (DDPHE) the power to order landlords to provide temporary relocation assistance if a rental unit is deemed unsafe.
Under the proposed bill, if DDPHE declares a unit uninhabitable, landlords would be required to offer relocation— such as hotel accommodations — until repairs are made. The city could also place a lien on the property to recover the cost of relocation if the landlord refuses to comply.
The bill would also expand DDPHE’s ability to request maintenance and inspection records from property managers, which Lewis said would allow the department to identify chronic issues earlier.
Two huge changes in Denver habitability bill
The state has already passed a habitability bill and the city of Denver is adding two huge changes to what the state bill already does:
- Courts no longer decide: under the Denver bill the Denver Department of Health makes the decision on what is habitable or not. We have seen in the past that Denver is considerably more aggressive than a court and there is no hearing to dispute the findings
- Denver can “identify chronic issues earlier”: Essentially, without a court order Denver county is entitled to maintenance records, etc… and can dictate what steps need to be taken.
Changes in Denver go down a slippery slope
Denver’s changes to allow the department of health to decide what properties are uninhabitable and dictate maintenance schedules go down a very slippery slope. Let’s assume that an apartment owner of cost effective rentals has some roof leaks. The owner would love to fix the roof but because of Denver’s green roof initiative the cost for a roof replacement is 200k on the complex. Also due to various laws in Denver, they are unable to raise the rents and the owner does not have 200k cash to put on a new roof. Instead the owner patches the roof the best they can until they can save up enough cash for a full replacement. This is a common scenario that will implode under the Denver proposal. What will happen is the department of health will declare the building uninhabitable, the owner will have to pay for hotels for building occupants and ultimately the property will get shut down. This is a no-win situation for lower cost renters and the property owners.
Why is this habitability bill a game changer for rentals in Denver
This bill radically changes the dynamics of cost effective rentals in Denver County. Essentially the risk of liability due to the new laws and the negative publicity is not worth it to property owners. There is no way to make cost effective rentals work in Denver. Over the next few years, you will see every single cost effective rental either redeveloped into another use or substantially updated to ensure it complies with all the new regulations. All of these updates must be passed on in the form of higher rents which will further price low income tenants out of the market.
Denver Habitability bill combined with others substantially raises the costs
On top of this bill in Denver and the already passed bills in the legislature there are two other statewide initiatives that will make it even harder to cost effectively rent in Denver and through out the state:
- Jury Trials: This proposal states that every eviction is entitled to a jury trial even if there is no dispute that the tenant did not pay rent or breached their contract. This adds 10-20k for an eviction if not more which is not palatable for cost effective rentals.
- Elimination of security deposits: This proposal prohibits the collection of security deposits and says that the tenant can pay over 6 months, but you can’t evict them if they don’t actually pay the security deposit. With this bill there is no way to rent to a tenant without great credit as the downside risk is considerably higher than any possible rents.
Recent Denver CO housing bills will eliminate affordable housing
A few weeks ago I wrote about another bill that would allow jury trials for any eviction and now this new bill regarding security deposits, combined with bill in Denver, property owners of cost effective rentals are in a tough place. Builders have choices when it comes to where to develop additional units and based on these two bills, builders will choose other markets like Salt Lake City, Cheyenne, Boise, Kansas City, etc… as the return on investment is substantially higher. These two bills will lead to a drastic reduction in the building of additional market rent affordable housing throughout Colorado and furthermore lead to many more units moving up the market to higher priced rentals.
These two bills combined with the Denver habitability bill will have the opposite effect by further exacerbating the affordable housing crisis we are seeing in Denver as it will be too risky to rent to lower income tenants with no security deposits and the threat of a jury trial for any eviction action. Couple these items with Denver county now dictating maintenance schedules it is not possible to rent cost effective units. Although all eyes are on National politics, the radical changes in the Colorado legislature will have a direct impact on every investment property owner in the state of Colorado and especially Denver County.
Additional Reading/Resources:
- https://www.9news.com/article/news/local/denver-proposed-tenant-protection-bill/73-5a9715a2-8325-4bf6-9d78-c06817fc15ec
- https://leg.colorado.gov/bills/sb24-094
- https://coloradohardmoney.com/colorado-eliminates-security-deposits/
- https://coloradohardmoney.com/new-bill-that-radically-alters-rentals-in-colorado-and-implements-statewide-rent-control/
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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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