Division of Housing - DOH

Growth Management or Regulatory Barriers?

Growth management issues have become a primary concern for state and local elected officials. The state's rapid increase in development over the last decade has resulted in a closer examination of public policy that directs future transportation improvements, water capacity, open space availability, and housing supply. In the growth management debate various land use policies to control or direct growth are being considered. Depending on the public policy objectives, these land use policies can be viewed as either growth management tools or regulatory barriers.

The contrast between growth management policies or regulatory barriers is most apparent in housing development. As the Division of Housing defined last year in our "Affordable Housing Regulatory Barrier Impact Report" this contrast is evident in the methods communities use to finance infrastructure, control zoning and subdivision growth; insure health and safety with building codes; limit development through permits and procedural rules; and protect environmental and cultural resources.

For the past two years, the Colorado General Assembly's Joint Budget Committee required the Division of Housing to report on the type and prevalence of local regulatory barriers to affordable housing, the steps taken by the Division of Housing to reduce these barriers and the effectiveness of these actions. Contained in last year's report was a definition of regulatory barrier taken from the Division's publication "Reducing Housing Cost Through Regulatory Reform". It is important to restate this definition to set the stage for further discussion.

Regulatory barriers are defined as:

"... either a deliberate or de facto action that prohibits or discourages the construction of affordable housing without sound reasons directly related to public health and safety; a federal, state, or local statute, ordinance, policy, custom, practice, or procedure that excessively increases the cost of new or rehabilitated housing, either by improperly restricting the location of housing, or by imposing unjustified restrictions on housing development with little or no demonstrated compensating benefit."

Throughout this report we define affordable housing as suitable and safe housing that cost less than 30% of a households income. The incomes of these households are considered moderate to very low income by standards (area median incomes) set for each county in the state by the U.S. Department of Housing & Urban Development.

Local Regulatory Barriers

As requested by the Legislature, we first examine the type and prevalence of local regulatory barriers.

As we stated earlier the division has identified five categories of land use regulations frequently cited as barriers to affordable housing. These include: (1) infrastructure financing; (2) zoning and subdivision controls; (3) building codes; (4) permitting and procedural rules; and (5) environmental regulations. We will give examples of each of these regulatory categories and then show how local governments in Colorado modify regulations to reduce their impact on affordable housing.

Infrastructure Financing: Impact Fees, Exactions, Land Dedications. The following table shows how local governments finance infrastructure improvements such as roads, libraries, schools, parks, etc. and methods to reduce the fiscal impact on affordable housing. Direct payments for expanding services such as roads, parks, utilities are referred to as an impact fee. Land dedications are often required for larger developments to reduce the expansion cost of schools or parks. Local governments may also require an exaction, which conditions approval of new development for on-site or off-site improvements, such as right-of-ways for expanded transportation or utilities.

Examples for modifying Infrastructure Financing requirements follow:

The Town of Rangley waived development fees totaling $120,000 for the development of a twenty bed assisted living facility adjacent to the regional hospital. Rio Blanco County contributed $250,000 and the Rangley Hospital District $344,365 to develop this assisted living facility for their residents. Together the town, county and hospital district contributed over $714,365. Even though substantial public and private investments were committed to this project it may have been a non-monetary contribution in site work authorized by the town that saved this project. The site for the assisted living facility contained expansive soils. Costly engineering modifications to the building's foundation were considered and alternative building sites away from the hospital were being proposed. In the end, the hospital district moved an existing helipad allowing the use of a site closer to the hospital without the associated soil conditions. A private individual requested the town's approval to donate fill dirt and grade the new site and avoiding the costly modifications to the building foundations and design.

An example of modifying permit rationing reference above is be used by the City of Boulder. The Boulder Residential Growth Management Plan is being modified to increase the number of building permits issued for affordable housing. Allowing affordable housing to be developed while growth controls limit the number of permits for market rate housing can significantly increase the investment in affordable housing. Boulder has limited the number of residential building permits for the last decade. Exempting affordable housing from this permit rationing policy will be a tremendous boost to the community's supply of affordable housing.

Zoning & Subdivision Controls: Include standard housing size, width of streets, accessory dwelling units. The primary purpose of zoning restrictions is to separate incompatible land uses. These regulations also are used to maintain real estate values by enforcing controls on the location, size, and appearance of all residential and commercial buildings. However, zoning regulations can limit the use of the most affordable types of housing, multifamily and manufactured housing, by limiting the amount of land zoned for this purpose.

An example of zoning and permitting modifications follow:

As this report will detail later, Garfield County has adopted a land use regulation that requires proposals for increased density provide at least 10% of the increase to affordable housing. The area in the county that this policy applies to is near the Town of Carbondale.

The proposed Cardiff Glen subdivision in Glenwood Springs will offer affordable housing through the saving realized by smaller lot size, reduced street widths, use of accessory dwelling units, while maintaining attractive and marketable design features. This subdivision was granted a concession from the City of Glenwood Springs for its street width after an extended review by the local fire department. This review included maneuvering fire trucks through pylons positioned to simulate reduced street widths. Modifications were required by the fire department at several intersections, but the health and safety concerns of the fire department were addressed and the reduced street widths of 24 ft. were accepted.

A majority of Colorado counties offer exemptions from subdivision regulations to lower the development cost of housing. These exemptions can include modified off-site infrastructure, lot size reductions, and allowance for accessory dwelling units.

Building Codes: A third type of regulation likely to affect a community's supply of affordable housing is the local building code. The building code serves the most important public purpose of health and safety. Building codes govern the use and installation materials and the design standards for the building and the surrounding land. A local building code plays a vital role in protecting not only the occupants of the building but also its long term value.

Two group homes managed by Colorado Bluesky, Inc., a non-profit serving the housing and social service needs of developmentally disabled persons in Pueblo, were cited by the city for lack of fire sprinklers in existing group homes. At the time of the citation, these privately owned homes were for sale and Bluesky was seeking to purchase and renovate these homes to keep them permanently affordable for their residents. The cost of adhering to the fire code requirements and retrofitting the homes with fire sprinklers was financially infeasible. The City of Pueblo, Bluesky, Inc., and the Division of Housing financed the acquisition and renovation of these group homes to meet all code requirements.

The division's survey of local government land use and building policies show that a number of counties have adapted their building codes to permit the construction of homes using materials such as strawbales, recycled lumber, and adobe. Examples of these code variances are used by Las Animas, Boulder, and Weld counties.

The Colorado Division of Housing uses the International Plumbing Code standards for inspecting HUD manufactured homes. Next year Colorado local governments will be permitted to use the more inexpensive International Plumbing Standards instead of the State Plumbing Board mandated Uniform Plumbing Code. The International Code will permit more efficient venting of plumbing and more lenient specifications allowing fewer linear feet in plumbing pipe. When constructing multifamily structures these cost savings can be significant.

Permitting & Procedural Rules: Application fees & schedules, open ended approval process, timing of fee payments. The permitting process can be expensive in terms of fees and time. Fees are charged for inspections, permits, applications. Time delays in the approval process add uncertainty and risk to an already expensive investment. The following is a table of permits and procedures and how local governments modify their process.

In Greeley, the payment of building permits for affordable housing developers can be delayed until time of building occupancy. The funds that are paid to local governments up front are at risk of being lost if the project is not completed. This is a significant issue for all private developers, but more so for non-profits, who lack significant cash resources. Delay in paying for permits also saves the carrying cost of financing these fees until the time of occupancy. This cost can be significant for larger projects.

Environmental & Cultural Protection

The Clean Water Act, the Endangered Species Act, the National Environmental Policy Act, and the National Historic Preservation Act are the most prevalent of federal environmental statutes encountered when developing or redeveloping affordable housing. Each of these mandates is federal and must be adhered to by local governments in their development procedures and methods. It is the unpredictability of these regulations that give pause to private investors. Many of the regulatory remedies seek to identify environmentally sensitive land parcels or buildings so private investors can avoid the additional cost or delays inherent in mitigating impacts on the environment.

Survey of Local Government Fees and Policies

This year's report updates information collected on the development fees charged by local governments: municipalities, counties, and special districts. The 1999 Survey of Municipal/County Development Charges is attached as Exhibit "A". This report also includes surveys of Municipal Land Use Policies, Exhibit "B" and a copy of a survey conducted by Colorado Counties Inc of county land use policies, Exhibit "C". The survey of municipal land use policies was conducted this fall by the Division of Housing. The Colorado Counties Inc. survey of land use policies was conducted this past summer.

Regarding development fees, there has been no wholesale increase in development fees charged by local governments over the last year. Several local governments did increase their fees this past year and several are considering increases in January 2000. The City of Greeley reported that after January 2000 water and sewer fees will increase incrementally every six months. Overall fees have remained steady since our last survey in the Fall of 1998. Although fees have not increased, their cost remains an issue particularly for housing developers in Front Range communities. Like last year, the lowest of fees are found in Pueblo, the highest fees are in Boulder County, both Longmont and the City of Boulder. Another area of Metro Denver that has high development fees is Arapahoe County. The single largest outlay for public services are the water taps fees charged by these local governments.

This past year the legislature did amend Colorado statute giving special districts the ability to waive or rebate their fees. The amended law was effective July 1, 1999. There is no evidence of the impact of this change to date, but one district South Weld Water District has given us an example of how the rate structure can be modified to lower cost.

The South Weld Water and Sanitation District was asked to lower its fees for an assisted living facility being developed in Dacona. The district was able to reduce its fee for water taps by reducing the actual number of tap fees required by this type of building. The project, a twenty unit assisted living facility for persons with very low incomes, reduced its tap fees by half. The district was able to configure taps for every other bed unit. Thus providing the flexibility required to assist in reducing development cost

It was noted in our survey that some Water & Sanitation Districts do employ a multi-tier rate structure. Within the district's service area there may be several rates for water or sewer taps depending on the location of the building site. An example of dual rates is used by South Adams. Within the older, more developed area of South Adams district tap fees are $1,000. In the new developing area, particularly around the Brighton area, a tap fee cost $8,050. This will limit the development of affordable housing in this part of the district.

Local Land Use Policies

An examination of municipal and county land use policies shows many local governments with flexible land use policies and building codes. The flexibility of policies and codes is a starting point for assessing the local governments ability to reduce perceived regulatory barriers. In 1997, the division conducted a survey of both municipal and county governments. This year this information has been updated. The Division of Housing updated the municipal government information and Colorado Counties Inc. gathered the information from counties. Both of these surveys measured similar policies, regulations, and codes.

Exhibit B summarizes land use information gathered from Colorado municipalities.

A total of 140 municipalities participated in the DOH survey. Of these municipalities, 72% had adopted a Comprehensive or Master Plan. This percentage is very similar to the percentage of municipalities with Comp Plans in 1997, the last year of our survey. Of the communities responding to our survey, 25 do not have a comprehensive or master plan. None of these communities have populations over 1,800, most have populations under 800. Of these 25 communities, 12 will be completing a plan in the coming year.

There seems to be a greater recognition of housing needs by communities since more are including housing as an element in their Comp Plans. In 1997, 63% included housing in their Comp Plan, while in 1999 this percent increased to 80%. It seems that local governments have responded to the Legislature's initiative with the passage of House Bill 1093 in 1997. The Act directed local governments to consider housing when revising or adopting Comp Plans.

As Exhibit C shows, of the sixty-three counties, forty-five have master plans or comprehensive plans and nine have not adopted a plan. Ten counties did not respond to the survey. Of the counties with comprehensive plans, thirty have either created or updated their plans since 1990, eighteen of these since 1995, only four rural counties omitted affordable housing as a plan element. The primary funding source for these plans other than the community's General Funds is the state. The state sources include the use of students from state colleges or planning grants from state agencies.

The use of intergovernmental agreements between counties and municipalities for residential development is a recognition of the intricacies of growth management. Accounting for all of the counties that comprise the growth corridors of I-25 and I-70 each has adopted intergovernmental agreements regarding land use decisions with adjoining governmental entities. These agreements will be the backbone of future growth priorities. These agreements contain policies for annexation, extension of utilities, and expanded public services. The provision for affordable housing should also be included in these intergovernmental agreements, particularily in the state's high growth areas.

The Division's Effectiveness In Reducing The Impact Of Land Use Regulations

The division was asked to report on the steps it has taken to reduce regulatory barriers and its effectiveness. The division provides technical assistance to local governments seeking to modify land use regulations in order to encourage affordable housing development. A priority for the division during our financial underwriting process is to assess a local governments financial contribution compared to the impact its regulations and policies have on the total project cost. Both of these efforts have produced concrete results.

Technical Assistance

This past year the Division of Housing conducted a series of workshops for local goverment officials, homebuilders, elected officials, and affordable housing professionals. Each workshop profiled actions taken by local communities that reduce the impact of land use regulations on afforable housing. Each workshop also promoted the use of the division's "Reducing Housing Cost Through Regulatory Reform" handbook. Over 400 copies of this publication have been distributed through the workshops or by direct requests to the division.

Based on the success of these workshops and publications like "Reducing Housing Cost Through Regulatory Reform" the division has become a primary resource to local governments seeking to modify land use policy to encourage affordable housing development.

Douglas County, the second fastest growing county in the country, has proposed changes to their land use policies to encourage the development of a affordable housing. A draft housing strategy has been submitted to the County Commissioners for adoption. When adopted the strategy's housing goals and objectives will be included in the County's Master Plan. The strategy establishes ten housing objectives for Douglas County that support the development of "attainable" housing for households with lower incomes, seniors and persons with special needs. Regarding land use policies, the study recommends the adoption of locational criteria for linking housing, transporation, and employment. The plan also recommends consideration of inclusionary zoning incentives that set a percentage of affordable units being constructed in new developments. The plan also recommends policy changes that lower development fees, streamiline the planning process, allow density bonuses, encourage manufactured housing and co-housing, permits reduction in lot sizes, set backs, and unit size, modify engineering requirements for street widths and other infrastructure design standards. The Division of Housing staff has worked with Douglas County planners using many of the example policies contained in the Division's publication on regulatory reform.

Also featured in this section are the actions taken by three other communities over the last year that will have an immediate and long term impact in their affordable housing supply. Greeley, Steamboat Springs, and Garfield County, each present interesting case studies of how local governments exercise land use policies and regulations to control the supply of affordable housing.

Each community is utilizing existing governmental powers to increase the supply of affordable housing. In Steamboat Springs and Routt County, both units of government joined together to adopt a comprehensive plan for developing six square miles of an area west of Steamboat Springs. In Greeley, the city is using its urban renewal authority to secure land in their downtown commercial area and use the competitive development process to entice private developers to construct family and senior housing in downtown Greeley. Recently, Garfield County amended its land use regulations to provide inclusionary zoning bonuses for developers of affordable housing.

In 1995 the City of Steamboat Springs and Routt County adopted the Steamboat Springs Area Community Plan. This plan identifies the West of Steamboat area as a "key location for future urban growth and affordable housing". The West of Steamboat area is roughly six square miles approximately two-third the size of the City of Steamboat Springs incorporated boundaries.

A component of this community effort, the West of Steamboat Area Plan, was drafted in January 1999. This Area Plan set the direction for development in Steamboat Springs and Routt County. The conditions for future development, the Master Plan, Design Guidelines, and Housing Affordability Standards are outlined for interested residential and commercial developers in this document.

One of the fundamental objectives of the West of Steamboat Springs Area Comprehensive Plan is the provision of attainable and affordable housing. The definition of affordable housing is often established by federal government financing sources such as HUD or the Dept. of Agriculture's Office of Rural Development. Using these income standards the Steamboat community defined affordable housing for their immediate area as households with incomes between 45% to 120% of the county's median income of $50,000. This translates into households incomes between $22,500 and $60,000. The Plan's initial research concludes that there is an insufficient supply of homes to purchase at this price range and that the community's development priority should be affordable rental housing for households in this income range.

The major economic barrier to constructing affordable housing in this area is the high value of land. The proposal blends several local initiatives with public financing incentives to craft a "game plan" to attract private investment. Four local mechanisms have been proposed: creation of higher-density neighborhoods, inclusionary zoning policies, establishment of a general improvement district, incentives and restrictions to maintain housing affordability. The plan also details design guidelines that complement smaller lot sizes, smaller unit square footage, reduced set backs. The design guidelines produce housing that is similar to the historic districts in many of Colorado's older communities.

The current shortage of affordable housing units in the Steamboat area has been estimated to be 700 units. The ultimate planning and development goal of the West of Steamboat area is the development of 3,000 total residential units, 1,000 would be affordable.

The City of Greeley has used the Division of Housing's "Ten Step Process for Housing Development" to encourage the development of affordable housing. A copy of the ten step process is attached as Exhibit D. The premise of our "Ten Step" process is to complete the public process of zoning, design, market analysis, and land assemblage prior to engaging private developers in bidding on the development. The Greeley Urban Renewal Authority and the City combined their efforts to redevelop a city block in downtown Greeley. In 1996 the city's urban renewal authority purchased a city block in downtown Greeley valued at $1.2 million. This site also contained two buildings on the National Registrar of Historic Places as well as the oldest elm tree in Colorado.

To optimize the competitive development process, the urban renewal authority requested development bids from private developers. Five bids were received from private developers, Rocky Mountain Mutual Housing Inc. was selected to develop both senior and family housing on this site. Prior to the bid process, the Greeley staff had completed zoning decisions, design standards, land purchase, and environmental reviews thereby reducing the cost and uncertainities in developing this site. This model of development provides a significant incentive to developers. The local government has primary ownership in the process with the end result cost reductions for the private developer and the end consumer.

Another example of a local land use policies being modifying to create incentives for affordable housing is in the Carbondale area of Garfield County. Based on the recommendations of the Garfield County Affordable Housing Task Force, the Garfield County Commissioners amended their land use regulations on September 7, 1999 to include the Garfield County Affordable Housing Regulations. The county has identified an area known as Study Area I to first employ this new policy. Within the Study Area I, which is in close proximity to the Town of Carbondale, all requests for a density increase in the existing zoning requirements must include a commitment to provide at least 10% of the proposed housing units to be affordable.

The county's affordable housing regulation further defines who is eligible for the affordable housing by setting employment criteria, resident qualification, income and net worth limits, and resale provisions. The Garfield Housing Authority will enforce the long term affordability of units developed under this regulation.

Division of Housing Financial Negotiations

Almost $92 million was invested this past year in housing developments financed by the Division of Housing. The primary source of this financing was private debt and equity investments. The Division of Housing analysis of each project minimizes the public subsidy required to make each project financially feasible. Several factors are examined to reduce the public subsidy level: development cost, return on investment, operating expenses, and regulatory cost. Division staff negotiate with developers and local government staff on ways to lower regulatory cost and increase the financial support of local governments in affordable housing. The following tables show the results of these negotiations during 1999.

Each Table summarizes the total project cost and public subsidy from state and local governments compared to the amount of local fees.

TABLE 1

Rural Development/New Construction in 1999

The Comparison of 1998 to 1999 for new construction projects in rural Colorado shows a dramatic increase in the amount of investment made by local governments in affordable housing. Last year the amount contributed by local governments compared to the cost of fees was slightly less that a 1 to 1 ratio. In 1999 the ratio of local government contributions compared to local fees was 2.1 to 1. The local government contribution averaged $119,642 per project. For projects being developed in the state's smaller communities, this demonstrates a substantial commitment to affordable housing. The type of housing developed in these smaller communities was primarily for persons with the lowest of incomes, the elderly, disabled, and the homeless.

Larger communities with populations over 50,000 receive federal grants to invest in affordable housing. Smaller communities must invest future revenues or local funds in these housing developments. This level of investment is also indicative of the growing political support affordable housing enjoys in the smaller communities.

Table 2 summarizes funding information for projects constructed in Colorado's urban communities. In the urban communities new construction of affordable housing started to slow down this past year. Although only four projects required a DOH subsidy this year it is important to note the substantial increase provided by local governments for each project. Local governments contributed an average $352,750 per project. Last year the local contribution averaged $198,347.

TABLE 2

Urban Development/New Construction

When compared to the fees charged to these projects the local governments contributed twice the amount of fees collected. Because, newly constructed properties require new infrastructure and may increase demand for expanded services the local fees are far greater than fees associated with projects that are acquiring and renovating existing buildings.

Redevelopment of existing buildings do not require new tap fees for water and sewer, extensive site plan reviews, or zoning or use considerations.

Throughout the state, as the number of new construction projects level-off, the number of projects proposing to acquire and renovate existing buildings is increasing. As can be seen by the following Table, local fees for these type of projects are limited in most cases to building permit fees and inspection fees. Local governments contributed an average of over $208,603 per project to preserve their local housing stock.

TABLE 3

Acquisition with Rehab (statewide)

Local fees for buildings acquired and renovated as affordable housing are often limited to building permits approved for the building's renovation. So the comparison with new construction is dramatic. The options for acquiring and renovating buildings throughout the state will increase as the HUD Section Rental Assistance Contracts expire over the next five years. Since the local government cost of acquiring and renovating a building is less than new construction the investment of local public funds in redeveloping existing buildings can be used for on-site upgrades, increased security and services, and in preservation of many historically significant buildings in large and small communities throughout Colorado.

An itemized list of the project shown in the tables and charts above is attached as Exhibit E.

The following are conclusions based on this report.

• Local governments are reluctant to waive utility fees. They are more likely to provide general revenue funds for payment of fees.



• Although this report shows an increase in the amount of funds contributed by local governments an increasing number are facing budget limitations caused by Colorado Constitutional revenue limitations. Next year we may experience a reduction in the amount local governments can contribute to affordable housing.



• Comprehensive and Master Plans funded by state agencies or colleges should follow the planning elements outlined in state statute.



• Promote the adoption of Intergovernmental Agreements between Municipalities and Counties in addressing the growing housing demand in urban and rural communities.

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