Denver’s affordable housing debacle

By Deborah Goonan, Independent American Communities

Updated June 9, 2018

The following Denver Post article highlights everything that is wrong with the concept of “affordable housing” built by private developers, and then offered for sale with price controls and income restrictions on home buyers.

Here’s how the system works. The City of Denver makes a deal with some private developers, who agree to designate a portion of new homes they build as “affordable housing.”

Oakwood Homes at Green Valley Ranch is cited as an example of a large-scale master planned community (homeowners’ and condominium associations mandatory), which was to include 650 homes with deeds including income-restrictions for buyers.

No doubt, a combination of taxpayer-funded grants and tax credits subsidized construction costs for the developer, Oakwood Homes. The developer’s company was recently acquired by Clayton Properties Group, according to local reports. Similar arrangements were made with other Colorado developers.

Across the City of Denver, roughly 1,300 homes come with deed restrictions that limit the household income of home buyers, and also limit home value appreciation to 5% per year.

Those restrictions expire in twenty years, or if a home enters into foreclosure.

So far, according the Denver Post, 267 of 1,569 properties are in the process of foreclosure — that’s 17% of affordable housing stock built for purchase. That’s why only 1,300 “affordable” homes remain available for purchase.

Perhaps the terms of mortgages offered to buyers with modest or low incomes were unrealistic, or even predatory. When economic conditions became difficult, hundreds of homeowners simply couldn’t afford their “affordable” homes.

How ironic.

And, as with most foreclosure sales, some savvy buyers were able to buy abandoned homes for artificially low prices, without any restrictions on future resale price.

As for homeowners who have been able to weather the most recent recession, until their deed restrictions expire, if household income rises above the limited income threshold, those owners must sell their homes subject to resale price controls.

In Denver’s hot market, that means a seller must accept a purchase price that is well below the market value for a similar home without the affordability restrictions.

Of course, after twenty years, none of these homes will be designated as “affordable,” and sale prices will once again fluctuate wildly with the real estate market.

In the meantime, homeowners will be paying HOA and condo assessments, in addition to property taxes. If those taxes and fees increase substantially, it will inevitably lead to even more foreclosures, either as tax sales, or, more likely, HOA or condo association foreclosures to collect unpaid assessments.

Talk about creating perverse incentives for opportunistic investors, who just might happen to have inside knowledge of distressed homeowners, by virtue of serving on association boards, serving as association managers, or providing legal or collections services for association-governed communities.

But Denver has another huge problem: lax enforcement of deed restrictions that were intended to keep homes affordable.

It turns out that nearly one-fourth of the owners of Denver’s affordable housing stock are in violation of deed restrictions.

According to the report, hundreds of homeowners either earn too much money, or generate income by renting their homes to tenants, including short-term rentals advertised on Airbnb. To make matters worse, some former owners have already sold their properties at full market value.

Incredibly, many current and former owners and buyers claim they had no clue they were buying or selling an income-restricted home.


Double oops.

How will the City of Denver unravel this mess?


There are Denver homeowners living in affordable houses they make too much money to qualify for, and the problem is more prevalent than you might think

Denver officials say as many as 300 of the city’s 1,302 income restricted housing units are violating at least one city rule


Denver officials are scrambling to address violations of rules around for-sale affordable housing, including a number of deed-restricted homes being sold at market rates to people who were never told what they were buying.

This could lead to Denver’s housing division forcing homeowners who make too much money to sell at a loss, and taking legal action to catch up with previous sellers and take back home-sale profits to which they were not legally entitled.

A review by Denver’s Office of Economic Development was launched last summer, covering 1,302 single- and multi-family units. Working from an initial list of 450, city staffers have zeroed in on as many as 300 homes believed to be breaking at least one covenant rule.

There are several potential violations. Some homeowners have listed their residences on home-sharing sites such as Airbnb. In other cases, homes reserved for sale to people earning a set percentage of the city’s median income have been purchased by companies. And then there are people who bought affordable homes but didn’t qualify under the income rules.

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Update: Title insurance companies are denying claims from homeowners who purchased homes, completely unaware of affordable housing restrictions on income of owners and on resale price.

Denver homeowners caught in affordable housing quagmire now finding insurance claim denials in their mailboxes

Industry defends, city decries title companies’ treatment of affordability rules as exceptions to title insurance coverage

Title companies who insured Denver homebuyers when they bought income-restricted housing they weren’t qualified to own are now telling those people they are on their own in dealing with the fallout.

As claim denial letters land in local mailboxes, Denver officials are doubling down on calls for the industry to change the way it addresses affordable housing programs. The city insists compliance with rules should be part of title policy requirements, not exceptions from coverage.

Judging by the response from the Land Title Association of Colorado this week, change isn’t going to happen soon, if it happens at all.

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