Affordable Housing Policy Brief

Affordable Housing Policy Brief

Brady Heath

The Politics of Preservation

Spring 2023

Introduction

The housing crisis in Denver has led to demolishing the city’s affordable and historic buildings to make way for new development. While the new developments increase the housing supply, the city is losing its naturally occurring affordable units, and they are not being replaced. There is a surplus of empty and underutilized office buildings throughout Denver that can be converted to housing. Historic Preservation can align with Denver’s 2040 Vision Plan and create more affordability in the city. The preservation of existing affordable housing units and the conversion of the city’s vacant office buildings to residential is crucial for the future of housing affordability.

Preserving Naturally Occurring Affordable Housing

Denver’s 2040 plan mentions preserving existing affordable housing in its vision of keeping Denver equitable, affordable, and inclusive. Affordable units can be preserved through historic preservation and keeping the existing housing supply, but also making the necessary repairs to keep these buildings running. To keep the existing supply of affordable housing, the city should offer financial assistance to repair the buildings. Affordable housing units tend to be in historical buildings, so a financial incentive to repair these buildings will keep them up to date and affordable. Goal four in the 2040 comprehensive plan talks about regulatory incentives to preserve existing affordable housing, and the city should investigate the Small Building Program in Washington D.C.

The Small Building Program gives owners of smaller, affordable buildings, funds for repairs to improve sub-standard living conditions, including safety and environmental hazards.1 The properties must meet the following criteria to apply, there must have five to twenty units withing the building, must be 75% occupied, and 50% of the housing units must be affordable for low to moderate-income households who earn at or below 80% of the area median income 1 The housing accommodation has to have health hazards or unsafe living conditions that need to be addressed to improve the quality of life for the tenants in the units, and the repairs cannot exceed $25,000 per unit or $200,000 per project.1

Owners applying for the Small Building Program must complete a series of steps to get access to the funding. The first step is the pre-application meeting with the Department of Housing and Community Development followed by the application process and the inspection of the property to assess the condition and repairs that need to be made. The owner must take a property management course offered by the DHCD followed by a grant agreement, and a fiveyear affordability covenant. The project must be approved by all lenders, if the project has a long completion date, or tenants need to relocate for the duration of the construction, then a relocation plan is needed. Owners must retain the affordability of the units following the completion of the construction, if not then the owners will have to pay back the loan.1

Daniel. Shifting Neighborhoods: Gentrification In Shaw, Washington, D.C. Photograph. Washington, D.C, August 25, 2021. JetSet Times.

In 2015, Mayor Muriel Bowser established the Housing Preservation Task Force as the city faced the housing crisis. 2 The Task Force created the Small Buildings Program in June 2016 as a tool to keep Washington D.C. affordable after losing 13,378 affordable housing units. Denver can start a Small Buildings Program that can be completed within a year, and be as successful as the one in Washington D.C.

The program along with other programs offered by the city preserved almost 8,000 naturally occurring affordable housing units in D.C.2 Denver will benefit from a Small Building

Program because smaller buildings in the city tend to be more affordable and falling into disrepair to maintain affordability. If the city can set aside money to help small building owners repair their affordable properties, then the city can preserve their affordable housing.

The Small Building Program will maintain the affordability of those units, but as Denver continues to grow, existing apartment buildings will undergo renovation, making them unaffordable. Goal four in the Equitable, Affordable, and Inclusive vision in the 2040 Comprehensive plan talks about tax relief programs to preserve affordable housing units. In Chicago, the Class 9 program offers a tax incentive for building owners to rehab their existing apartments and keep them affordable.3 While the Class 9 plan operates as a property tax abatement program that cannot be done in Colorado, the city can convert it into a property tax rebate program.

The Class 9 program offers a 50% reduction in assessments and taxes to developers who complete a major rehab on a multi-family unit building and keep rent below a certain level. To qualify the building must have seven or more units that are being renovated and a portion of the units must be kept at or below 60% of the area median income. The Preservation Compact established three tiers of affordability and reductions to assess the value of the properties 4

Tier one requires 15% or more of the units to remain affordable to receive a 25% reduction in assessed property value. The building must contain seven or more units, and the rehab must cost an average of $8 a square foot with improvements to two of the primary building systems. The property owner will receive a reduction of assessed property value for ten years with two ten-year renewable periods resulting in thirty years of reductions.4

Tier two requires 35% or more of the units to remain affordable to receive a 35% reduction in assessed property value. The building must contain seven or more units, and the rehab must cost an average of $12.50 a square foot with improvements to two of the primary building systems. The property owner will receive a reduction of assessed property value for ten years with two ten-year renewable periods resulting in thirty years of reductions.4

Tier three requires 20% of the units to be affordable. The building must have seven or more units, and the rehab must cost an average of $60 a square foot with improvements to five of the primary building systems. The owner will receive property assessment reductions for 30 years, no renewals are needed. Year one through three following the rehab will receive a 100% reduction in property assessment values, years four through six will be at 80%, years seven through nine will be at 60%, years ten through twelve will be at 40%, and years thirteen through thirty will be at 20%. 4.

The property tax legislation will keep rents affordable in high-cost markets, promote investments in low-cost markets, and applicants can be market-rate and affordable housing developers. This will also preserve historical buildings in the city of Chicago and other cities in the state of Illinois.4 Denver can benefit from having its own Class 9 Program, but as a property tax rebate program as historical buildings throughout the city are undergoing renovations and

driving up the rents in multi-unit buildings that used to be affordable. Denver can follow the guidelines of the tiers to establish how the rebate will work. The tiers will put money back into the developer’s pocket while maintaining the affordability of existing units.

The Class 9 Program has added affordable housing in the Fulton Market, a high-cost neighborhood, and other neighborhoods in the city.5 The program was established in 2021 and was launched in January 2022, and Denver can develop a similar program and launch it in under four years. Cook County worked with other groups to create the program including Housing Action Illinois, Illinois Housing Council, Metropolitan Planning Council, and Enterprise Community Partners.4 This is an opportunity to make housing in the city affordable while collaborating with other councils and partners.

Financial assistance and property tax incentives will help keep naturally occurring affordable housing units affordable in Denver, but zoning laws can help as well. Zoning laws can help preserve existing affordable units, and guarantee replacement if they are to be demolished, or converted to market-rate units. This goes together with goal three in the Strong

An apartment building in North Lawndale is undergoing some renovation. Qualifying renovations of an existing building + renting a minimum number of units affordably or to certain households could mean significant reduction in its assessed value. Photo: Eric Allix Rogers

and Authentic Neighborhoods vision in the 2040 Plan because it preserves historic buildings and maintains the affordable housing supply. The city of Arlington, Virginia has a Special Affordable Housing Protection District which identifies existing affordable housing sites in the city and creates a protection district to preserve these units.6

The district provides housing for low to moderate-income families where affordable housing has been available. The district ensures that the affordable unit will remain in place or be replaced if it gets demolished or converted to market-rate housing. If a developer were to demolish an existing affordable housing unit, then their development proposal must show how they plan to replace that unit, or the plan will not be approved.7

The Special Affordable Housing Protection District identifies neighborhoods and buildings that are and will remain affordable for the future. Four neighborhoods have been identified around the Rosslyn-Ballston Metro Corridor for these protection districts. The district preserves market-rate housing up to 80% of the area median income, rental housing from 60% to 80% of the area median income, and ownership housing from 80% to 120% of the area median income.7

City of Arlington. Distribution of Affordable Housing up to 60% AMI. Photograph. Arlington, Virginia, 2021. Arlington County.

Denver can benefit from a Special Affordable Housing Protection District because there are neighborhoods in the city that have naturally occurring affordable housing including

Barnum, Capitol Hill, Five Points, and others. Denver has been doing Conservation Overlay Districts to preserve historic neighborhoods including La/Alma Lincoln Park and Five Points.16 The city can expand the overlays to include a protection district for affordable housing. When a redevelopment opportunity comes up in Denver, they are usually in areas with affordable housing units that get torn down, and never replaced. The Protection District guarantees that the affordable unit will be replaced if it is to be torn down. This prolongs the process because it creates additional proposals for the developer to write, and it encourages them to build elsewhere.7

The Protection District was established in 1990, and Denver can implement its own Special Affordable Housing Protection District by identifying areas where affordable units naturally occur and establishing the protection overlay. The district preserves existing affordable housing in Arlington, so those units will be saved, but the city still has a housing affordability crisis.6 Denver will run into the same problem, but at least this guarantees the protection of the existing affordable housing units.

The protection of naturally occurring affordable housing units is important when it comes to historic preservation, affordability in the city, and keeping our existing buildings in decent shape. The Small Building Program gives property owners funds to renovate their affordable units, the Class 9 Program can be a tax rebate to keep affordable units in renovated buildings, and the protection overlay will ensure that affordable units stay in place.

Conversion of Existing Buildings

As Covid-19 leaves Denver with a high amount of vacant office space, this provides opportunities to build affordable housing units within the vacant spaces. This will increase the supply of affordable housing units that the city needs, but also preserve the historic buildings. The Denver 2040 plan wants Denver to be equitable, affordable, and inclusive, and converting office buildings into affordable housing units will do that. The plan also wants to be connected, safe, and accessible, converting these buildings will keep people close to shops, jobs, and transit. Denver can benefit from converting vacant office spaces into affordable housing.

The Downtown Conversion Plan in Pittsburgh, Pennsylvania calls for the creation of affordable housing in their vacant and underutilized office spaces. The Pittsburgh Downtown Pilot Commercial Real Estate Conversion Program (PDCP) will provide direct funding for developers who plan to convert vacant office space into affordable housing. Downtown Pittsburg has an office vacancy rate of 26.2%, and this program will bring new life into the city.8 Goal three under the equitable, affordable, and inclusive vision of the 2040 plan, the city wants to provide funding sources for affordable housing, and a PDCP of our own will do that.

The city will give more funding to the projects depending on the number of affordable units, and the area median income percentage the developer chooses to build for. If the developer makes 20% of the units affordable at 80% of the area median income, then PDCP will

provide one million dollars towards the project which cannot exceed $50,000 per 80% AMI unit. If the developer makes 20% of the units affordable at 60% AMI, then the PDCP will provide two million dollars towards the project which cannot exceed $70,000 per 60% AMI unit. If the developer makes 20% of the units affordable at 50% AMI, then the PDCP will provide three million dollars towards the project which cannot exceed $90,000 per 50% AMI unit. All projects must be within the Central Business District, funds are disbursed following approval and during the inspection of the work. The units must stay affordable for a minimum of forty years following the completion of the project. 8

Denver can benefit from a Downtown Conversion Plan because office vacancy rates are at 21.2% and are expected to rise as time goes on.9 Converting the cities’ vacant office space will provide more affordable housing, but also make sure that the units stay affordable for a long time. This allows the vacancy rates in Denver to stay low but also brings a new life to the city as more people could live downtown.

The city of Pittsburgh released the Pittsburgh Downtown Pilot Commercial Real Estate Conversion Program in July 2022, and the U.S. Steel Tower could be the first to use the funding provided by the program. The building qualifies for the two million dollars to build affordable housing units in the conversion plans.10 Denver is already looking at buildings that can be used for office-to-housing conversions and could get more affordable housing units built within these developments by providing funding like Pittsburgh does.

Blokhin, Andriy. The U.S. Steel Tower, Also Known as the UPMC Building after Its Largest Tenant, Is Seen in

Downtown Pittsburgh. The Skyscraper Is the Tallest in the City, and UPMC Is the Largest Nongovernmental Employer in the State. Photograph. Pittsburgh, Pennsylvania, July 6, 2022. The Center Square.

While the program has not been around for a while, the city is starting off the program with a large-scale office conversion. Denver can start its own Downtown Conversion Plan to create funding for these projects as housing is in high demand, and this will provide the city with more housing options at affordable and market-rate.

The Downtown Conversion Plan provides funding for building affordable units, but flexible zoning laws can make the conversions of these buildings easier. Goal three under the equitable, affordable, and inclusive vision in the 2040 Plan wants to use land use regulations to enable development of affordable and mixed-income housing. The city of Pensacola, Florida created the Pensacola Affordable Housing Task Force to investigate flexibility in zoning codes that can be used in adaptive reuse projects that include affordable housing.11

Zoning laws can make it difficult to convert vacant office buildings to residential that include affordable units. The task force found that adding flexibility to the zoning codes will make adaptive reuse a smoother process. Most adaptive reuse projects have different zoning codes attached to the building that will add another application process to get the zoning changed. The city of Pensacola took away the zoning change and comprehensive plan amendment applications, so the process can be streamlined, and developers avoid paying fees.11

The city does case-by-case zoning for affordable housing and adaptive reuse projects. This will allow a streamlined process to get affordable housing conversions approved, and by adding flexibility to the zoning codes will allow developers to put as many units as they want in the building.11 Denver can benefit from creating flexibility in their zoning laws for converting office buildings into housing. The vacant buildings in the downtown area are zoned for office buildings, and they should be switched over to residential or mixed-use without a zoning change request.

The city of Pensacola will offer financial incentives for adaptive reuse projects that include 10%-20% or more affordable housing units. The city gives sales tax incentives for materials purchased during the building conversion, and a voluntary cleanup tax credit where the state gives the developer a 50% tax credit up to $500,000 to clean up the site.11 Denver should investigate financial incentives along with the flexible zoning codes because it will give the developers opportunities to work with existing buildings to create affordable housing.

The Pensacola Affordable Housing Task Force was created in 2020, and they have a goal of adding five hundred affordable housing units by 2024, and in 2022, they were halfway through with achieving their goal. 12 It was achievable through flexible zoning laws, financial incentives, and adaptive reuse. The newest adaptive reuse project that will take advantage of

the zoning and financial incentives will be the Baptist Hospital which will be converted into 102 affordable units for seniors fifty-five and older.13

Long, Cody. Affordable Senior Housing Proposed for Baptist Hospital Property Photograph. Pensacola, Florida, December 12, 2022. News 5 WKRG.

Denver can create an affordable housing task force that will explore ways to add flexibility to the zoning code and look at different financial incentives. The city should set up a goal every five years to build affordable housing units in the city. The city should strive to create these units in adaptive reuse projects but could be new buildings as well. If five hundred is achievable for Pensacola, then five hundred should be feasible for Denver.

Funding, ease of zoning laws, and tax incentives will create more office to housing conversions, but an overlay district will ensure that historic buildings will be reused and contain affordable housing units. Goal three of the Strong and Authentic Neighborhoods in the 2040 Plan wants to create a citywide preservation plan to preserve the diversity of historic places. Salem, Massachusetts formed an Adaptive Reuse Overlay District to preserve its historic buildings, spur economic development, housing production, and environmental sustainability and resilience.14

The purpose of the overlay district is to identify areas of the city where adaptive reuse buildings will be incentivized. The building must be fifty years old, the usage of the building is required to change, and the building must be eligible on the city’s zoning map. The requirement for the developer is to draft a site plan that will have to be approved by the Salem Historical Commission before it goes to the planning board.14 Denver would benefit from an Adaptive Reuse Overlay District because most of the empty office buildings downtown are fifty years old

or older. This will spur economic activity in the downtown areas and bring new life to these buildings.

The city of Salem does offer flexibility of their zoning codes including allowing developers to exceed the maximum number of dwelling units established by the city. If the roof needs to be taller for circulation, drainage, ventilation, utilities, or passive recreation, then the city will allow for the extra height. If the building does not have a loading dock, then the developer will not be required to put one in.14 Adaptive reuse of existing buildings can be tricky, so adding flexibility to the zoning codes will allow for more adaptive reuse projects.

The city of Salem requires that 10% of the residential units be set aside for affordable housing. The city defines affordable housing as a year-round unit that serves families at or below 80% of the area median income and shall remain affordable for at least ninety-nine years. This goes along with the city’s inclusionary zoning laws.14 Denver should require affordable housing units within conversion projects as the city also has inclusionary zoning laws but should look at requiring more units to be affordable with the growing population.

The Adaptive Reuse Overlay District was expanded in 2019 to allow more building types to be a part of the district, prevent new construction that does not fit in with the surrounding context, and disincentives for demolition. The city wants developers to use their existing

Winston-Salem/Forsyth County. Adaptive Reuse Opportunities in Winston-Salem/Forsyth County. Photograph. Winston-Salem/Forsyth County, 2019. Adaptive Reuse Opportunities.

buildings before they build new ones. The city of Salem has won many preservation awards because of the overlay district. 53 Summer Street won the award in 2018 for the preservation of the building, and how it was converted into residential with affordable housing units.15

Denver should start its zoning map to identify buildings that are sitting vacant and underutilized, which would be a suitable candidate for housing conversion. The city should offer flexibility of zoning laws to streamline the application process as an incentive to developers. The city should also ensure that there are affordable units in each conversion to promote more

Hapworth, Ty. 2018 Preservation Award Winner: 53 Summer Street. Photograph. Salem, May 10, 2018. Historic Salem Inc.

affordability in the city. This will preserve the city’s historic buildings and bring new life to the empty buildings downtown.

Denver can save the city’s historic buildings and bring more affordable housing into the city. The Downtown Conversion Plan funds affordable units within the office to residential conversions, the Pensacola Affordable Housing Task Force offers flexibility of zoning codes and tax credits for affordable units, and the Adaptive Reuse Overlay District offers flexibility of zoning laws for adaptive reuse projects. The city can benefit from all the policies to reuse existing buildings and add more market-rate and affordable housing units in the city.

Sources:

1. “Rent Control.” Rent Control. Accessed April 17, 2023. https://dhcd.dc.gov/rentcontrol.

2. Housing Preservation Strike Force Final Report, November 9, 2016. https://dhcd.dc.gov/publication/housing-preservation-strike-force-final-report

3. “Multi-Family Financial Assistance Applications.” City of Chicago: Multi-Family Financial Assistance Applications. Accessed April 17, 2023. https://www.chicago.gov/city/en/depts/doh/provdrs/developers/svcs/multi-familyassistance.html.

4. “New Rental Property Tax Relief - Preservation Compact.” Accessed April 17, 2023. https://www.preservationcompact.org/wp-content/uploads/2021/09/Property-TaxIncentive-Factsheet-9.28.21.pdf.

5. “New Property Tax Incentive Could Remake Fulton Market and Other Neighborhoods into Havens for Affordable Housing.” Chicago Tribune. Accessed April 17, 2023. https://www.chicagotribune.com/business/ct-biz-affordable-housing-property-taxincentive-20230221-xnazamqa5jg7rhzhr5d74huthe-story.html.

6. “Land Use & Zoning Tools.” – Official Website of Arlington County Virginia Government. Accessed April 17, 2023.

https://www.arlingtonva.us/Government/Programs/Housing/Development/Land-UseZoning-Tools.

7. “General Land Use Plan (GLUP).” – Official Website of Arlington County Virginia Government. Accessed April 17, 2023.

https://www.arlingtonva.us/Government/Projects/Plans-Studies/General-Land-UsePlan.

8. “The Draft - Ura.org.” Accessed April 17, 2023.

https://www.ura.org/media/W1siZiIsIjIwMjIvMDkvMDkvN2hsOG1rYTQ4MF9EUkFGVFB HSERvd250b3duQ292ZXJzaW9uR3VpZGVsaW5lc191cGRhdGVkOTkyMDIyLnBkZiJdXQ/DR AFTPGHDowntownCoversionGuidelines_updated992022.pdf.

9. “Denver Office Market Report.” Denver. Accessed April 17, 2023. https://www.avisonyoung.us/web/denver/office-market-report.

10. Anthony Hennen | The Center Square. “Pittsburgh Eyes $2 Million for Office-toApartment Conversions.” The Center Square, July 6, 2022. https://www.thecentersquare.com/pennsylvania/article_ca5e338e-fd65-11ec-b3636f76c0b46b89.html.

11. “Pensacola Affordable Housing Task Force - Cityofpensacola.com.” Accessed April 17, 2023. https://cityofpensacola.com/DocumentCenter/View/19954/AffordableHousingTask-Force-Final-Report-and-Presentation.

12. Hill, Vote for Ann. “Halfway to Goal of 500 Affordable Housing Units in 5 Years Affordable Housing Pensacola FL.” THE ANN PLAN. Accessed April 17, 2023. https://electannhill.com/preservation/f/halfway-to-goal-of-500-affordable-housingunits-in-5-years.

13. Long, Cody. “Affordable Senior Housing Proposed for Baptist Hospital Property.” WKRG News 5. WKRG News 5, December 13, 2022. https://www.wkrg.com/northwest-

florida/escambia-county/affordable-senior-housing-proposed-for-baptist-hospitalproperty/.

14. “8.7 Adaptive Reuse Overlay District 8.7.1 Purpose. - Salemma.gov.” Accessed April 17, 2023.

https://www.salemma.gov/sites/g/files/vyhlif7986/f/uploads/adaptive_reuse_overlay_ draft_07-02-18_1.pdf.

15. “Historic Salem Inc News.” HISTORIC SALEM INC. Accessed April 17, 2023. https://www.historicsalem.org/blog.

16. The City and County of Denver. “9.4.3.4 Conservation Overlay Districts Established.” City and County of Denver, July 6, 2015.

https://www.denvergov.org/content/dam/denvergov/Portals/646/documents/Zoning/t ext_amendments/legislativehistory/DZC_AMENDMENT_2_REDLINE_7_10_15.pdf

Photos

1. Houses in Leadville, Colo., where employers say workers cannot afford a place to live, Oct. 29, 2021. Leadville is one of several cities in Colorado considering ballot measures to address the state’s shortage of affordable housing. (Rachel Woolf/The New York Times)

2. Daniel. Shifting Neighborhoods: Gentrification In Shaw, Washington, D.C. Photograph. Washington, D.C, August 25, 2021. JetSet Times.

3. An apartment building in North Lawndale is undergoing some renovation. Qualifying renovations of an existing building + renting a minimum number of units affordably or to certain households could mean significant reduction in its assessed value. Photo: Eric Allix Rogers

4. City of Arlington. Distribution of Affordable Housing up to 60% AMI. Photograph. Arlington, Virginia, 2021. Arlington County.

5. Blokhin, Andriy. The U.S. Steel Tower, Also Known as the UPMC Building after Its Largest Tenant, Is Seen in Downtown Pittsburgh. The Skyscraper Is the Tallest in the City, and UPMC Is the Largest Nongovernmental Employer in the State. Photograph. Pittsburgh, Pennsylvania, July 6, 2022. The Center Square.

6. Long, Cody. Affordable Senior Housing Proposed for Baptist Hospital Property.. Photograph. Pensacola, Florida, December 12, 2022. News 5 WKRG.

7. Winston-Salem/Forsyth County. Adaptive Reuse Opportunities in Winston-Salem/Forsyth County. Photograph. Winston-Salem/Forsyth County, 2019. Adaptive Reuse Opportunities.

8. Hapworth, Ty. 2018 Preservation Award Winner: 53 Summer Street. Photograph. Salem, May 10, 2018. Historic Salem Inc.