New Regulation in Denver is a Misguided Solution to Housing Shortage

As rent costs in Denver continue to climb sharply, the city’s new mandatory inclusionary zoning policy is yet another example of a policy with good intentions failing to address the root of the problem: the lack of housing supply. Instead of increasing affordable housing, new regulatory measures consistently further exacerbate the low supply of affordable housing.

Denver’s new mandatory inclusionary zoning, which require developers set aside 8-15 percent of new units for affordable housing, won’t actually increase the rate of new affordable housing development – all it does is increase costs on those doing the building. This is not an incentive to build new homes. According to new research released by the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC), regulation imposed by all levels of government accounts for an average of 41 percent of multifamily development costs.

The research also found that around 48 percent of developers said they avoid building in a jurisdiction with mandatory inclusionary zoning requirements, meaning fewer housing options being built in communities where it is so desperately needed. 

Our best hope for the expansion of affordable housing – not just in Colorado, but across the country – is to remove barriers between developers and development, particularly those that impede new affordable housing supply. Other solutions that can help address this crisis are policies like those implemented recently in Steamboat, Colorado. They added $1 million to their property tax in support of developing affordable housing, and this policy has already resulted in the addition of quality affordable housing units to their housing stock.

Inclusionary zoning can be a solution – but it has to be done right. Inclusionary zoning policies can increase affordability if they are flexible, properly structured with sufficient incentives, and limited to strong housing markets. Mandatory inclusionary policies impose significant costs on new rental development by reducing total rents on the property and making it harder for developers to get the financing they need to build. Learn more.

Housing affordability is not just a major crisis; it’s also an incredibly complex one. And we can’t regulate our way out of it. Policies like mandatory inclusionary zoning come with significant unintended consequences and they are a major barrier for developers.

The City Council has opted for a misguided solution to an ever-worsening housing shortage. Working together, we can find ways better ways to remove barriers to housing supply.