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More than two decades ago, Telluride’s leaders were grappling with the growing pains of a booming resort industry. Housing prices shot up, forcing many workers to live outside of San Miguel County.

The town responded by passing an ordinance in 1994 requiring developers to create affordable housing for a portion of the new workers generated by their projects. The idea was for builders to take responsibility for the new workers a larger community demands, but who might not earn enough working as a teacher, cop or retail clerk to live there.

A developer sued, and in 2000 the Colorado Supreme Court ruled that requiring developers to include affordable housing in new projects is illegal because it’s a form of rent control prohibited by a 1981 state law.

In the years following the ruling, cities and counties looking to boost their affordable housing stock have passed policies to navigate around the Telluride decision or, in the eyes of developers, have walked right up to the legal line. Now state Democratic lawmakers want to seize on an opening left by the Supreme Court to reverse the decision entirely.

House Bill 1117 would modify state land use statutes so that local governments can require affordable housing in new or redeveloped projects without running afoul of the rent-control prohibition.

Colorado’s housing crisis has worsened in recent decades, from communities in the Denver metro area to mountain resort towns like Telluride. Colorado has added nearly 1.5 million people in the past two decades, and as more demand drives up housing prices and new construction lags, it’s largely low- and moderate-income workers who are priced out of housing.

About 22% of renter households in Colorado are extremely low-income, with 74% of those households paying more than half their income toward housing, according to the National Low Income Housing Coalition.

Cities and counties need all the tools they can get to increase their affordable housing supply, said state Rep. Susan Lontine, a prime sponsor of the legislation along with fellow Denver Democratic state Rep. Serena Gonzales-Gutierrez.

“These are the people that keep our society healthy and educated and moving, and they can’t afford to live where they work,” Lontine said. “And this is a piece of the puzzle to help us address affordable housing for folks who desperately need it.”

Democratic lawmakers have introduced versions of this legislation unsuccessfully before, with the proposal dying last year after the coronavirus pandemic reshuffled the legislature’s priorities. Now, with Democratic majorities in both the House and Senate, the proposal has a solid chance of passing.

Under House Bill 1117, developers must be given alternatives to building affordable units on-site. For example, they could trade those for affordable units built elsewhere, pay a fee into an affordable housing fund, or any number of other options. The bill leaves it up to local governments to decide if they want to adopt such policies and what that menu of options for developers would be.

Housing advocates argue policies that allow local governments to require affordable housing as a condition of development — known as inclusionary housing — isn’t a silver bullet, but an important supply-side solution to getting more units built.

“You might hear that if we just allowed more density, more growth, then we wouldn’t need this bill,” Robin Kniech, a Denver city councilwoman, testified at a House Transportation and Local Government committee meeting earlier this month. “…In the last 20 years since this court decision, Denver has built 62,000 new apartments, the vast majority are luxury, they are not priced anywhere close to what these families can afford.”

Prioritizing affordable housing is also crucial to maintaining public support for the state’s economic growth, especially as it continues to draw new residents, bill sponsors say.

“The best way to keep our communities supportive of growth is to show them that housing for our existing workforce will be included in it,” Gonzales-Gutierrez said.

Inclusionary housing policies have grown in popularity nationwide, with more than 900 local governments adopting such programs, according to the Grounded Solutions Network, an advocacy group that has promoted inclusionary policies.

Research is mixed on how inclusionary policies — which vary widely — affect private housing markets, and their success in getting new affordable units built depends on location, the market, how long policies have been in place and other factors, according to an Urban Land Institute report.

A number of industry groups, including the Colorado Apartment Association, Colorado Association of Home Builders and Colorado Association of Realtors, are against the bill and want to see specific “guardrails” for cities on what affordable housing requirements should look like.

“The development community needs predictability, we need a clear understanding of what opportunities exist to help subsidize and afford to build this affordable unit,” said Caitlin Quandre of NAIOP Colorado, which represents commercial real estate developers. “It really creates a patchwork quilt that can be really unpredictable for development.”

Developers have raised concerns that cities will introduce requirements that could jeopardize the financial viability of projects, or that the cost of affordable units would be passed on to other renters in the same complex.

Andrew Hamrick, general counsel for the Colorado Apartment Association, said the bill should require governments to pitch in — either through subsidies or other measures — to fill that gap.

“Inclusionary zoning affordable housing projects can work, but they require that the local government contribute to their fair share of affordable housing. And this bill removes all obligation or all incentive for a local government to do just that,” Hamrick said.

Some cities move ahead with similar affordable housing policies

A number of Colorado cities, including Boulder, Durango, Longmont, Aspen, Crested Butte and Vail, have implemented policies since the Telluride ruling to incentivize more affordable housing construction.

Many of those programs ask developers to set aside a percentage of units in new developments, typically between 10% and 20%, for affordable housing, although developers are also given options to fulfill those requirements. Cities generally justify these policies as voluntary agreements, not illegal mandates, by pitching in subsidies, offering increased density or other incentives. In Denver, for example, developers can build higher in exchange for agreeing to a certain percentage of income-restricted units.

Aspen, Denver, Boulder and Eagle County have also implemented “linkage fee” programs, according to the Colorado Real Estate Journal. Those programs charge developers a per-square-foot fee that goes toward a fund for affordable housing projects, and aren’t limited by the Telluride ruling.

At the House Transportation and Local Government Committee meeting earlier this month, some local government officials testified that policies requiring developers to build affordable units is necessary to make any dent in the housing crisis.

“The market will never produce enough housing in Clear Creek County to bring market rate prices into the affordability range,” Clear Creek County Commissioner George Marlin said. “Our recent needs assessment calls for the production of 300 rental units below 60% (area median income), and it will take nearly every square foot of buildable space for us to accomplish that goal using mixed-price developments.”

Requiring affordable housing be included in projects also allows cities to create mixed-income communities, advocates argue.

“That is really important, because you want complete communities. You don’t want affordable housing away from towns and away from grocery stores,” said Kniech, the Denver city councilwoman.

Meghan Dollar, a lobbyist for the influential Colorado Municipal League which helped draft the bill, said many cities represented by the organization have voiced concerns about housing costs but have avoided introducing such policies for fear of violating the Telluride ruling.

“So what we’re trying to do is clear the air, get rid of the gray area, and make it black and white,” Dollar said.

The bill doesn’t change the state’s existing prohibition on rent control. But it seizes on an opening left by the Colorado Supreme Court in the Telluride ruling: While policies requiring affordable housing in developments — known as inclusionary housing — constitute rent control, the General Assembly still has the power to change or clarify state statute.

The bill’s sponsors say they are leaving it up to local governments to decide whether inclusionary housing policies are right for them.

“It is narrowly tailored to allow local governments the authority to promote affordable housing in their communities,” Gonzales-Gutierrez said. “The state is not mandating local governments to make decisions that are right for their community.”

Colorado Apartment Association argues that as written, House Bill 1117 gives cities and counties broad latitude to impose onerous requirements on developers without requiring local governments to pitch in.

Hamrick said the bill should require local governments to pitch in funding, waive development requirements or offer other incentives, such as increased density, that are “economically equivalent” to the financial cost of setting aside affordable units.

“But if you don’t do anything, all you’re doing is giving local governments the tool to act as a de facto, anti-growth limitation, or a de facto system of benefits where the other residents pay for the reduced rent that they mandate,” he added.

Opponents also want to see more specific guidelines for cities as part of the legislation. The Colorado Apartment Association has suggested an amendment to cap the percentage of units in a development that can be subject to affordable requirements at 20%, and to limit the affordability to 80% of average area rent.

That change was requested by Rep. Kevin Van Winkle, a Highlands Ranch Republican, during the meeting of the House Transportation and Local Government committee. It was rejected by the Democratic-controlled panel.

Lontine said local officials, not state legislators, should make those judgment calls. She pointed to a program in the city of Boulder, which requires residential developers to set aside 25% of units in a project for affordable housing, although in many cases, the city contributes funds, developers can pay fees or build some of those units off-site to meet the requirement.

“If we put a cap that’s lower than 25%, then we’d make Boulder’s program illegal,” Lontine said. “We just think it needs to be a local decision.”

Advocates argue the problems cited by opponents haven’t materialized in the growing number of cities turning to inclusionary policies across the United States. Cities and counties won’t impose project-killing requirements, because it’s also in their best interest to get projects built, said Dollar of the Colorado Municipal League.

“What this bill does is it creates a direct line for local governments to work with developers … to increase and promote affordable housing,” Dollar said. “It doesn’t do a service to anyone to require so much affordable housing that there is no development.”

So far, the bill has not drawn any support from Republicans, Lontine said, and has no GOP co-sponsors.

Rep. Andy Pico, a Colorado Springs Republican, said while affordable housing is an urgent problem in Colorado, he opposes requiring developers to build affordable units.

“What you’re going to do is you’re going to undermine the construction of a new housing,” Pico said. “It is not rent-controlled by the strict definition of the term. But it is rent control in effect because you’re requiring percentages within the construction.”

House Bill 1117 is slated to be debated on the House floor later this week.

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