When voters passed Proposition 123 last year, housing and local government officials across the state were pleased that the state had supported a permanent affordable housing fund.

But they had a nagging anxiety: To get a share of the nearly $300 million promised by the program, cities and counties had to voluntarily opt-in and agree to meet housing goals in the next three years. Would they?

Now, with the program’s first open enrollment period over, state officials have an overwhelming answer: Yes.

More than 200 jurisdictions, representing every major city and nearly 88% of Colorado’s population, opted in to the program by the Nov. 1 deadline, according to the Department of Local Affairs. Those communities have also agreed to each grow their affordable housing stock by 9% over that time, in a bid to unlock their share of funding that can be used to prevent homelessness, to finance debt and rental projects, and to acquire land for affordable developments.

But that’s created a new dynamic: So many local governments have signed up that demand has far out-stripped supply. Applications for one fund within Proposition 123 requested more money in total than is available for the entire program this year, housing officials said.

“It’s just so highly competitive, and every community can justifiably demonstrate a need,” said George Ruther, Vail’s housing director.

Less than $14.5 million from Prop 123 has gone out, and state officials must now work to narrow applications down to the most realistic and shovel-ready projects in the coming weeks. Money is expected to begin flowing in early 2024.

The demand for funding is “high,” revealing the “dire need for more housing,” according to a joint email to The Denver Post from officials at the local affairs department and the Office of Economic Development and International Trade, both of which oversee parts of the Prop 123 money.

Local housing officials had expressed concern about meeting the 9% growth requirement over the next three years, plus a looming, second provision that will require jurisdictions to fast-track their housing approval processes. Some had tried to haggle with their state counterparts this summer to ease the requirements. But the state said no, and Prop 123 advocates said improving affordable housing stock is a key piece of the ballot measure’s broader intent.

More than 200 local governments jumped in anyway, local officials said, because the money is too important to turn down.

“The need is so high,” said Jonathan Cappelli, the executive director of the Neighborhood Development Collaborative, a group of 20 Front Range housing organizations. “In the funding environment (that we’re in), and the land-value-cost and development-cost environment that we’re in, you can’t afford to say no to a funding source like this.”

To meet the 9% growth target in three years, participating local governments and their partners must collectively develop thousands of new units each year.

Prop 123 doesn’t provide enough money to solve the state’s broad housing crisis, especially with so many local governments clamoring for a share. But it provides vital funding to get expensive affordable housing developments across the finish line, housing advocates said, while standing-up new programs and curbing homelessness. Its passage — and the high demand for its funds — also speaks to the breadth of the housing problem in the state.

“Yes, passing Prop 123 is fantastic, and those are needed resources,” said Meaghan Overton, Fort Collins’ housing manager. “And it’s not enough, and I think we all know that. We’re not surprised by that. But I do hope that we can leverage whatever resources we are able to bring in to make things happen maybe faster than they would otherwise.”

What can the money be used for?

The funds from Prop 123 will be diced up across several different programs, administered by two state agencies and distributed to local governments, housing authorities and nonprofit housing advocates. The program operates on three-year cycles, with new money coming each year. Any local government that doesn’t meet the measure’s requirements must sit out one year of funding in the next three-year term.

The money is drawn from a tiny sliver of state income tax. Because of the timing of the program’s official launch this past summer, there will be less money available this year than in the future — about half of the nearly $300 million expected for 2024 and beyond.

The programs funded by Prop 123 dollars include:

Land banking, through which local governments and nonprofits groups can purchase and preserve land for affordable housing;
A concessionary debt program, used for debt and gap financing for low- and middle-income rental developments, plus more to support debt financing for modular and factory-built housing;
Money to prevent evictions and homelessness via services like legal aid and rental assistance;
A tenant-equity program, in which tenants in low- to middle-income rental developments benefit from the economic success of their apartment building;
An affordable home ownership program to help first-time homebuyers with their down payment;
A planning grant to help local governments expedite housing approval processes.

Some of those programs already exist and will absorb the new funds, while others — like the tenant-equity program — are new approaches to the state’s housing crisis.

What happens now?

Local governments and their partners have already begun submitting applications for some of the programs, like the planning grants. Denver is planning to request money to support its existing homeownership fund, said Renee Gallegos, the deputy director of housing opportunity with the city’s Department of Housing Stability. A Fort Collins affordable housing developer requested land-banking money to help support a 73-unit, shovel-ready project.

Applications for the various programs are available on a staggered basis. Because the state is still trying to figure out how exactly the tenant-equity program would work, for instance, applications for that money haven’t opened yet. But money is expected to start flowing in early 2024.

For the programs that are open — like the planning grant — interested local governments submitted a letter of intent starting in November. The state Department of Local Affairs will then invite full applications after that, with money expected to be awarded in March. The recipients of land-bank and debt funding will also be informed in early 2024, said Hillary Cooper, the director of innovative funding for housing programs at the economic development office.

Housing officials expect all of the money to be competitive and for state authorities to select the most advanced and buttoned-up projects. Some projects in the same city or county may compete against each other, too. Cappelli said there have more than 100 applications for the land-banking program, requesting more than $250 million in funding. That’s more than is available in all of Prop 123 right now and nearly more than will be available when the program is fully flush next year.

“The projects that go through aren’t hope-and-prayer projects,” said Peter LiFari, the executive director of Maiker Housing Partners, the Adams County housing authority. He ticked off the questions that state officials will ask: Is there local support for the project? How much? Have fees been waived? Is land available? Has it been acquired?

That’s a benefit of Prop 123, he said: Local governments may need to “roll out the red carpet” and change their own behaviors if they want access to a limited pool of money.

“There’s a lot of mouths to feed, based off of the participation,” LiFari said. “But thank goodness it’s here.”

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