When William Raihl moved to Colorado from Indiana to work with the Salvation Army, he and his wife expected to purchase a home, put down roots and eventually retire.
They understood a home in metro Denver would cost them more than the $186,000 spent buying a place outside Indianapolis in 2015 right before their move. They didn’t appreciate how much more.
“We realized pretty quickly that we were going to be priced out,” said Raihl, divisional property director for the Salvation Army in Colorado, Wyoming, Utah and Montana.
The couple considered stretching financially for a $400,000 mortgage but decided against it only to see prices soar further out of reach. They rent a home in Lakewood, where Zillow puts the median or mid-point home price at $588,601.
In 2020, they sold the Indiana home and acquired a property outside of Phoenix in Maricopa for $254,000. When the time comes to retire, it won’t be in Colorado.
Colorado’s Front Range has become one of the most expensive places to live outside either coast, due largely to an imbalance between housing supply and demand. Up for Growth estimates the state is short more than 100,000 homes and apartments, while Zillow puts the shortage in metro Denver at 70,000.
Solutions have been hard to come by and when proposed, hard-fought, such as Gov. Jared Polis’ failed land-use reform bill last year. Denver, a leader locally when it comes to allowing greater density, has faced pushback for its inclusionary zoning rules, which set aside a portion of apartments as affordable.
A right-of-center think tank, the American Enterprise Institute, came to Denver to pitch a free market solution to resolve the state’s housing deficit in under three years and generate thousands of new homes priced at around $400,000.
“We need smaller homes on smaller lots,” said Edward Pinto, co-director of the AEI Housing Center in Denver on Monday. “If you legalize it, they will build it.”
AEI calls its approach “light touch density” although it has gone by other names, such as missing middle housing, and isn’t a new concept. It was the preferred development model before suburbs implemented zoning rules that favored single-family development and a commuter car culture in the post-war era.
Supporters like AEI see light touch density or LTD as an alternative to the “barbell” approach that favors high-density apartments on one end and low-density single-family construction on the other. Enough cities have adopted LTD or variations of it that AEI has built case studies and can run models for how it might work in metro Denver and Colorado.
AEI recommends that state or local governments legalize “by-right” zoning giving owners of a lot the right to develop up to six units. Some places might cap it at four or some might go up to eight, but the goal is to make more efficient use of available land.
Land-use rules must be kept short and simple. Rules on minimum lot sizes should be set at 1,000 square feet per unit for infill development or scrapes of existing parcels. The minimum for raw land would be 1,000 square feet for attached housing, like townhomes and condos, and 5,000 square feet for single-family homes.
The state would need to require cities and counties to approve residential uses in commercial, industrial and mixed-use core areas and by-right light touch density within one-eighth of a mile of those core areas. That buffer will prevent the wealthy from building large homes just outside downtown areas.
“You will unleash a swarm of housing,” Pinto said. “This type of housing doesn’t get done by large developers, but by lots of small players.”
A light touch approach, as opposed to a heavy touch of building big apartment and condo towers, would generate 44,213 additional homes annually in Colorado, with 27,000 more coming in metro Denver, AEI estimates. Both represent a doubling of recent rates of home and apartment construction.
If achieved, the housing deficit could be eliminated in 2.5 years, AEI estimates. A balanced market would allow home prices to track more closely with incomes, which was the case historically.
About 28% of those new units statewide would be accessory dwelling units (ADUs) or smaller homes built in backyards or above garages. Denver has opened the way for more of those and a bill that the legislature passed recently requires that all parts of metro Denver extend that willingness to allow ADUs.
About 15.3% of the “extra” homes would come in master-planned communities like Aurora Highlands and Sterling Ranch. Those greenfield areas would likely see a lighter touch on the light-touch approach.
Just under half of the new homes projected would come from infill opportunities, typically the scraping of older single-family homes in existing neighborhoods. In metro Denver, that share would go up to about two-thirds.
AEI estimates the new infill homes, built on smaller lots and smaller in size, would carry a median price of $415,000, a substantial discount to single-family home prices of around $783,000 for new and $615,000 for existing.
By giving developers more flexibility, and the potential for a higher profit, light touch density would eliminate the preference now shown for “McMansions” and other pricier homes catering to wealthier buyers when homes are scraped in older and popular neighborhoods.
“It pushes down the price of housing overall,” said Arthur Gailes, a data engineer with the AEI Housing Center.
About 2% of the housing stock gets converted to higher-density uses each year under the AEI model. Neighborhoods are transformed, but it happens gradually, over a 40 to 50-year period. Some lots might add an ADU, others might convert into a duplex or triplex, or townhomes might go in.
Rather than forcing what goes in, the market will decide on the product and density that gets built at a given point in time. A heat map that AEI has built shows that light touch density works best in high-cost and constrained housing markets and doesn’t get used as much in oversupplied markets.
Central Denver, which already has high density, would see only marginal gains, although adjacent neighborhoods could see gains of up to 40% in their housing stock. Large swaths of the metro area, mostly suburban areas like Lakewood and southern Aurora, could see gains of 60% to 80% or more.
Renters would have a much better chance to own a property, build equity and live closer to work under a light touch density approach, Pinto argues. Developers would benefit from a higher return on the land they acquire and they would be less inclined to scrape a lot and build larger homes catering to the wealthy.
Smaller investors, including local general contractors, would drive most of the conversions.
From an environmental perspective, more infill redevelopment reduces sprawl and the loss of open space and farmland. Newer more energy and water-efficient homes can replace older ones. Commute times and emissions from traffic are also reduced if people live closer to their work.
The Salvation Army and other advocates for the homeless are among the groups supporting light touch density and other approaches that boost the housing supply.
“The median home price to the median income can explain 78% of the difference in the rate of homelessness,” said Major Ethan Frizzell with the Salvation Army’s southern territory, who spoke at the AEI event.
Out of 59 indicators, including personal attributes and the amount of prosperity in an area, nothing else comes close to explaining why some cities have a much higher homeless rate than others. Metro areas with greater housing affordability, even if they have lower incomes, have fewer people living unsheltered.
For local governments, higher density boosts property tax revenues by getting a higher use out of the available land, and a lower tax burden per household, Pinto said, pitching his toughest potential customer. Additional rooftops also attract more businesses and generate more sales tax revenues.
But following the LTD model also requires that local governments relinquish control, something they have been loathe to do. When change is required, those who benefit the most from the current system are the most likely to resist, Pinto acknowledges.
For that group, he asks a simple question: “Where do you want your children and grandchildren to live?”
