Colorado lawmakers are reviving the right of first refusal for affordable housing

Nine years ago, one of Silverthorne’s few income-restricted homes was sold to a private company. The sale – at a price that was double the appraised value of the property – concerns expressed in the pricey mountain community that the new owner of the Blue River Apartments could lift the rent caps that had kept the 78 units affordable when the requirements expired.

That expiration date was set for this year, and local officials were concerned enough that they struck a deal with the new owners in Greenwood Village to extend affordability protections until at least the end of 2025, in exchange for $650,000.

But if the city had known about the sale as early as 2015, said Ryan Hyland, Silverthorne’s city manager, officials could have tried to raise the money to buy the apartment complex — or prevent its sale to someone else. to arrange.

As Colorado faces a tidal wave of expiring affordability requirements in the coming years, state lawmakers hope to give local authorities the opportunity Silverthorne didn’t have. House Bill 1175which has already passed in the House of Representatives, would give municipalities a right of first refusal to purchase subsidized housing when it comes up for sale, and would also require more notice of the expiration of affordability covenants.

Once the owner has agreed to a price with a private buyer, the town or city – or a group acting on its behalf – can step in and match the offer so that the units are not converted to market-rate rentals once affordability requirements expire.

“If these expire, (the new owner) could charge market rents. That’s a smart business decision if you’re buying a property with that in mind,” Hyland said. “As you can imagine, there are these types of deals that are happening and the local government has no idea they are happening so there is no opportunity for a conversation.”

In the case of Blue River Apartments, as the original expiry date approached, the president of Tralee Capital was appointed in 2020 told the Summit Daily that he was unwilling to say how rents would change.

The bill passed the House of Representatives 38-23 earlier this month and now heads to the Senate. It’s the second attempt by a group of Democratic lawmakers to pass a “right of first refusal” policy, which they say would give local governments a chance to protect renters from for-profit developers who buy properties and raise rents .

The first step in adopting the policy was a broader approach that would also have applied to the sale of buildings at market prices. It was passed by the Legislature last year after extensive debate and negotiations.

But business groups successfully lobbied Gov. Jared Polis to veto it, drawing sharp criticism from Democratic lawmakers who supported it.

The veto urged supporters to limit their approach this year. They focused on preserving the state’s existing subsidized housing stock, which threatens to shrink in coming years, said Rep. Andy Boesenecker, a Fort Collins Democrat.

Colorado is home to about 111,000 subsidized units with affordability requirements, according to data from the Colorado Housing and Finance Authority. It’s expensive and complicated to build subsidized housing projects, and developers largely rely on federal tax breaks to make the financing work.

These tax credits include requirements that rents be capped based on certain income levels.

But the requirements are limited in time and often last at least 30 years. Over the next decade, 15,000 affordable units here will no longer be subject to the caps that keep them within reach for lower-income Coloradans.

This does not mean that these properties will be immediately sold or converted to market rents or prices. But the looming expiration dates are a warning sign for housing advocates as they work to protect the state’s affordable housing stock.

When subsidized properties with escalating affordability requirements are purchased by private companies, “we see rapid and significant rent increases – we see less investment in maintaining the property and caring for the residents,” said Kinsey Hasstedt, senior program director for state and local policy at Enterprise Community Partners. “So we’re trying to break that.”

Preservation of houses or cold markets?

Opponents and skeptics, representing business groups and property owners, have argued that the bill would hinder development in the state.

“Our biggest fear about this has been: Are we going to create a chilling effect on capital and markets, and then we won’t get the results we want, which is more homes on the market?” said Ted Leighty, the CEO of the Colorado Association of Home Builders, in testimony at an initial committee hearing in February.

But advocates say preserving subsidized housing is especially important now — not just because of declining affordability requirements, but also because of Polis’ preferred solution to the housing crisis: more housing, built more densely, in Colorado’s cities.

While some of the proponents of the right of first refusal bill also support Polis’ land use reforms, this policy approach, if successful, will take years to bear fruit. They have repeatedly emphasized the need to provide relief in the meantime, given the severity of the state’s affordability crisis.

“We need to start by preserving the existing affordable housing that we have,” Hasstedt said. “Otherwise we’ll keep digging the hole deeper and deeper and never get out.”

The change in approach, along with changes made during the bill’s journey through the House of Representatives this year, successfully neutralized some of last year’s opposition, including from groups representing bankers and property insurers.

But other old foes, including the Colorado Apartment Association and the powerful Colorado Concern business group, remain opposed. That includes Republican lawmakers, who view the bill as an infringement on the rights of property owners.

“If you’re thinking about investing $20 million in an affordable project in Colorado, you’re still concerned about having this cloud on the title of what you’re developing, and (some may decide) to go elsewhere because of that to go,” said Drew Hamrick, the senior vice president of government affairs for the apartment association. “We still believe in and are concerned about the stigmatizing effect this has on housing investment.”

Hamrick argued that the policy would drive down development prices because potential buyers would not invest as much time or money in researching and bidding on properties that could ultimately be owned by a local government anyway.

He said he supported another part of the bill that would give local governments a “right of first offer” on properties for sale at market rates. But he was bluntly against the rest.

Other groups and entities seeking changes to the bill have ties to high-profile developers and property owners.

The path to the governor’s office

The bill now heads to the Senate, where the broader measure passed last year after delays and negotiations. If passed, the bill would introduce the first right of first refusal of its kind across the country.

Some cities, counties and housing associations have a version of the policy and lawmakers in it Maryland has advanced legislation that includes a right of first refusal for tenants to purchase their properties.