'We Don’t Have Certainty Yet': Inside Denver's Affordable Housing Strategy

Twenty-five percent of renters in Colorado spend more than 50% of their monthly income on housing expenses, with the state now ranking as the third-most expensive in the U.S.

To alleviate cost-of-living concerns, cities such as Denver have enacted inclusionary zoning programs in which a certain percentage of new housing developments are set aside as affordable units.  

But what was enacted four years ago as a tool to increase housing affordability has drawn some criticism. Critics argue that forcing developers to include affordable units in their projects can discourage new construction and potentially raise overall housing costs.

“There are several pending challenges to inclusionary zoning ordinances like Denver's nationwide,” said Andy Peters, shareholder at Otten Johnson Robinson Neff + Ragonetti PC. “We have some district court opinions, but we don't have federal circuit decisions about this. This process is probably going to play out over a long time. We don't have certainty yet.”

However, Peters said it seems as if courts are, so far, lining up behind the idea that inclusionary zoning is a constitutional way of delivering affordable housing. This is good news for the myriad jurisdictions that employ inclusionary zoning as an affordability tool but perhaps less so for market-rate housing developers hoping to make projects pencil, he said.

Denver’s Expanding Housing Affordability Ordinance is one of the most extensive programs. It requires new residential development of 10 units or more to designate 8% to 12% of rental units as affordable housing at 60% of the area median income and 12% to 15% of for-sale units as affordable at 70% AMI. These units will remain subsidized for up to 99 years. 

Developments smaller than 10 units face linkage fees, ranging from $5 to $8 per SF, to fund construction of affordable housing throughout the city.

Developers can opt to pay a fee in lieu of compliance with these regulations, ranging from $250,000 to nearly $500,000, based on the size of the project.

“I appreciate what folks in Denver are doing to deliver more affordable housing, but it is certainly the case that everyone I'm aware of who has had a chance to avoid complying with EHA is seeking to do that,” Peters said. “Everyone is trying to extend their pre-EHA approvals to avoid having to comply with these regulations.”

These mandatory regulations have been met with resistance from some developers in the region, with one Denver-based developer, RedT Homes, in conjunction with the Pacific Legal Foundation, bringing a lawsuit against the city and county of Denver in 2025. The suit argued that the city’s inclusionary zoning policies were unconstitutional, claiming the EHA ordinance and its linkage fees violate the Takings Clause of the Fifth Amendment. 

On March 3, a Colorado federal judge dismissed the lawsuit. The Pacific Legal Foundation has not yet decided whether to appeal.

Peters said developers seem displeased with the policy because it hits their balance sheets. These mandatory regulations and fees also come at a time when high construction costs and elevated interest rates are affecting a developer’s bottom line — making it difficult to get deals to make financial sense. A project that doesn’t get built doesn’t deliver any affordable units, he said.

“Construction costs are the single biggest barrier right now,” he said. “They've been rising dramatically, and tariffs have added to construction costs, too.” 

According to the National Association of Home Builders, about 25% of the price tag on a new single-family home comes from regulations at the local, state and federal levels. This equates to nearly $95,000 on average. It’s also estimated that the cost of construction materials has risen more than 40% since 2020 — far outpacing inflation. 

To fight against these turbulent market conditions in Denver, a city that faces a housing shortfall of more than 100,000 units, some developers are getting creative. 

“A lot of people are availing themselves of new tools that are available here in Colorado,” Peters said. “There are several relatively new funding streams to get more affordable housing in the mix.”

The Colorado Housing and Finance Authority’s Middle-Income Housing Tax Credit subsidizes developers to build housing for middle-income households. Colorado’s Middle-Income Housing Authority aims to provide financing opportunities by issuing bonds to lower borrowing costs. Proposition 123 created the state’s Affordable Housing Fund, allocating a portion of Colorado’s annual tax revenue to support affordable housing through grants, loans and assistance programs.

Peters said Otten Johnson, as a real estate law firm, is frequently involved in land use and acquisition work. It also helps its clients navigate complex regulatory processes to deliver projects successfully. 

“It can be difficult to work through local governments that have complex processes or when neighbors try to put barriers in place of delivering affordable housing,” he said. “Navigating this as well as navigating community input, too, is something that we specialize in. We also work through litigation on the back end.” 

For instance, he said if neighbors sue to block a project, Otten Johnson can work with either private developers or housing authorities to make sure the approvals for that project survive and can move forward despite the conflict.

“The lack of affordable housing is a real concern in Denver,” Peters said. “At very deep levels of affordability, the market is just not going to supply it without some sort of subsidy or financial support. Having dollars out there to deal with this challenge is really a significant component of delivery.”

This article was produced in collaboration between OJRNR and Studio B. Bisnow news staff was not involved in the production of this content.

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