By Robert Davis

New data published by the Colorado Housing Finance Authority (CHFA) illustrates some reasons why Colorado struggles to build new homes.

The Affordable Housing Development Cost Dashboard, which was published on December 10, compiled data on the cost of housing development over the last five years. It compared the cost of both new construction and renovation projects that received funds from the 9% Low Income Housing Tax Credit (LIHTC), the 4% LIHTC, and state housing grants.

Overall, the dashboard says Colorado has built 219 developments using federal tax credits over the last five years with nearly 25% of that total coming in 2021 alone. The average per-unit development cost over that time frame is $289,737, or $286 per sq. ft.

But the average cost per unit increased by 8% to $313,442 or $314 per sq. ft. in 2021. Kathryn Grosscup, CHFA’s housing tax credit manager, told Denver VOICE that the increase is due to several market factors such as growing labor and supply expenses.

“This is not unique to affordable housing, as the same cost increases affect market-rate housing development, but the more expensive affordable housing becomes to develop, the more subsidy is needed to make projects feasible to develop and operate,” Grosscup said.

One of the main reasons why it is so expensive to build homes in Colorado is the state’s labor market. In 2021, Colorado’s state minimum wage increased to $12.32 per hour, and it will increase again in 2022 to approximately $12.56, due to inflation.

When labor costs are combined with other expenses, such as the price of lumber and other construction materials, the dashboard says these costs can make up as much as 56 % of a project’s total funding, or more than $161,000 per unit on average.

According to the Colorado Department of Labor and Employment, the situation may get worse in the near term. CDLE’s industry projections estimate that the state’s construction industry will grow by just 2.1% through 2023, ranking it below industries like Agriculture and Educational Services.

While the statewide housing shortage is impacting nearly every Coloradan, CHFA’s dashboard shows that the cost of development varies greatly by region. For example, Denver received federal subsidies for 138 projects at an average development cost of more than $308,000 per unit compared to the 73 other projects throughout the state that received subsidies at an average cost of $237,000 per unit.

Grosscup said the federal subsidy that developers choose can also influence their project’s total cost. According to the dashboard, 174 developers in Colorado that use federal subsidies received the 4% Low Income Housing Tax Credit (LIHTC) over the last five years. The dashboard also explained projects that received the 4% LIHTC carried an average total development cost north of $287,000 as well.

For comparison, just 68 projects received the 9% LIHTC, which is designed to reach deeper affordability, Grosscup said. These projects also carried a higher total development cost at more than $313,000 per unit and typically serve families making up to 60% of an area’s median income.

Projects that receive the 9% LIHTC and reach deeper affordability levels also tend to carry higher development costs because they often include special provisions such as supportive services, trauma-informed designs, and tend to be in non-metro areas, Grosscup said.

“However, developments supported by Housing Tax Credits, no matter the type of credit, can serve a range of incomes and needs along the spectrum; these are more common characteristics of those supported with 9% credits,” Grosscup added.

As examples of developments that serve a range of income types, Grosscup points to the Valor on the Fax and the Avi in Olde Town Arvada. CHFA awarded the Avi a 4% LIHTC to develop more than 100 affordable units, including 30 units for youths aging out of foster care.

Similarly, the Valor on the Fax received a 9% LIHTC and will provide 72 units of affordable rental housing to homeless families and individuals, specifically those living with brain injuries or related disabilities.

According to Grosscup, this is not the first time the agency has published data on this topic. The last time CHFA released similar data was in 2015. But, Grosscup said the data is still often requested by stakeholders and developers which led to CHFA developing this first-of-its-kind public dashboard.

“CHFA seeks to provide affordable housing data and information when possible and we’re excited to offer this latest resource,” Grosscup said.

Affordable housing dashboard illustrates Colorado’s struggles to build homes

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