When William Raihl moved to Colorado from Indiana to work at the Salvation Army, he and his wife expected to buy a house, settle down and eventually retire.
They understood that a home in metro Denver would cost them more than the $186,000 they spent buying a home outside Indianapolis in 2015 just before they moved. They didn't appreciate how much more.
“We realized pretty quickly that we were going to be too expensive,” said Raihl, director of real estate for The Salvation Army in Colorado, Wyoming, Utah and Montana.
The couple financially considered taking out a $400,000 mortgage, but decided against it, only to watch prices rise further out of reach. They rent a house in Lakewood, where Zillow estimates the median home price at $588,601.
In 2020, they sold the house in Indiana and bought a property outside Phoenix in Maricopa for $254,000. When it's time to retire, it won't be in Colorado.
Colorado's Front Range has become one of the most expensive places to live outside of either coast, largely due to an imbalance between housing supply and demand. Up for Growth estimates the state has a shortage of more than 100,000 homes and apartments, while Zillow estimates the shortage in metro Denver at 70,000.
Solutions are hard to come by, and when they are proposed, they are hard-fought, like Governor Jared Polis' failed land use reform bill last year. Denver, a local leader in allowing greater density, has faced backlash over its inclusionary zoning rules, which set aside some apartments as affordable.
A right-wing think tank, the American Enterprise Institute, came to Denver to pitch a free-market solution to solve the state's housing shortage in less than three years and generate thousands of new homes priced at about $400,000.
“We need smaller houses on smaller lots,” Edward Pinto, co-director of the AEI Housing Center in Denver, said 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 center housing, and is not a new concept. It was the preferred development model before the suburbs implemented zoning regulations in the postwar era that promoted the development of single-family homes and a culture of commuting.
Proponents like AEI see light touch density, or LTD, as an alternative to the “barbell” approach that favors high-density apartments on one side and low-density single-family homes on the other. Enough cities have adopted LTD or variants of it that AEI can build case studies and run models for how it could work in the Denver and Colorado metro areas.
AEI recommends that state and local governments legalize “by-right” zoning, giving lot owners the right to develop up to six units. In some places the limit may be four, in others eight, but the aim is to make more efficient use of the available land.
Land use rules should be kept short and simple. Minimum lot size rules must be set at 1,000 square meters per unit for infill or demolition of existing lots. The minimum for raw land would be 1,000 square feet for attached dwellings, such as townhomes and condos, and 5,000 square feet for single-family homes.
The state should require cities and counties to approve residential uses in commercial, industrial and mixed-use core areas, as well as light touch density within one-eighth of a mile of those core areas. This buffer will prevent the rich from building large houses just outside the city center.
“You will unleash a swarm of homes,” Pinto said. “This type of housing is not done by large developers, but by many small players.”
A light approach, as opposed to the heavy approach of building large apartment and condo towers, would generate 44,213 additional housing units annually in Colorado, while adding another 27,000 in metro Denver, AEI estimates. Both represent a doubling of recent housing and apartment construction figures.
If this is achieved, the housing shortage could be eliminated within 2.5 years, AEI estimates. A balanced market would allow house prices to be more closely aligned with incomes, which has historically been the case.
About 28% of those new units statewide would be accessory dwelling units (ADUs), or smaller homes built in backyards or above garages. Denver has paved the way for more of these problems, and a bill recently passed by the Legislature requires all parts of metro Denver to expand their willingness to allow ADUs.
About 15.3% of the “additional” homes would come in master-planned communities like Aurora Highlands and Sterling Ranch. These greenfield areas would likely receive a lighter approach to the light-touch approach.
Just under half of the planned new homes would come from infill options, typically the elimination of older single-family homes in existing neighborhoods. In metro Denver, that share would rise to about two-thirds.
AEI estimates that the new infill homes, built on smaller lots and smaller in size, would have an average price of $415,000, a significant discount from single-family home prices of approximately $783,000 for new and $615,000 for existing.
By giving developers more flexibility and the potential for higher profits, light touch density would eliminate the bias now shown for “McMansions” and other higher-priced homes that target wealthier buyers when homes in older and popular neighborhoods are demolished.
“It drives down the price of housing overall,” said Arthur Gailes, a data engineer at the AEI Housing Center.
According to the AEI model, approximately 2% of the housing stock is converted to higher density uses each year. Neighborhoods change, but this happens gradually, over a period of forty to fifty years. Some lots could add an ADU, others could be converted into a duplex or triplex, or could house townhomes.
Rather than forcing what goes in, the market will decide the product and density built at any given time. A heat map that AEI built shows that light touch density works best in expensive and tight housing markets, and is not as commonly used in oversupplied markets.
Central Denver, which already has high density, would see only marginal gains, although adjacent neighborhoods could see up to 40% gains in their housing stock. Large parts of the metro area, mainly suburban areas such as Lakewood and southern Aurora, could see gains of 60% to 80% or more.
Renters would have a much better chance of owning a home, building equity and living closer to work if there was light touch density, Pinto argues. Developers would benefit from higher returns on the land they acquire and would be less likely to scrap lots and build bigger homes for the wealthy.
Smaller investors, including local general contractors, would account for most of the conversions.
From an environmental perspective, more infill redevelopment reduces sprawl and the loss of open space and agricultural land. Newer, more energy and water efficient homes can replace older homes. Travel times and emissions from traffic are also reduced when people move closer to work.
The Salvation Army and other homeless advocates are among the groups supporting light touch density and other approaches that increase housing supply.
“The average home price relative to average income can explain 78% of the difference in homelessness,” said Major Ethan Frizzell of the Salvation Army Southern Region, who spoke at the AEI event.
Of the 59 indicators, including personal characteristics and the level of wealth in an area, nothing else comes close to explaining why some cities have much higher homelessness rates than others. Urban areas with greater housing affordability, even though they have lower incomes, have fewer people living without shelter.
For local governments, higher density increases property tax revenue through higher use of available land and a lower tax burden per household, Pinto said, pitching his toughest prospect. Additional roofs also attract more businesses and generate more sales tax revenue.
But following the LTD model also requires local governments to relinquish control, something they hate. When change is needed, those who benefit most from the current system are most likely to resist, Pinto acknowledges.
He asks a simple question for that group: “Where do you want your children and grandchildren to live?”
