Ballot Issue 2R: A Denver sales tax hike could generate $100M a year for affordable housing
Colorado Sun
Denver voters are being asked to dramatically expand the city’s affordable housing programs by raising the local sales tax 5 cents for every $10 spent.
Known as Ballot Issue 2R, the measure was proposed this summer by Mayor Mike Johnston and placed on the ballot by the Denver City Council. It could raise an estimated $100 million each year that city officials say could generate upward of 40,000 affordable housing units over the next decade.
Many of the specifics remain to be ironed out. But the ordinance authorizing the measure calls for a mix of programs that would help low- and middle-income renters, as well as homebuyers through down payment assistance.
If approved by voters, the 0.5% tax would bump Denver’s sales tax rate to 9.31% on qualifying sales, effective Jan. 1. The rate could go as high as 9.65% if voters approve a second measure on the Nov. 5 ballot that would raise sales taxes for Denver Health.
Here’s what else you should know about Ballot Issue 2R.
How does Denver fund affordable housing currently?
Most affordable housing in Colorado is built with federal government help through block grants and the low-income housing tax credit. But federal funding for affordable housing has declined even as Colorado’s housing crisis has grown.
The state has stepped up its contributions in recent years, expanding state tax credits and creating new grant programs to develop workforce housing.
In 2022, voters statewide also approved Proposition 123, which sets aside around $300 million in state income tax dollars each year for a variety of affordable housing programs across Colorado. Johnston was behind that initiative, too.
The city’s Department of Housing Stability has two major local funds to develop affordable housing.
The first is the Affordable Housing Fund, which was first created in 2017. In 2023, it was expected to generate $47 million through an affordable housing fee on development and a 0.5-mill property tax, according to city documents.
The second is the Homelessness Resolution Fund, which voters created in 2020 when they approved a 0.25% sales tax. It was expected to generate $49 million in 2023.
Combined, the programs helped create around 3,400 affordable units over the past four years, according to the city’s affordable housing dashboard.
Despite all the new funding, affordable housing advocates say it’s still not enough to solve the state’s affordability crisis.
“We think this is part of the challenge of the measures that have been put in place in the past,” Johnston told The Colorado Sun in an interview. “They haven’t put together a plan at the scale of the problem. And so people continue to be frustrated. They don’t see us making progress.”
Denver alone faces a shortage of 44,000 affordable units over the next decade, according to a Denver Regional Council of Governments housing study, a target that Johnston says the proposed sales tax should be able to achieve.
How would the money be spent?
In crafting the ballot measure ordinance, the Denver City Council left future administrations some wiggle room in how to divvy up the money and administer the programs.
Johnston told The Sun he plans to spend the tax proceeds in four ways:
- Rental assistance to bring down the cost of a tenant’s lease to a level considered affordable — no more than 30% of their income
- Helping nonprofit and private sector partners buy existing housing complexes. Deed restrictions would be put in place to keep rents affordable.
- Providing financing to private and nonprofit housing developers to build new, permanently affordable units
- A $50,000 down payment assistance program for qualifying homebuyers with good credit. If the buyer refinances their home or sells, they would have to repay the $50,000 to the city, replenishing the fund to help additional homebuyers in the future.
The city can also spend up to 3% of the revenue — about $3 million a year, to start — on administrative costs.
Who would qualify for affordable housing through the program?
The ordinance directs the bulk of the funding to those making 80% of the area median income or less.
Under federal low-income housing rules, an individual making up to $71,900 could qualify, or a four-person family making up to $103,000.
But there are a few caveats.
Mixed-income rental housing projects can qualify for funding as long as the average tenant makes less than 100% of the area median income, or up to $130,000 for a family of four.
Homebuyers and existing homeowners can qualify for assistance if they make less than 120% of the area median income. That’s around $156,000 for a family of four.
Local housing studies show the greatest need is among families making 60% or less of the area median income — about $55,000 for an individual or $78,000 for a family of four.
In the broader metro area, there are 41 affordable units for every 100 renter households who make 50% of the median income or less; at 80% of area median income, there are 91 affordable homes for every 100 households, according to the National Low Income Housing Coalition.
“We think there is clearly need at all (income) levels,” Johnston said. “And what we hear overwhelmingly from people is that working-class folks are being forgotten. There are a lot of programs right now for zero to 60 (percent of area median income), there are very few programs for 60 to 100 (percent) and so we think it’s important to do both.”
How would it affect the cost of living in Denver?
The median rent in the Denver metro area is just shy of $1,900 a month. That’s considered unaffordable for those making less than $75,000 a year.
The median home price is over $600,000 — about double what the average middle-income household can afford.
For those who receive housing assistance through the program, the measure could dramatically reduce the cost of living. It would limit a household’s rent to 30% of their income, and help prospective homebuyers afford a home of their own.
To the extent that it builds new units, it could also mitigate the rise in housing costs for everyone else by increasing overall supply.
However, the measure would also increase the cost of living in Denver through higher sales taxes.
Today, Denver retailers must charge 8.81% on qualifying goods, but not all of it goes to the city.
The state sales tax rate is 2.9%, while the city charges 4.81% for general city services and programs like parks and preschool. The Regional Transportation District receives a 1% sales tax, and the remaining 0.1% goes toward the Scientific and Cultural Facilities District.
Sales taxes are generally considered regressive, meaning the less money you make, the more of your income you spend on them. As a result, a tax hike could disproportionately raise costs on some of the very people who the program is trying to help.
But supporters point to one important caveat: The sales tax increase would not apply to many essentials, such as food, fuel, medical supplies and some personal hygiene products.
Additionally, city officials estimate that visitors account for as much as 1 in every 3 sales tax dollars collected in Denver.
Who is spending money to support and oppose Ballot Issue 2R?
As of Sept. 30, the Affordable Denver campaign had raised $484,000 in support of the ballot measure, according to the city’s campaign finance portal.
Top donors include homebuilder Patrick Hamill of Oakwood Homes, venture capitalist Jim Kelley and vacation rental service Airbnb; each gave $50,000.
Affordable housing groups and the Apartment Association of Metro Denver also gave to the campaign.
The city elections division did not report any registered campaign committees that had raised money to oppose the measure.
What’s next:
⬅️ Proposition 131 | Denver’s Ordinance 309 ➡️