Initiative 108 Offers a Flawed Promise of “Affordable” Housing – Complete Colorado – Page Two

The supporters of Initiative 108, titled “Dedicate Revenues to Fund Housing Projects,” promise the ballot measure will create a reliable revenue stream to increase affordable housing in Colorado. Unfortunately, neither proposition is true.

The initiative, currently in the signature-gathering phase, would exempt 0.1% of personal and corporate income tax, inheritance tax and gift tax from income limits under the Declaration of Taxpayer Rights (TABOR), while dedicating the money to funding affordable housing projects. These projects are described in detail, but generally fall into three broad categories: 1) support for land trusts, which purchase and hold land for a specific purpose, in this case affordable housing; 2) debt financing and gap lending at below market interest rates, where the fund would not take any ownership position in a project; and 3) equity financing, where the fund would take a partial ownership position.

Equity and debt financing methods would retain investment income and either reinvest it or use it to fund a tenant equity vehicle, in which tenants would share in the equity growth of the development and could use the proceeds. for a down payment on their own home. The money could also be used for other forms of down payment assistance. I will say that, despite the drawbacks of this regime, it was a pleasure to read a measure that at least used “equity” to mean capital, rather than racial discrimination.

Any jurisdiction receiving money from the fund is expected to increase its affordable housing stock by 3% each year, which may or may not be sustainable without running out of space.

Define “affordable”

The measure defines “affordable” as rent or a mortgage costing no more than 30% of renters’ or homeowners’ income, where renters would earn no more than 60% of the region’s median income and buyers would earn no more 100% of income. the median income of the region. But if a jurisdiction believes that the use of this standard interferes with its style, resulting in “implementation of this section in a manner inconsistent with the housing and labor needs in the jurisdiction”, it may request to base its affordability calculations on a neighboring jurisdiction instead.

As I read, it could cut either way. This could prevent gentrification, but it could also prevent low-income residents from moving into the grounds of the Country Club. It also smacks of centralized economic planning: labor needs change all the time, and after a factory leaves or sets up, the government will likely be slow to respond.

Some of the explicit requirements are problematic in themselves. Preference should be given to “high density” housing, which has demonstrated increased traffic and has been associated with increased crime. Preference should also be given to “projects compatible with the objective of environmental sustainability”. In other words, adding the kind of building code requirements that add thousands of dollars to the cost of new or replacement housing. The measure also inappropriately confuses the problem of homelessness with the lack of affordable housing.

A volatile revenue stream

Also, the revenue stream will likely turn out to be less secure and less predictable than expected. The authors of the measure chose personal and corporate income tax (inheritance and gift tax revenues are negligible in comparison) because these form the bulk of government revenue. According to Pew Trusts State Fiscal Health Project, Colorado received 54.5% of its income from state income tax in fiscal year 2021, and an additional 6.8% from corporate income tax. Only three states – Oregon, California and New York – got more of their income from personal income tax.

The problem is that Colorado also has the 14e– the most volatile state revenues from 2001-2020. Of this amount, the personal income tax component has been the most volatile. Total income taxes fell by 20% from peak to trough in the 2008 recession and by 19% in the milder recession of 2001. The Treasury will transfer money quarterly on the basis of revenue projections, adjusted to actual revenue. But corporate income tax revenue in the second quarter is generally 3 times higher than in the first quarter, and personal income tax is generally 60-80% higher during the same period. Finally, these projections rarely see recessionary revenues fall until they are already in the rearview mirror. This all combines to make projection and planning difficult at best.

And it is not even certain that the money collected would be enough to make the difference. In financial year 2021, Colorado took in $11.5 billion in tax revenue (gift and estate taxes were $0). This translates to $11.5 million under the bill. That sounds like a lot of money, until you realize that a group recently purchased housing for 99 veterans and it cost nearly double that. A less affordable building is planned in the Denver Tech
Center, with 252 units, costing $90 million. Indeed, the state legislature has set nearly forty times that amount in affordable housing projects this year.

All of this contributes to further government involvement in the real estate sector, using volatile sources of revenue that neither developers nor those looking for housing can count on, to produce housing that ends up trapping people rather than encumbering them. release.

There’s another way

Rather than seeking to warp the housing market to central planners’ ideas of how people should move, gently relax zoning regulations. Rather than focusing on high-density housing that aggravates traffic and gives people no place to ride, loosen the zoning of single-family homes to allow semi-detached housing where the lots will support it. Allow people to build rental units in their backyards or convert their garages. These things could be done without changing the character of a neighborhood like a 7-story apartment building in a suburban cul-de-sac would.

Above all, stop trying to turn the Colorado Department of Transportation (CDOT) into density policing, cramming people next to freeways and light rail while keeping huge swathes of Jefferson, Adams, and counties undeveloped. Arapahoe.

These measures will create more inventory of all types, ensuring that all echelons, from apartment to ex-urban spread, are accessible to people as they move up.

And you won’t have to spend taxpayers’ money to do it.

Joshua Sharf is a Senior Fiscal Policy Researcher at Independence Institutea free market think tank in Denver.

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