Protecting Property Owners and Housing Affordability

Colorado Senate Committee on State, Veterans, and Military Affairs

Thank you, Chair Gonzales and members of the committee. I am Emily Hamilton, a senior research fellow at the Mercatus Center at George Mason University, where I am codirector of the Urbanity Project. The Mercatus Center is dedicated to advancing knowledge relevant to current policy debates. Toward this end, its scholars conduct independent, nonpartisan analyses of legislation, rules, and proposals. My remarks today will focus on three points:

1. Local zoning restrictions contribute to a housing affordability problem facing a large portion of Colorado households.
2. Under the status quo, local policymakers have an incentive to implement policies that restrict housing supply and make housing more expensive.
3. By banning growth caps and requiring local governments to compensate property owners for new zoning rules that take away development rights and reduce property values, the Property Ownership Fairness Act would increase opportunities for more new housing at lower prices.

Zoning and Housing Affordability

In Grand Junction, where I grew up, house prices have increased 57 percent in inflation-adjusted terms since 2000. Across the state as a whole, house prices have increased by nearly 80 percent over the same time period. More than half the state’s low-income households that rent are housing-cost burdened. This means they spend more than 30 percent of their income on rent, often leaving them without enough money left over for other necessities.

The housing affordability problem is the result of population growth meeting local zoning rules that limit housing construction and raise the price of the housing that does get built. Some localities have gone so far as to set growth caps—i.e., hard limits on the amount of new housing they will permit. All Colorado localities have rules that limit multifamily construction, enforce minimum-lot-size requirements, and mandate parking. Each of these rules contributes to the cost of new housing.

Housing affordability challenges are not an inevitable result of population growth. It is only within the past few decades, as local land use restrictions and housing approval processes have become more burdensome, that house prices have consistently risen faster than construction costs across the country. Many Colorado localities have repeatedly downzoned their land, reducing their property owners’ rights to build housing.

Incentives to Limit Housing Construction

The costs of new housing construction are local, often falling on people who live directly next to a new development. But the benefits of new housing are widespread. Primarily they go to people who will live in the new homes. These people may not even be residents of the locality where the new housing will be built at the time that it is proposed. As a result, local policymakers tend to place greater weight on the costs of housing construction than the benefits. They regularly pass rules that chip away at property owners’ rights to build new housing.

Because most states permit local officials to restrict development rights without compensating property owners for doing so, local officials face little downside to implementing stricter zoning rules over time. State policymakers therefore have a role to play in protecting property owners’ development rights and legalizing housing construction.

Putting a Price on Property Rights

Currently, Colorado’s property owners have little recourse when their local policymakers pass zoning rules that take away their development rights and reduce their property values, unless the rules leave their properties with no economic value at all. But the Property Ownership Fairness Act would offer property owners a simple path to seek recourse if new land use restrictions reduce their property values.

This bill would change the calculus facing the policymakers who determine land use regulation at the local level. It would require them to weigh the benefits of new land use restrictions against the fiscal cost of implementing them, rather than considering the benefits of new zoning restrictions in isolation.

In Arizona, a similar law contributed to local officials refusing to pursue proposals for downzoning when the costs to taxpayers of these proposals became clear. It has helped to prevent the expansion of zoning rules that stand in the way of relatively low-cost housing construction. Legislation that stands in the way of downzoning will make housing in Colorado more affordable than it would be without this protection of development rights.

Conclusion

Protecting development rights and housing affordability go hand in hand. Offering property owners a reasonable path for receiving compensation when their development rights are taken away can be expected to protect opportunities for new housing construction at lower prices than under current law.