By Sarah Tory
Posted March 28, 2024
The first house that Michelle Chávez owned was in a suburb south of Denver. To pay her mortgage, she worked three jobs—for Arapahoe County, Home Depot, and at a nearby golf course. But when Chávez became pregnant, she had to quit two jobs and couldn’t keep up with her mortgage payments. She lost the house and moved in with her parents.
A few years later, Chávez and her parents had a falling out. By then a single mother of three, Chávez tried and failed to find another place to live. She ended up living in her cousin’s house for six months, sleeping on the couch with two of her kids (her other child was living with her ex). Though she had a stable job, her life felt precarious without stable housing.
When Chávez, now 48, and her parents finally mended their relationship, she bought one of their houses on the western side of Denver. Her parents gifted her the down payment—the first step, she said, in finding housing stability. The second step came a few months ago when construction was completed on her accessory dwelling unit, or ADU—a small, independent living unit inside or on the same property as an additional primary residence.
With the rental income generated by her ADU, Chávez hopes to save enough to retire one day and have a place she can offer her kids when they’re older, helping them avoid the housing insecurity she once faced.
“It’s kind of building for my kids,” she said. “That way, when they’re ready to move out, they have a place to go.”
Chávez’s ADU is part of a new pilot program to help stabilize low- to moderate-income homeowners in a part of Denver where the city’s soaring housing market has pushed out many of the area’s longtime working-class residents. The program offers technical assistance and subsidizes the cost of building an ADU for these homeowners. It gives them rental income to help cover rising property taxes and other expenses or a place to house family members needing housing. In turn, the ADUs can boost the number of affordable units since homeowners in the program must rent them below market rate.
Denver, like many other cities in the U.S., is facing an unprecedented housing affordability crisis. According to a July 2023 report from Zillow, the city has one of the nation’s most significant housing shortages, with a 70,000-unit deficit. Meanwhile, Colorado has the eighth most unaffordable housing costs in the country, with over one-third of Coloradans spending more than 30% of their income on rent or mortgage, leaving little left over for other necessities. With the cost and regulatory hurdles associated with building large-scale housing developments, ADUs have emerged as one way to address various housing-related challenges.
In 2016, the Denver mayor’s office created the West Denver Renaissance Collaborative (WDRC), which includes the City and County of Denver, the Denver Housing Authority and various nonprofits, to examine which parts of the city were not recovering from the 2008 recession and which areas were underinvested. They zeroed in on nine neighborhoods roughly bounded by Colfax Avenue to the north, I-25 to the east, Mississippi Avenue to the south, and Sheridan Boulevard to the west—an area that was historically redlined by mortgage lenders and federal, state and local governments from the 1930s into the late 1960s.
I want my good fortune to be something that can benefit other people.”
Ann Karlberg, Denver Resident
Renee Martínez-Stone became WDRC director in 2016. West Denver had already begun a lot of housing-related changes. Historically, the area had a large Latino/a/x population and was where working-class families could afford a house.
By the time Martínez-Stone started with WDRC, higher-income households, rising rents, and investor activity had started displacing low- to moderate-income residents in west Denver. Working-class families renting or owning those homes lost their housing, as wages did not keep pace with rising property taxes and expenses. With 78% of renters and 58% of homeowners considered low-income, “west Denver became particularly vulnerable as households could not keep up financially,” according to a 2022 report on the ADU program.
“If you have to pay $1,000 more in property taxes per year than you’re used to, and if you’re a working-class family and your budget is tight because your wages haven’t increased, and you’re paying the equivalent of $220 extra a month than you were in 2009, on top of inflation—that’s what’s creating some of the instability,” said Martínez-Stone.
Between 2015 and 2021, approximately 13,800 households with students in Denver public schools left west Denver, moving to other cities and other less expensive neighborhoods, per a forthcoming (but not yet published) update on the ADU program for 2023. Data shows many households left west Denver following a real estate transaction where their home or the home they were renting was sold; up to 40% of the property buyers were investor companies.
WDRC leaders saw the urgency for coming up with a solution. To curb displacement and keep families in place, they needed to think beyond short-term financial stabilization and create opportunities for long-term wealth-building.
The large, predominantly single-family lots of west Denver made ADUs viable, creating benefits for homeowners and providing much-needed family-oriented affordable housing without demolishing existing homes. They also allowed homeowners to take their home equity and invest in another house, helping them build wealth. However, few ADUs were being built in Denver despite their inclusion in the 2010 zoning code—the result, said Martínez-Stone, of limited financing options and complex city requirements that made building an ADU expensive.
Indeed, the few ADUs that had been built were in high-end markets since those were the homeowners who could afford to figure out how to put them on their properties. To do that, homeowners must navigate zoning regulations, building regulations and city codes that require addressing sidewalks, setbacks, sewage and water.
“It was an equity issue,” said Martínez-Stone. “If you don’t have the means, or the technical assistance and the time to figure all that out, you have less access to building an ADU.” Additionally, chronic underinvestment in west Denver, a legacy of the redlining, means that many alleys are narrow and unpaved and many sidewalks are missing or damaged, making it more complex and expensive to build an ADU in many west Denver neighborhoods.
For the WDRC, the goal was to figure out an ADU program on behalf of low- and moderate-income homeowners. In 2019, they launched the West Denver Single Family Plus (WDSF+) ADU Pilot Program, which would subsidize the cost of building an ADU for homeowners who could finance the remainder—crucially, the program partnered with FirstBank to offer a specialized ADU loan with a low interest rate (several other banks now offer similar loans).
Homeowners can apply for forgivable loans of up to $30,000 through funding from the city, so long as they follow a set of stipulations for at least 25 years: If a homeowner makes 81% or more of the area median income, they must rent the ADU to someone earning 80% or less to qualify. If the homeowner earns 80% and under, the tenant isn’t required to have a specific income. Short-term rentals on platforms like Airbnb or VRBO are prohibited.
The program pays for the upfront technical analysis to see if an ADU is feasible on a property. Homeowners then choose from seven pre-approved ADU designs, depending on their needs and budget. A Habitat for Humanity construction crew builds the ADU, and the WDRC also offers homeowners free property management training.
All told, the program gives homeowners the chance to build an ADU at $100,000-$150,000 below market rate, said Martínez-Stone.
Chávez’s ADU is a tiny home with a front porch and French doors that open to the side of the house, giving the occupants their own little yard. She rented the unit to a family her son knows who had been unhoused for a while, living in various hotels. Now, they have a stable place to live.
Other program participants have built an ADU for parents to live in as they age or for their adult children and their families. Another participant had been unhoused in the past and wanted to create more financial stability. One of the program’s surprise outcomes has been the number of participants who are using the ADU to house family members who cannot afford market rent or face barriers to independent living, said Jennie Rodgers, vice president for programs at Enterprise Community Partners, a national affordable housing nonprofit. (Enterprise Community Partners, a past Colorado Trust grantee, is familiar with the ADU program but not involved with it.)
Still, there are limits to what ADUs can accomplish, said Rodgers. They’re unlikely to help people who are unhoused or need permanent supportive housing. Nor will they help people in the lowest income bracket who can’t access loans. Ultimately, Denver needs denser housing solutions with more units—but, she added, “we can’t just rely on public resources to build large rental properties and expect to solve our affordable housing crisis. We need a blend of strategies.”
Additionally, Rodgers said, the ADU program allows residents to be part of the housing affordability solution. Ann Karlberg, a social worker, bought a house on the west side of Denver 38 years ago with her parents’ help and now owns it outright after paying off the mortgage. During the COVID-19 pandemic, she attended educational seminars on homelessness and learned that the most significant contributor is unaffordable housing. When she heard about the affordable ADU pilot program, she saw a way to help the community and earn some rental income.
“I want my good fortune to be something that can benefit other people,” she said.
The ADU program is still in a pilot phase, but Martínez-Stone and the WDRC see potential in expanding the program beyond the current 20 ADUs that have been built or are under construction. A bill introduced in the state legislature in late January aims to allow owners of single-family homes in many parts of Colorado to build ADUs on their property. It also would create a grant program to offset the costs of developing pre-approved plans and providing technical assistance to homeowners—part of a package of policies that lawmakers hope to pass this year to help tackle the state’s housing needs. And on March 18, Denver Mayor Mike Johnston announced an effort called Citywide ADUs, which would eventually update the city’s zoning code to allow ADUs on any residential property.
Although the city around Chávez’s home is changing as new apartment and condo buildings go up, with her ADU, she feels like she’s helping preserve a tiny part of Denver that’s disappearing—quiet, intimate and neighborly. For Chávez, the ADU could also mean the difference between staying in the city she loves and has lived in her entire life, or leaving. In the last 15 to 20 years, most of her extended family members, who have always lived in Denver, have started moving out due to soaring housing prices.
Now, Chávez and her immediate family are the only ones left. Recently, an 80-year-old neighbor came over and told Chavez that his parents had lived across the street from her. He grew up there and was now living with his sister, but she was getting ready to move out of Denver because it had gotten too busy. The man loved the neighborhood—it was all he knew—but he didn’t know if he could keep living in Denver with his sister gone.
Chávez tried to imagine starting over in a new city at 80 years old. Maybe, she wondered, an ADU would allow him to stay.
Sarah Tory, Journalist, Carbondale, Colo. This article is produced by Collective Colorado, an initiative of The Colorado Trust. Reproduced with permission by The Colorado Trust.
