Back Yard Home Granny Flat

In Denver’s enduring fight with inflated housing costs, the city is looking to creative means to confront involuntary displacement — like the granny flat.

The Denver City Council agreed Monday to invest $500,000 in an ongoing pilot program that provides forgivable loans to West Denver homeowners to help fund accessory dwelling units, or ADUs, popularly known as "granny flats."

Those ADUs — small homes adjacent to a homeowner’s primary single family home, on the same lot or parcel — can supplement a homeowner’s income as a rental property, the city argues.

Designated as income-restricted housing in Denver --  limuted to those earning 80% of the area median income for 25 years, whether funded by the city’s program or not -- ADUs also add to the city’s affordable housing stock.

“We really have to invest our resources in innovative ideas like (ADUs), ideas that were born out of these neighborhoods and folks that are on the ground in these neighborhoods,” Denver City Council Paul Lopez said.

ADUs aren’t new in Denver, but they typically carry a hefty price tag and, therefore, are often out of reach for many city homeowners.

“The cost of building an ADU is frequently above $200,000, so inaccessible for a low-to-moderate income homeowner,” Haley Jordahl, housing development officer with the city’s Office of Economic Development, said during a committee meeting in late March.

“This program is attempting to streamline the ADU development process, to make sure that from a cost and timing perspective, it is more accessible.”

To help bridge that funding gap, the pilot program will provide up to $25,000 loans to low-income homeowners in nine West Denver neighborhoods to help fund the construction of ADUs.

The new initiative is part of the city’s West Denver Single Family program — a “housing strategy” to help confront displacement in West Denver — launched in 2019 by the West Denver Renaissance Collaborative.  

Characterized by city officials as a tool to address housing displacement in the city, ADUs can be used as a long-term income booster for low-income residents, the city says.

West Denver neighborhoods could use help confronting raising housing costs. According to the city, 32% of West Denver homeowners, and 54% of renters, are considered cost-burdened, meaning that they spend more than 30% of their income on housing.

Additionally, in those neighborhoods, property taxes increased by nearly 30% last year and housing values have swelled by nearly 50% over a two-year period beginning in 2016.

Through the program, the loans will be structured as forgivable loans, as long as the homeowner follows the program’s homeowner income guidelines and the ADU remains income-restricted to those earning 80% of AMI.

To be eligible, a homeowner must have lived in West Denver (neighborhoods include West Colfax, Sun Valley, Auraria, Lincoln Park, Villa Park, Barnum West, Barnum, Valverde, Westwood and Athmar Park) for at least five years; their property zoned for ADU development; and total income no more than 120% of the area median income.

Eligible homeowners will be required to bring a $10,000-$25,000 down payment to the table, according to Jordahl. The program will utilize Habitat for Humanity for construction, which the city says will help lower construction costs, typically running $100,000 to $120,000 per ADU, according to Jordahl. Through the program, the city promises a streamlined permit process for those who choose one of WDRC’s ADU designs, ranging from studios to 3-bedroom units.

While zoning can often become a hurdle to home additions and renovations, Jordahl said ADU zoning is rather prevalent in West Denver, especially in comparison with the rest of the city.

“This is a viable program that we can really take advantage of in West Denver, with all the zone districts that allow for ADUs,” Lopez said.

Over the course of the two-year pilot program, the city is aiming for 40 ADUs constructed, with 50%, or 20 ADUs, taking advantage of the city’s loan program.

Five Denver homeowners are currently working through the pilot program, with the first groundbreaking expected in June.

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