Introduction 

During the COVID-19 pandemic, Colorado’s housing costs surged, transforming housing affordability into a pressing kitchen table issue. In response, the state, primarily through one-time federal funding from the American Rescue Plan Act, ramped up its investment in affordable housing to unprecedented levels. Reflecting the severity of the crisis and its determination to address it, the Division of Housing (DOH) increased its budget by an astounding 675%—from $43.4 million in FY21 to $336.5 million in FY23—enabling the creation of more than 10,000 affordable units over a 3-year window. Proposition 123, passed by voters in 2022, builds on this spending, allocating $173.5 million in FY24 toward the development and preservation of over 8,000 housing units statewide in just its first year. 

Yet, despite these investments, Colorado’s housing market is flashing red flag warnings. Declining market-rate housing starts, and a sharp reduction in construction job openings nationally signal storm clouds on the horizon. The state risks slipping back into the “lost decade” of 2008–2019 when housing starts stagnated at a paltry average of 25,682 annually—the very period that ignited Colorado’s affordability crisis. While state investments included in Proposition 123 have helped keep subsidized housing production afloat, it cannot go it alone. The gap left by declining market-rate developments places an unsustainable burden on affordable housing programs, threatening the long-term viability of housing affordability.

At the same time, new challenges are bubbling to the surface. Rising per-unit costs, funding disparities between urban and rural areas, and gaps in program transparency all demand urgent attention. Local governments attempting to embrace zoning reform to increase their zoned capacity face fierce resistance from entrenched single-family homeowners, while the rollout of the mandated 90-day fast-track approval process remains sluggish. These delays are more than just bureaucratic speed bumps—they are roadblocks that add costs, stall projects, and undermine the impact of Colorado’s investments.

Colorado’s housing crisis requires not only a government approach but an all-of-community effort, blending subsidized housing with robust market-rate home building. A coordinated strategy that accelerates approvals, cuts red tape, and unlocks both public and private housing production is essential to address the state’s growing needs.

This report dives into the details of Colorado’s recent housing investments and emerging market challenges. By examining cost trends, geographic disparities, and policy performance, it offers actionable insights for policymakers and stakeholders to ensure Colorado’s housing strategy delivers homes its citizens can afford.

Key Findings:

Housing Starts Decline, Threatening Affordability

• A slowdown in market-rate housing starts and reduced construction job openings signal mounting pressure on subsidized housing to fill the gap. New unit permitting has declined in Colorado from 60,000 in 2021 to just 32,000 units in 2024 and national job openings in construction have declined from 454,000 in November 2023 to just 276,000 a year later. Without a balanced pipeline of both market-rate and subsidized developments, Colorado risks undermining its affordability goals.

Rising Costs Pose Threats to The State’s Efforts 

• Costs per unit funded by the Division of Housing increased from $15,263 in FY21 to $47,921 in FY23 - a 214% increase, reflecting inflation and varying project efficiencies compared to Proposition 123’s average state contribution of $17,936 per unit. Future analysis will be critical to understanding whether this lower cost per unit represents a sustainable trend or unique first-year circumstances. 

State & Federal Spending Driving Affordable Home Production 

• The Division of Housing's funding expansion between FY21 and FY23 fueled by federal COVID relief funding, totaling an increase of $293.1 million equal to 675% (from $43.4 million to $336.5 million), enabled the creation of 10,227 affordable units. Proposition 123 contributed an additional 8,049 units in FY24 with $173.5 million in funding. 
•  Proposition 123 promised to finance the construction and preservation of 170,000 units over 20 years; the projects funded in FY24 commit a total of 8,049 units, which falls short of the 8,500 required to keep pace with 123’s promise.

Prop 123 Implementation Barriers Stall Affordable Housing Progress

• Constituent resistance to zoning reforms and a sluggish rollout of the Prop 123 90-day fast-track approval process are stalling progress. Currently no local jurisdictions have adopted fast-track approval processes. These delays increase costs and jeopardize the impact of Colorado’s historic housing investments, underscoring the need for streamlined policies and stronger community support.

Division of Housing Funding Breakdown 

In 2021, Governor Polis enacted into law HB21-1028, requiring the Department of Local Affairs (DOLA) to create the Annual Public Report on Funding of Affordable Housing Preservation and Production for 2021 and every year thereafter. These annual reports detail the Division of Housing’s (within DOLA) fiscal year awards for grantees and borrowers working to create additional affordable housing in Colorado. 

The funds are categorized by intention and include, but are not limited to new construction, acquisition, rehabilitation, down payment assistance, and capital improvements. 

Figure 1 shows the DOH’s annual awards to just “new construction” over the three reported years. Between FY21 & FY23, a total of $356.4 million was spent on new construction projects, resulting in 10,227 total new affordable units being created. 

Between FY21 & FY23, total funds awarded by the DOH grew from $43.4 million to $336.5 million, a growth of 675%. Additionally, the total amount of funding used on just “new construction” projects grew from $26.7 million to $245.7 million, an increase of 820%. A large but unknown portion of this funding came from Covid-era federal allocations that will sunset in coming years.

 Figure 1

Source: DOH Annual Reports 

DOLA received substantial grants from the federal government during COVID-19 that were earmarked for use in the realm of housing and thus partially appropriated to the DOH. Some of these federal funds were moved into cash funds containing state dollars, thus “mixing” the funding source. Figure 2 shows the breakdown of DOH’s annual awarded totals by funding source. 

Federal funds were highest in FY22 but remained elevated in FY23 as the state continued to spend federal COVID stimulus. 

For this report, CSI examined funding on behalf of Colorado’s Division of Housing and Proposition 123 and their impact on affordable housing in the state. Colorado’s Housing and Finance Authority (CHFA) administers Prop. 123 funding on behalf of Colorado’s Office of Economic Development and International Trade (OEDIT) in addition to allocating funds to other affordable housing projects that are not included in this report. 

Figure 2

Source: DOH Annual Reports 

Figure 3 depicts the various funding origins from which the DOH awarded and granted funds in FY 2022-23. These sources are a mixture of state and federal funds. 

Figure 3

*Funding source definitions can be found in the appendix

Total amounts awarded by DOH over the last three fiscal years are shown in Figure 4 along with administrative spend totals as reported by the DOH in their annual reporting. It is important to note that these administrative totals reflect the total associated with awarding these grants but may not include other structural administrative costs expended by DOH. 

Figure 4

 

As anticipated, the majority of the funding will reach urban areas, as rural and resort counties face challenges unlike the front range, as the cost of land, labor, and commodities are higher and as such suppress annual home starts despite the significant need for affordable housing in rural and resort counties. Private developers appear to be using the state funding most effectively, but deeper analysis is warranted to ascertain what is driving the cost per unit type variance. Some programs are producing vastly more units per dollar of funding than others, but these, like the homelessness and equity programs, were oriented primarily toward unit preservation rather than construction in FY24.

The Land Banking Program under Proposition 123 gives local governments, tribal governments, and nonprofits the ability to secure land for future affordable housing development, ensuring that rising land costs won’t kill a project's feasibility before it can get started. The program provides grants and forgivable loans with a deferred 2% interest rate. Loans are forgiven if key development milestones are met, while grants must be repaid if they’re not, outcomes we’ll be sure to track in the years to come. 

In its first year, the program drew overwhelming demand, receiving 113 Letters of Intent (LOIs) totaling more than $255.8 million in funding requests. After compliance reviews, only 26 applicants, representing $46.9 million, were invited to apply. Of those, 21 applications were submitted requesting $38.8 million, and 16 applicants were ultimately awarded $25 million in January 2024. These funds are expected to support the acquisition and banking of land for 1,380 future housing units, locking in opportunities for affordable development before land costs spiral further out of reach.

The Concessionary Debt Program under Proposition 123 is a financial lifeline for affordable housing projects, offering loans at below-market interest rates (1.5% to 2.5%) to help developers tackle cost barriers. These rates are far lower than typical market loans, such as HUD’s 221(d)(4) multifamily loans, which range from 5.27% to 7.25%. This makes the program highly desirable and delivers significant value to affordable home builders. 

The Equity Loan Program under Proposition 123 provides below-market-rate equity investments to eligible for-profit and nonprofit entities for the construction or preservation of low- and middle-income multifamily rental developments. In FY23-24, the program funded 628 estimated units distributed across a range of Area Median Income (AMI) levels. Designed to invest in projects serving residents with an average area median income (AMI) of 90% across all investments. Based on the awarded units, the program achieved a weighted average AMI of 87.15%, aligning closely with its intended target.

An estimated 61% of the units created by the equity program will serve residents with an AMI of 90% or less, closely in line with the program’s initial goal and a positive demonstration of the program’s ability to produce affordable housing in its first year. 

Figure 7 depicts the breakdown of units by AMI category:

Figure 7

Red Flag Warnings: Current Market Conditions Signal Grave Threats to Affordability Ahead

Figure 8

Colorado’s housing market is flashing warning signs of challenges to come. Declining market-rate housing starts and a reduction in construction job openings nationally, which mirrors local job market conditions, point to a slowdown in production that could exacerbate the state’s affordability crisis. The above chart underscores the urgency, warning of a potential return to the lost decade of 2008–2019, when Colorado averaged just 25,000 housing starts per year—the period that ignited the state’s affordability challenges.

Figure 9