Affordable Housing Fee Shuts Down Homebuilder Lawsuit

A federal judge has dismissed a Denver homebuilder’s challenge to the city’s affordable housing requirements.

U.S. District Judge Philip Brimmer ruled that Denver’s policy requiring developers to include income-restricted units or pay a fee does not amount to a government takeover of private property, the Denver Post reported. The decision tosses out a lawsuit filed last year by Denver-based builder RedT Homes, which argued the city’s affordability mandate was unconstitutional.

RedT’s case centered on two small projects. The city assessed a $45,000 fee tied to two duplexes at 2140–2144 South Sherman Street in the Rosedale neighborhood and another $25,000 fee for four homes at 1245–1261 West Gill Place in Athmar Park. RedT took aim at the city’s linkage fee, part of Denver’s 2022 Expanding Housing Affordability ordinance, calling the fee “extortion” in its complaint. The builder argued the policy unfairly forces developers to pay for housing affordability problems they did not create.

“As a matter of logic, Denver cannot make housing more affordable by making it more expensive,” RedT’s lawsuit said. “As a matter of constitutional law, it cannot abuse its land use permitting authority to take money or property from applicants in order to address problems that those applicants do not create.”

Brimmer rejected that argument that the policy infringes on constitutional property protections.

“Requiring income restrictions on certain units… does not constitute a physical invasion of property,” the judge wrote in his decision. He added that courts across the country have already found that rent control policies and fees in lieu of affordable housing requirements do not qualify as unconstitutional takings, according to LAist.

Denver’s ordinance applies to residential developments with at least 10 units, which must typically set aside approximately 10 percent of units for households earning below the area median income. Developers can instead pay a fee into the city’s affordable housing fund to avoid building the affordable units. The program funnels those payments into income-restricted housing elsewhere in the city.

The policy runs contrary to a suggestion recently made by California congressional candidate Scott Wiener. Under Wiener’s plan, the federal government would directly pay $1.2 trillion through a new National Housing Investment Fund using money gained from reversing Bush- and Trump-era tax cuts.

“This is not about Congress taking over local land-use,” Wiener said during a news conference Monday, The Real Deal previously reported. “It’s about providing financial incentives. If you’re building housing, you should get money for that, and real money so that cities have an incentive.” By contrast, cities and counties are usually incentivized to upzone for housing and streamline permitting to avoid financial penalties, lawsuits, and implementation of builder’s remedy, which allows developers to bypass local zoning to get projects built.

The federal judge dismissed RedT’s case without prejudice, meaning the firm can revise and refile its lawsuit. The builder’s attorney, David Deerson of the Pacific Legal Foundation, said the company is weighing its next move and remains committed to challenging the policy.

— Chris Malone Méndez