December 2, 2024

Colorado Housing Challenges and Erie Policy Impacts

The Town of Erie, situated less than 30 miles north of Denver and co-located in Boulder and Weld counties, is one of the fastest growing municipalities in Colorado, growing 17% between 2020 and 2023. The town’s recently passed Comprehensive Plan anticipates the number of homes to more than double in the next 30 years. Achieving this goal requires developing an average of more than 600 housing units per year. 

The anticipated growth comes at a time when Colorado and the surrounding communities across northern Colorado face housing shortages and affordability challenges. At the end of last year, CSI estimated Weld County to have a housing supply shortfall of 3,500 to 10,000 units, requiring an increase of 2.8% to 7.8% in the current housing stock to bridge the gap. Boulder County fared worse, with an estimated shortfall of between 5,300 and 12,500 homes – or between 3.7% and 8.7% of the county’s existing housing stock. 

Erie recently approved two policies that directly impact the cost of providing new homes: Fire Suppression Requirements which mandate sprinkler systems for all new construction, and Electric-Ready Building Codes requiring upgrades for electric vehicle charging and solar panel integration. 

In addition, Erie has announced it will increase its Water Tap Fee. While the Town has not increased their tap fees in a while and has one of the lowest in the region, significant issues surrounding the increase remain. The policy discussion now centers around whether the increase will be phased in over several years and whether the fees can incentivize smaller lots and native landscaping.  

Finally, the town is expected to consider mandating affordability restrictions on new developments through an Inclusionary Housing Ordinance (IHO) in 2025.  

Each of these significant changes, enacted over the span of months, has been discussed in isolation. However, the cumulative impact of these policies and proposed fee increases on Erie’s goals for new housing and revenue expectations is less well understood. Recent CSI research found that the permitting of new housing in Denver is down 33% to 35% following the adoption of just an inclusionary housing ordinance.

While the fee hike aims to address fiscal challenges and ensure Erie keeps pace with rising water rates, the cumulative costs and timing of these policies will constrain supply and substantially drive-up prices for future Erie homebuyers. 

The result is less revenue for the city to meet its fiscal demands and greater challenges to meet the diversity of supply expectations laid out in its own comprehensive plan. 

Key Insights

• Rising Costs Passed to Homebuyers: Erie’s proposed and enacted housing policies—including increased water tap fees, fire suppression mandates, and electric-ready building codes—are estimated to raise homebuyer costs by $35,000 to $60,000 per unit. 
•  Up to 468 Fewer Homes Over Three Years: The change in development costs directly impact approximately 10,000 housing units currently in the development review process. A 20% to 35% reduction in annual housing supply amounts to 267 to 468 fewer homes over three years.
• Longer-Term Impacts on Housing Goals: The increase in prices to future homebuyers and the decline in housing supply challenges Erie’s recently approved Comprehensive Plan Update. Higher costs per unit further discourage smaller homes on smaller lots, making it harder to meet both total housing unit goals and the diversity of housing supply goals.
• Reductions to Town Revenue: While the proposed water tap fee increase aims to boost revenue, the projected reduction in homes would offset these gains. At a 35% supply loss, the town could see a net decline in revenue of $278,400 annually, undermining fiscal goals and threatening the sustainability of long-term capital projects. One Erie homebuilder estimated that the loss of their planned 2,000 homes could cost the city $100 million in fees. 

Erie Housing Policies and Builder Costs 

The Town of Erie recently approved two policies that directly impact the cost of providing new homes. 

• Fire Suppression Requirements: Mandating sprinkler systems for all new construction.
•  Electric-Ready Building Codes: Requiring upgrades for electric vehicle charging and solar panel integration.

Along with these recent changes, the town also decided to increase its water tap fee in an effort to address budgetary needs for capital projects that would benefit both existing and future residents. While Erie has not increased its water tap fees even as water supply costs have gone up, significant issues surrounding the increase, including whether the increase will be phased in over several years and whether the fees can incentivize smaller lots and native landscaping, are still being debated. 

Though not officially decided, the town is also considering mandating affordability restrictions on new developments through an Inclusionary Housing Ordinance (IHO). 

Each policy has been debated individually, but the cumulative impact on the cost and supply of new homes has not been adequately addressed. 

Survey of Erie Homebuilders 

In partnership with the Denver Metro Home Builders Association, CSI reviewed the results of a survey of builders in Erie. The survey included questions related to the project size and unit mix for existing projects. It also asked builders to estimate the impact of the proposed code and fee changes on their costs on a per-unit basis and how it would impact their project financing and ability to continue to produce new units. The results below summarize specific responses from individual Erie homebuilders. The responses related to costs provide insight into how town policy changes impact development costs and prices for future homebuyers. The responses related to supply provide insights into how homebuilders will respond, given their ability to pass on higher costs to homebuyers or forego new development in Erie

altogether. 

Summary Responses from Survey of Erie Homebuilders: