• Build affordable housing in small and rural communities, targeting areas where these interventions can yield significant positive effects.

• Optimize the entire affordable housing development, construction, and sales process to enhance efficiency in terms of cost, time, and societal impact, while maintaining a commitment to delivering high-quality homes.

• Develop a comprehensive market needs analysis methodology to prioritize communities based on their affordable housing demand and to maximize ROI by investing resources where they are most needed.

• Share learnings and insights with other organizations by fostering collaboration and knowledge-sharing within the sector.

Rural communities across Colorado are facing a critical shortage of affordable housing, particularly for essential workers such as healthcare professionals, teachers, early childhood education (ECE) professionals, and first responders. This lack of affordable housing is not only impacting the quality of life for these individuals but also jeopardizing the very fabric of rural communities. This specific problem is the issue that the Rural Homes Project has aimed to address.

The exact number of essential workers in rural Colorado is estimated to be over 200,000, but there is a need for many more. However, attracting and retaining these workers is proving increasingly difficult due to the inflated cost of living and housing in rural areas. In 2022, only 19% of homes in rural Colorado were affordable for teachers to rent, only 22% for healthcare workers, and only 23% for first responders. Readily available data on ECE salaries in rural Colorado is scarce, making it difficult to directly compare their housing affordability to other essential workers. However, based on national trends and the wage gap between ECE professionals and teachers, it's likely that their access to affordable housing in rural areas is even more limited than for teachers. As part of the groundwork to the Rural Homes Early Childhood Initiative (RHECI) in Ouray, Bright Futures completed a community needs assessment and discovered a 45% deficit in childcare in the region, caused in part by the lack of ECE professionals that can afford to live there. Essential workers in rural communities are more likely to be cost-burdened by housing, paying more than 30% of their income for housing. In 2022, 43% of essential workers in rural Colorado were cost-burdened by housing, compared to 29% of those in urban areas.

As a state, Colorado has a deficit of 164,529 homes for very low-income households, or those with an income at 50% or less of the median for the area, a category into which many in the target population fall. This lack of supply coupled with high demand is making it increasingly difficult for essential workers to find affordable housing in rural communities.

The lack of affordable housing is having a profound impact on rural Colorado communities. Workers are more likely to leave their positions or turn down job offers if they cannot afford to live in the communities where they work. Those workers who do accept or keep these jobs often experience stress caused by stretching their financial resources to live near their place of employment or by commuting from further, more affordable housing. This stress can lead to anxiety, depression, and other health problems, affecting their ability to perform their jobs effectively.

In addition, the turnover caused by workers leaving due to lack of affordability proves costly for employers who must invest time and resources in training new employees, who they often are unable to recruit, leaving positions vacant. The shortage of essential workers is having a ripple effect throughout these communities. Without adequate healthcare, education, early childhood, and first response sectors in Colorado’s rural counties, it is difficult to maintain the other elements of a viable economy, let alone attract new residents and employers. Student opportunities and outcomes can suffer, existing health disparities between rural and urban populations can worsen, and emergency response times can increase.

The root causes of the affordable housing shortage for essential workers in rural Colorado are multifaceted, stemming from a combination of broader challenges facing rural communities, the difficult housing market, and the dynamics of the labor market across the state. These factors have created a complex environment where rural communities struggle to attract and retain essential workers, jeopardizing the very fabric of their economies and livelihoods.

• Limited housing supply: Rural communities in Colorado face a complex interplay of factors contributing to the shortage of affordable housing options. Limited land availability and fragmented development patterns make it challenging and costly to extend infrastructure and utilities to new housing units in rural areas. Rising construction costs due to supply chain disruptions, labor shortages, and material price increases further hinder the development of affordable housing. Limited access to financing for affordable housing development hinders the construction of new affordable units, exacerbating the shortage of available housing options. The deficit in housing supply is also at least in part due to the 40% drop in home production between 2010-2020 following the 2008 housing market crash and the lingering cautious approach of developers and lenders. Additionally, the conversion of existing affordable housing units into market-rate units through re-sale or short-term rental further reduces the availability of affordable options for essential workers and low-income households in rural communities.

• Economic factors: The demand for affordable housing in rural Colorado is high due to a combination of economic factors that have intensified financial strains on the target population and have shifted the dynamics of the communities. Wages have not kept pace with the rising cost of living in rural areas, making it increasingly difficult for these workers to afford rent or mortgage payments for the housing available. For example, Colorado teacher salaries in almost every rural district (95%) are below the regional cost of living. Additionally, rural Colorado's historically lagging economic growth and job opportunities compared to urban areas have contributed to a decline in population and a lack of investment in infrastructure and services. Moreover, the impact of inflation on rural communities is particularly acute due to the higher cost of gas, groceries, medical care, and other essential goods and services in less populated regions. The added transportation costs associated with living in rural areas further strain household budgets. Compounding the affordability crisis is the growing prevalence of vacation rentals and second homes, which are converting long-term rental units into short-term accommodations, further reducing the availability of affordable housing options for residents.

• Regulatory barriers: The shortage of affordable housing in rural Colorado for essential workers is exacerbated by regulatory restrictions that hinder the development of affordable housing options. Zoning regulations often limit the construction of multi-family housing and mixed-income communities, reducing the supply of affordable units. Additionally, impact fees imposed on new development to offset infrastructure costs can significantly increase the cost of building affordable housing, making it less feasible for developers.

• Shifting market forces: Previously, private developers readily built homes in rural towns at prices affordable to locals and could sustain a business doing so. However, rising construction costs, stagnant wages, and the lack of economies of scale in low-density construction have eroded profit margins. This shift in market dynamics makes traditional private-sector development of affordable housing increasingly financially infeasible, necessitating alternative funding sources and innovative financing models to incentivize developers to address this critical need. The complexity and induced costs of the subsidies present challenges for private sector developers.

• Lack of awareness and advocacy: Many rural communities lack a clear understanding of the extent of the affordable housing crisis and its far-reaching impacts on their communities. This lack of awareness hinders efforts to mobilize support for affordable housing solutions and secure funding for essential housing programs. Furthermore, the absence of strong advocacy for affordable housing in rural areas leaves this critical issue overlooked in policy decisions, making it difficult to implement effective solutions that address the unique needs of rural communities.

While escalating land costs pose a common hurdle for all affordable housing developments, rural communities face additional barriers that significantly impact project feasibility and economics. These challenges include:

• Labor availability: Ensuring the necessary labor presence is a critical challenge, with viability decreasing significantly when a site is beyond a one-hour drive from population centers. Proximity to a luxury market at a similar distance further diminishes feasibility.

• Labor cost: A scarcity of skilled labor significantly inflates costs. Contractors report a 150-300% surge in expenses over the past 18 months, particularly in rural and near-resort markets.

• Procurement challenges: Dependency on a single supply house for most trades results in elevated costs and extended lead times, with up to fourfold increases and year-long delays in specialized equipment acquisition.

• Entitlements, permitting, and approvals: Historically, low development volumes in rural areas translate to limited capacity and experience among local authorities, including towns, cities, counties, and other jurisdictional bodies, when it comes to permitting larger projects. This can add subjectivity to the permitting and approval processes and thus increase costs.

• Density considerations: Elevating density in line with local character is a key factor in the economic viability of a development; this consideration extends beyond land costs to include infrastructure expenses. Rural regions feature expansive, ranch-like lots, where even introducing a duplex represents a substantial departure from the existing landscape.

• Gross loss of inventory: Rural areas have an older building stock and have suffered past eras of emigration. Older, abandoned or poorly maintained buildings are no longer economically viable. Furthermore, there has been no concerted market force driving new housing growth such as the extraction industry or similar. The result is not just a loss of affordable inventory such as in urban areas (e.g., gentrification) or in rural resort areas (second home, short term rental), but a gross loss of inventory.

• Short-term rentals eroding residential rental supply: Growing popularity of short-term rental platforms like Airbnb fuels the housing crisis by converting existing rentals into vacation stays. This leaves essential workers and low- and moderate-income individuals and families competing with tourists for limited rentals, pushing prices beyond their reach.

• Local resources to fund affordable housing: Rural areas may not lie within the taxable districts that benefit from the greatest economic activity in the region.

There are foundational concepts and definitions relevant to the Rural Homes Project related to affordable housing development in Colorado.

County Types: In Colorado, the Department of Local Affairs (DOLA) classifies counties as primarily urban, rural, and rural resort. These classifications are based on a variety of factors, including population density, economic activity, and access to services. Other State and Federal agencies use alternative methodologies that result in certain counties being classified differently.

• Urban counties are densely populated and have a high concentration of buildings, businesses, infrastructure, and residential communities. They count at least 2,500 people as residents, of which at least 1,500 must be residents of non-institutional buildings. There are thirteen primarily urban counties in Colorado.

• Rural counties are characterized by a population of less than 2,500 residents, limited economic activity, and limited access to services. There are thirty-eight primarily rural counties in Colorado, making up 73% of the state and covering 1,670 square miles.

• Rural resort counties are characterized by a seasonal population influx, a reliance on tourism, and limited access to services. There are twelve primarily rural resort counties in Colorado.

Classifying an entire county as “rural” or “rural resort” is challenging as, in practice, one definition is often not applicable to an entire county given the physical size some of Colorado’s counties. For example, Ouray County and San Miguel County are classified as rural resort, but each town within the counties is distinctly and unequally impacted by the resort activity. For this reason, the DOLA defined parameters for rural resort have been modified for the purposes of this work:

• Resort activity may not be the primary economic driver, but the town may be close enough to resort activity (under 120 minutes) to begin feeling housing pressure from a commuting workforce and short-term renting.

• The town and other taxation bodies themselves may not directly benefit from resort activity, and as such may be smaller organizations lacking resources to seek assistance in closing housing gaps and/or work with developers efficiently.

• The town may have suffered emigration from a previous economic growth cycle.

• A lack of strong economic drivers stagnated housing and infrastructure development, leaving an aging housing stock that would require significant investment to upfit or replace. Net available housing has decreased as well.
  

Housing Affordability Standards: Affordable housing is defined as housing, including rent or mortgage and utilities, which costs a household no more than 30% of its monthly income. Households that spend more than 30% of their monthly income are considered cost-burdened and households that spend 50% or more on housing are considered severely cost-burdened.

Housing affordability standards are determined based on the AMI, which is the median household income for the municipality, metropolitan statistical area, or county where the housing is located as determined by the United States Department of Housing and Urban Development (HUD). AMI calculations only include residents of the local community and do not consider the incomes of people who work in the community but cannot afford to live there. The different income categories for housing affordability standards are as follows:

• Extremely Low Income (ELI): Household below 30% AMI

• Very Low Income (VLI): Household between 30-50% AMI

• Low Income: 51-80% AMI

• Middle-to-High Income: 81-120% AMI