Metro West Advertiser April 4, 2024

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New Law: Landlords Can’t Refuse to Rent to Tenants Who Are ‘Rent-Burdened’

A long-term “rule of thumb” has been that one shouldn’t have to spend more than 30% of their income on housing, but a legislative bill signed into law last June stipulates that landlords cannot refuse to rent to a tenant for whom their monthly rent would equal up to 50% of their income.

The National Council for Credit Counseling (www,nfcc.org) says, “The general rule of thumb is that housing costs should be no more than 30% of your gross income. This includes rent or mortgage payments; homeowner association fees; and utilities like gas, electricity, water, and internet.”

to the refused tenant.

The bill in question, SB23-184, is titled “Protections for Residential Tenants.” It states that “A landlord may not require a prospective tenant to have an annual income that exceeds 200% of the annual cost of rent.” That’s another way of saying 50% of one’s annual income. And that figure does not include utilities in that 50%.

A violation is also an unfair housing practice subject to enforcement by private persons, the attorney general, and the Colorado Civil Rights Division. A violation carries an initial penalty of $50 payable to the applicant, and failure to cure (i.e., accept the tenant’s application) carries a $2,500 penalty, again paid

This new law not only has small landlords upset, it also has some tenant advocates upset. They point out that HUD doesn’t allow renters to be “rent burdened” over 30%. HUD says on its website that the 30% rule is “meant to protect low-income households from extreme rental costs. High housing costs and high prices for basic necessities place a greater burden on poor households living in metropolitan areas. Measures of affordability should be reassessed to ensure that policymakers are decreasing rental burdens for poor households.”

Public housing authorities nationwide are prohibited from charging more than 30% of a tenant’s income for rent under federal fair housing laws.

Habitat for Humanity of Metro Denver bases mortgage payments on 30% of the homeowner’s annual salary at time of applying for a Habitat home and does not increase the payment if and when the homeowner’s income increases.

On its website, HUD acknowledges contrary opinions about the 30% rule, noting that 30% of a $500,000 income leaves sufficient funds for other household costs, whereas 30% of a $20,000 annual income does not.

Rather than measuring affordability using a rent-to-income ratio, Michael Stone of the University of Massachusetts Boston recommends a residual income approach, which measures cost burden by calculating the money a family has left for housing after other expenditures such as food, clothing, and medical costs are taken into account.

SB23-184 has other landlord-tenant provisions. It prohibits charging more

than twice the monthly rent for a security deposit, and it allows an existing tenant subject to an eviction action, irrespective of the percentage of income paid in rent, to assert as an affirmative defense that the landlord violated fair housing laws by evicting him/her.

I have no opinion about whether SB23-184 was a good idea. There will probably be more debate about it in coming months. What’s your opinion?

Houzz Report Shows Increase in Home Renovation Spending

With sellers and buyers both sitting on the fence more than usual, thanks to increased mortgage rates, it’s not surprising that both are investing in improvements of their current home, and that’s reflected in this year’s home renovation trends report from Houzz.com.

Here are some of the key findings in their 2024 report published last week based on 32,615 website users, including 17,713 home renovators, who participated in a survey regarding their 2023 spending.

The median amount spent on renovation in 2023 was up 60% from 2020 to $24,000. The median spend in the 90th percentile was up 77% to $150,000.

In just one year, the percentage who financed their project using credit cards surged 9 percentage points to 38%.

Distressed Commercial Real Estate Loans a Red Flag for Residential?

It’s no secret that commercial real estate has been in trouble with the shift to at-home work following the pandemic’s abatement. The vacancy rates in office buildings is still too high for some landlords to meet their financial obligations.

The numbers behind that trend were released last week by Bloomberg, which wrote about stressed collateralized loan obligations (CLOs) which bundle debt that would be considered too speculative for conventional mortgage-backed securities (MBOs). You may recall that MBOs full of sub-

prime loans were central to the collapse of the housing market in 2008, triggering the “great recession.”

Below is a chart published by Bloom-

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berg, which wrote: “In just the last seven months, the share of troubled assets held by these niche products surged four-fold — rising by one measure to more than 7.4%. For the hardest hit, delinquency rates are in the double digits. That’s left major players in the $80 billion market rushing to rework loans while short sellers ramp up attacks on publicly-traded issuers.”

Many leveraged properties can’t be sold for what they owe their lenders.

Gen Xers edged out Baby Boomers, as they did last year, with a median spend of $25,000 vs. $24,000. When it came to big projects, the top 10% of Gen X renovators had a median spend of $180,000 compared to $131,000 for Baby Boomers.

The most commonly renovated room continued to be the kitchen, followed by guest bathroom, primary bathroom and living room — 29, 27, 25 and 21 percent respectively. The median kitchen project cost $24,000 (up 20% over 2022), and median bath project cost $15,000 (up 15% over 2022).

Archive of Past Columns Is Online

Over the past two decades this column has appeared in the Denver Post, and during that time I’ve written about every conceivable topic related to real estate, You can search that archive, listed by headline and downloadable with a single click, at www.JimSmithColumns.com

DAVID DLUGASCH, 303-908-4835

GREG KRAFT, 720-353-1922

AUSTIN POTTORFF, 970-281-9071

KATHY JONKE, 303-990-7428

“Concentrate on giving and the getting will take care of itself.” —Anonymous

Distressed Commercial Real Estate CLOs

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