Nearly four years ago, Colorado voters approved a special fund to address the affordable housing crisis following Covid-19.
Meeting the fund’s objectives, however, proved harder for participating cities than expected. State legislators are now scrambling to fix that.
The Senate passed House Bill 1313 on Thursday with amendments. It is headed back to the House, which passed the bill in early April.
Without the fixes, many cities risk losing those funds because they can’t increase the affordable housing stock by 3% annually as the law requires. It’s particularly challenging for cities where naturally occurring affordable housing already exists.
Colorado’s experience with Proposition 123 shows that ballot-box housing fixes require the same revisions as any legislation.
Solving housing affordability is complex, especially when dealing with recalcitrant local governments.
Florida’s 2023 Live Local Act is a prime example. The law created funding sources for workforce housing and zoning reforms that pre-empt local authority. Lawmakers have revised it three times, each time closing avenues local governments used to sidestep it.
Updates locked in height, floor area and density rules after cities quietly downzoned commercial areas to limit development. They added definitions for “commercial,” “industrial,” and “mixed-use” after municipalities argued ambiguity gave them cover to deny projects. They banned local moratoriums on Live Local applications.
The 2026 version added attorney’s fees for prevailing parties in Live Local lawsuits, penalizing governments that lose. It still hasn’t been enough. Even now, Sarasota County is in a legal standoff after commissioners unanimously voted to block rural projects, citing legislative gaps.
For Colorado, several legislative housing reform efforts joined with the initiative and pre-empted local zoning authority. Cities have fought back against Gov. Jared Polis on those laws through lawsuits.
How Prop 123 spreads the money
In addition to the 3% annual growth requirement, Prop 123 splits its revenue allocations between two state housing and financing agencies. One agency uses its share to provide land banking, equity investments, and low-cost loans for rental development.
Down payment assistance, homelessness prevention and local planning grants flow through the second agency’s share. Participating local governments must also streamline permitting and submit formal affordable housing growth plans to qualify for funds.
The program has shown progress. Gary Community Ventures, the advocacy group behind the initiative, says roughly 10,000 units have been built or are under construction.
A Colorado Sun review found $500 million of the $568 million awarded through last year went to preserving and building affordable housing. Of the $500 million, $403 million covered building ground-up affordable housing, while the rest went to preserving existing housing.
Prop 123’s math problem
While it was working for some cities, the 3% annual-growth minimum became a bigger challenge for others.
City officials and housing advocates began warning that even aggressive building programs could not clear the bar. Higher interest rates, labor shortages and rising construction costs slowed projects across the state.
Cities with large existing stocks of income-restricted housing faced an even steeper climb. Under the original rules, many cities that signed up early risked losing fund access for three years when their growth rates fell short.
“It set goals that certain jurisdictions were never, never going to be able to hit,” state Rep. Rebekah Stewart said during a late March hearing.
Stewart noted affordable housing goals exceeded the number of building permits some cities issue annually, calling the targets unrealistic.
Zach Martinez, Gary Community’s policy director, said in the hearing that “back-of-the-envelope math” served as the basis for structuring the ballot initiative.
Fixing the math
The fix now moving through the Capitol would change how that test works. Rather than a flat 3% requirement, the bill would tie local revenue allocation targets to recent permitting history and job growth. Expectations then would match what the market can reasonably deliver.
Cities would earn extra credit for the hardest projects: deeply affordable units, donated-land homes and high-opportunity neighborhood developments. Preserving existing affordable units would also count toward compliance, rather than penalizing cities that already have existing stock of affordable housing options.
Lawmakers are trying to turn Proposition 123 from a rigid checklist into a performance framework that cities can realistically meet. The measure that looked like a quick ballot win is now getting the slow, technical rewrite it probably needed from the start.
“The concept here is not to let local governments off the hook, but to create a system that actually is grounded in reality that will change with economic conditions and the reality of Colorado,” Martinez said.
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