In Search of Density, Denver Developers Look to Backyards and Alleys

The construction of new carriage houses -- also known as alley flats, granny flats or accessory dwelling units -- was banned in Denver for more than 50 years. The city lifted the prohibition five years ago, but the promise of densification has not yet been realized.
Robert Sperling arrives at Stella's Coffee House with a wheeled suitcase in tow. It's full of brochures, reports, photocopied news stories and a thorough presentation on the promise of accessory dwelling units (ADUs) in Denver.

First off, the back story: The city halted construction of detached carriage houses in 1956. The 2010 update to the zoning code lifted the ban, but development has been notably sparse in the five years since.

Regardless, Sperling argues that they're a critical piece of Denver's housing puzzle. "A growing number of us believe we need to preserve the single-unit concept of housing and not turn everything into a high-rise jungle," he says. "We need to preserve the neighborhoods and not just build high-rise apartments along transit roads."

Sperling cites the demographic changes in Denver in the past century. New houses have gone from about 800 square feet with 3.5 occupants to 2,500 square feet with 2.2 occupants. Against this backdrop, the dispersed density offered by the ADU "is a major paradigm shift" that dovetails nicely into the ideas of sustainable, transit-oriented development and alley activation.

"I believe gentrification and affordability can and should coexist in any city's strategy," says Sperling. ADUs, he continues, allow for both.

"This is not a new idea," says Sperling, citing carriage houses that date back to the mid-1700s. "This is the original affordable housing."

The end of the ban

Sperling's ADU crusade began in 2006. "I went to the city and said I wanted to build a carriage house," he says. "They said no. I said why? They said no again."

So he lobbied for ADU legalization in the 2010 update of Denver's zoning code through an organization called Friends of Granny and won a partial victory. New ADUs were approved in Denver for the first time in 54 years, but only in a select few neighborhoods.

"Denver, basically in typical political fashion, said, 'We're going to have ADUs,' and only approved 10 percent of the geographic area," argues Sperling.

The results probably speak for themselves: The city has only issued only 60 permits for new detached ADU builds in the five years since the zoning update.

Sperling says ADUs should have been approved for owner-occupants citywide, not just certain neighborhoods. "There is no valid objection," he says. "You will not meet the need for density and privacy until we modify our zoning codes appropriately."

He sees the coming update of Blueprint Denver as a potential catalyst. "The mayor must become a champion, in effect, of this effort."

A model city

One of Lanefab's slick laneway homes in Vancouver. Vancouver is an ADU leader, only they call it something else: laneway housing. Since Vancouver City Council okayed laneway homes for 94 percent of the city's single-family lots in 2009, the city has seen construction of hundreds of laneway homes that are typically 800 to 1,200 square feet; they can sell for $300,000 or more. Vancouver now issues more than 350 permits annually and design-build companies like Lanefab, Smallworks and Lanecraft have popped up to meet the demand for stylish units.

In California, Bay Area officials are looking to emulate their counterparts in Vancouver to absorb two million new residents and the coming decades. Portland and Seattle are also developing policies that look more progressive than Denver's.

"I think what Vancouver is doing could densify Denver in a dispersed way," argues Sperling. "We could stabilize the housing sector, we could encourage people to reinvest in their homes and we could begin to bring back the middle class."

First, there's a branding problem. ADU is "a terrible name for marketing," says Sperling. Something like Vancouver's laneway housing would be much better. He's come up with an alternative in "Supplemental Living."

But marketing isn't the biggest challenge, he adds. "It's totally a political problem."

The planning perspective

"We're all about enabling them wherever possible," says Kyle Dalton, principal city planner with Denver's Community Planning and Development Department.

That includes areas in Westwood, City Park West, Platt Park, Berkeley, Five Points, Whittier and 15 other neighborhoods, and it represents a big step forward, Dalton says. "Prior to 2010, with the old zoning code, they weren't allowed anywhere in the city. We've enabled them where there was general community support."

He describes it as "a kind of development that's respectful to the existing character of in a single-family neighborhood. They're smaller, not very tall. They fit in with existing infrastructure." Dalton says Denver Water has lower tap fees for ADUs -- about half of typical single-family residential construction.

The annual permit tally is slowly inching up, he adds."The first few years they were in the the single digits," says Dalton. "We've been in the double digits the last few years."

One big hangup is that only owner-occupants can build ADUs, meaning developers aren't allowed to build on rental properties.

"It raises the question: What happens when you sell it?" says Denver developer Kevin Dickson. "Can you sell it to an investor? It's technically illegal if you don't live there."

Dalton's answer: In single-unit zones, yes, that hypothetical investor would need to live in one of the structures for it to be legal.

Financing is another hurdle. Dickson says that the cost of construction diminishes the homeowner's ability to build a new ADU. "Most of us can't afford $200,000."

"Garages are really easy to permit," he adds. "You can get permitted in one day." For a carriage house, it's considerably more difficult. "You've got to have motivation."

Dickson worked with Sperling making the ADU pitch to the city's registered neighborhood organizations (RNOs) in the run-up to the 2010 zoning code changes. "Most of them said, 'No, that sounds terrible,'" Dickson says. "Parking and density have always been a bugaboo."

As part of the process, he did some research. "We determined there were 3,500 carriage houses in greater Denver," he says. "It's a form you can't ignore and it's cool."

A new approach

Architect Terra Mazzeo is launching a turnkey operation, AlleyFlats, with builders Jake Uhl and Sam Fletcher of Corvus Design Build in Globeville.

"We've probably been working on this concept for a year," says Mazzeo. "We noticed some real potential for undeveloped property in the neighborhoods they're allowing ADUs."

This AlleyFlats design features 375 square feet of space above the homeowner's two-car garage, with a parking space for the renter.It's largely an issue of awareness. "A lot of people don't realize they can develop 650 square feet in their backyard," says Mazzeo. "If they do know, they don't have the ability to sort through all of the information on how to do it. Our business plan is to streamline that for them."

It follows that AlleyFlats' "turnkey" model covers financing, permitting, standardized designs, construction and potentially property management.

The typical model will include about 400 square feet of space over a two-car garage for about $150,000, financed by one of the company's preferred lenders.

The company is planning its first permit application for an ADU in City Park West in early 2016. If all goes as hoped, construction will be complete by spring, with many structural pieces prefabricated at Corvus' shop to help keep costs down.

"We expect these to cash flow immediately," says Mazzeo. "We believe the market will support a rental rate of $900 to $1,000 a month."

"A renter right now has the option to be in a 350-unit dormitory with a 500-space parking garage," she adds. "This potentially is cool because you're embedded in a neighborhood with your own place and your own parking space. It's a whole different offering for the rental market."

Architect-builder Becky Alexis of HIVE Architecture has worked in Denver and Golden since 2007. "Carriage houses are something I've been super passionate about," says Alexis, noting that she lived in a carriage house off East Colfax Avenue in 2009. "I just loved it. It was so perfect and so efficient for a single person."

The form presents an opportunity. "It does encourage really good design and scale," Alexis says. "I tend to be more of a traditionalist." Her goal is to build a carriage house "that plays off that existing home."

Alexis is currently working on one carriage house in Overland for her client's mother to live. "The most challenging part is the demo permit for whatever's existing. That's pretty difficult. It's also been challenging gathering some of the info, especially from wastewater."

Alexis has also designed carriage houses in other metro cities, namely Arvada. "Arvada's been doing this for much longer," she says." They allow it on every property." Arvada began allowing new ADUs in 2007, and Grand Junction and Golden are similarly progressive.

Advancing the idea in Denver will require more startups like AlleyFlats and more architects like Alexis, Sperling says. "It's too small a project for builders. There's no infrastructure currently to best serve this emerging market. You've got to get architects designing them and they can't afford to design them. Right now, architects sell to the wealthy. But what about the middle class?"

He has a concept to help catalyze ADU design in the city: "What I want to see is a design competition sponsored by AIA in Denver."

ADU economics

Dave Bauman of Coldwell Banker says he's trying to market his services to homeowners in the ADU market. "The finances, I think, pencil out pretty well," he says. Homeowners can cash out equity to finance the construction of an ADU, he says. Then by renting the ADU out, "you could potentially pay your house off eight to 10 years early."

"This is a perfect way to keep affordable housing in some of the primary neighborhoods without changing the face value of the street," says Bauman. "I think it's going to increase in popularity as housing prices increase."

It looks like a good fit for aging Baby Boomers. "The ADU opens up an option to build a wheelchair compliant, small residence on your property," he says of those looking to move parents closer to home. "There's also the 'aging in place' option. It gives seniors a chance to stay where they are and move a caregiver in."

"The inherent problem with an ADU is there's a fair amount of site work," says Bauman. "From a building perspective, it's an expensive prospect." Pre-fab alley flats could be an answer, and Denver-based Tuff Shed has several studio and cabin shell units that fit the bill.

Back at Stella's, Sperling runs the numbers. A Platt Park homeowner could finance a $170,000, 850-square-foot, two-story ADU and end up with a monthly mortgage payment of about $900, but rent it out for double that. Over 20 years, that homeowner could  save every penny and end up with more than $400,000, enough to finance a college education or two and still have some left for retirement.

Sperling describes it as a bottom-up way of development, noting. "It's homes, not apartments, that build neighborhoods. What I'm encouraging is a rental system that's owned by the homeowners."

And apartments are not a good fit for seniors or families or the 50 million multi-generational households in the U.S. Sperling, who is 80, says, "I want to stay in my home and not go to a nursing home." An ADU would allow him to move caregivers right into his backyard.

Young families "don't want to move into apartments, they want to move into homes, but there are no affordable homes," says Sperling. "Socially and economically, it's good for families and it's good business."

Millennials are another target market for ADU rentals. "These 30-year-olds would love to live on alleys," says Sperling. "They says it's cool."

Taken together, the potential builders and tenants span a huge swath of Denver's population. "This serves a lot of my problems, your problems and other people's problems, and it serves the city," Sperling concludes. "I think it's incredible."
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Read more articles by Eric Peterson.

Eric is a Denver-based tech writer and guidebook wiz. Contact him here.
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