By John R. Lucero
September 17, 2026
Denver’s next housing challenge is not only producing more deeply affordable rental housing. It is also restoring a realistic pathway to ownership for working households who earn too much for traditional subsidy programs but increasingly cannot reach market-rate home prices.
The “missing middle” is easy to describe in percentages and Area Median Income bands. It is harder to understand until you see what it means in daily life.
During my years with the City of Denver, I was struck by how many employees working downtown could not afford to live reasonably close to where they worked. Some lived north of Thornton, and even as far as Greeley, commuting or carpooling into Denver every day.
These were not households in deep poverty. They were working people with steady jobs, often with families, who were increasingly priced out of ownership in the city they served.
Middle-market housing should give people a realistic opportunity to live near where they work, where their children go to school, and where they build their lives.
For policy purposes, Denver has frequently analyzed ownership needs in the 81% to 120% AMI range. In practice, that middle market includes teachers, public employees, nurses, first responders, tradespeople, nonprofit staff, young professionals, and many two-income households who may earn too much for traditional affordable housing but still struggle to buy a home in Denver.
Townhomes should be part of that strategy. They can provide family-sized ownership, use land more efficiently than detached homes, fit comfortably into many established neighborhoods, and avoid some of the construction and ownership-cost challenges associated with stacked condominium development.
The obstacle is not simply zoning. A townhome project can be permitted, well located and marketable and still fail financially because land, construction, infrastructure, financing and buyer purchasing power no longer align.
That suggests a different policy question: rather than permanently restricting every unit, could the City use a limited public investment to help a household buy, build meaningful equity, and then recycle part of that investment to the next buyer?
A Middle-Market Ownership Program Should Be Built Differently
Traditional affordable housing programs often prioritize permanent or very long-term affordability. That is appropriate when the public objective is to preserve a unit as an affordable asset for generations.
Middle-market ownership has a second objective: wealth creation. A household that remains in a home for ten or fifteen years should be able to leave with meaningful equity, not merely recover its original down payment.
One approach worth testing is a 10- to 15-year owner-occupancy covenant paired with a declining public recapture and shared-appreciation formula. The public investment remains protected during the period in which it is most needed, but the homeowner’s share of the asset increases with time.
Illustrative Structure
These numbers are illustrative policy assumptions, not a proposed Denver program or a market forecast.
Assumption | Illustrative amount / term |
Market value / initial sale price | $500,000 |
City affordability investment | $75,000 |
Buyer first mortgage + cash requirement | $425,000 |
Illustrative first mortgage | 30 years at 6.5% |
Illustrative home appreciation | 3.0% annually |
Owner occupancy covenant | 15 years |
City assistance | Recorded as a soft second mortgage; no monthly payment |
Exit during covenant | City receives a declining share of its original investment plus a declining share of appreciation |
After Year 15 | Covenant and City recapture obligation terminate under this illustrative model |
A Declining Recapture Formula
The City’s share should decline as the homeowner remains in the property. That rewards long-term occupancy and gradually converts public subsidy into household wealth.
A simple starting structure could be:
Ownership period | City recapture of original $75,000 | City share of appreciation |
Years 1-5 | 100% | 20% |
Years 6-10 | 75% | 15% |
Years 11-15 | 50% | 10% |
After Year 15 | 0% | 0% |
What Happens If the Homeowner Sells?
The covenant should not trap the homeowner or require the next buyer to inherit whatever years remain. Under this concept, the affordability restriction is tied primarily to the assisted household.
When the homeowner sells during the covenant, the home can be sold at market value. At closing, the first mortgage is repaid and the City receives the amount required under the recapture formula. The balance belongs to the homeowner, subject to normal transaction costs.
The City’s recovered funds return to a revolving middle-income homeownership fund. If the City assists the next qualified buyer, that household begins a new 10- or 15-year covenant. In that way, the public investment remains affordable over time without permanently restricting the same property.
Illustrative Exit Projections
The table below assumes a $500,000 initial value, $75,000 City investment, 3% annual home appreciation, and a $425,000 30-year mortgage at 6.5%. Homeowner equity is shown before broker commissions, and other selling costs.
Exit year | Estimated sale price | First mortgage balance | City recapture | Homeowner equity before selling costs |
Year 3 | $546,364 | $409,773 | $84,273 | $52,318 |
Year 5 | $579,637 | $397,847 | $90,927 | $90,863 |
Year 8 | $633,385 | $376,791 | $76,258 | $180,336 |
Year 10 | $671,958 | $360,299 | $82,044 | $229,616 |
Year 12 | $712,880 | $341,523 | $58,788 | $312,569 |
Year 15 | $778,984 | $308,376 | $65,398 | $405,209 |
Year 8 example: At 3% annual appreciation, the home would have an estimated value of about $633,400. The City would recapture approximately $56,250 of its original assistance plus about $20,000 of appreciation, for total City proceeds of roughly $76,250. After paying an estimated first-mortgage balance of about $376,800, the homeowner would leave with approximately $180,300 of gross equity before normal selling costs.
What the Covenant Would Do
During the covenant period, the home must remain the owner’s primary residence. A sale, cash-out refinance beyond defined limits, conversion to rental use, or other transfer would trigger the applicable recapture formula.
At a permitted sale, the City releases its lien and the seller exits the covenant after the recapture amount is paid. The purchaser does not automatically inherit the remaining covenant term. A new covenant begins only if the City makes a new affordability investment in the next buyer.
That distinction matters. The public benefit is preserved through the revolving capital rather than by keeping one townhome permanently price restricted.
Why This Model Is Worth Testing
A middle-market ownership program should not force Denver to choose between affordability and household wealth creation. The City can protect a public investment while still allowing a working household to participate substantially in appreciation and mortgage principal reduction.
A shorter covenant also recognizes that households change. People marry, have children, change jobs, retire or need to move. A program designed around real households should provide a clear exit rather than treating mobility as a program failure.
Most importantly, the model makes the public dollar reusable. Instead of locking the same subsidy into one property for generations, Denver can recapture a portion of its investment and deploy it again to another buyer or another townhome development.
Lucero Perspective
The missing middle is not an abstract AMI category. It is the teacher, city employee, nurse, tradesperson, or young family who works in Denver but increasingly has to look farther away to find a home they can afford to own.
People should have a realistic opportunity to live near where they work, where their children go to school, and where they build their lives. That strengthens neighborhoods, reduces punishing commutes, and makes homeownership a more realistic wealth-building tool for households that are increasingly caught between traditional affordable housing and the market.
The missing middle is not going to return through zoning reform alone. A project can have the right density, the right product and the right location and still fail because the economics do not work for either the developer or the buyer.
Townhomes offer Denver an opportunity to test a different ownership strategy: modest public investment, limited-term affordability, meaningful homeowner equity and recycled public capital.
Public investment should buy a period of affordability and an opportunity for ownership. It does not always need to create a century-long restriction on the home itself.
If Denver wants more middle-market homeownership, the measure of success should not only be how long a unit remains restricted. It should also be how many households enter ownership, how much equity they build, and how many times the same public dollar can help the next household buy a home.
Questions to Test Before Implementation
The precise policy would need to test buyer AMI bands, maximum City investment per home, treatment of capital improvements, refinance rules, hardship transfers, foreclosure priority, appreciation methodology, and whether any portion of City principal should be forgiven after long-term occupancy.
Those details matter. But they should be solved around the policy objective rather than allowing the mechanics to prevent the experiment.
Sources & Further Reading
Denver Community Planning and Development, Expanding Housing Affordability materials, including projected ownership needs by AMI band. https://www.denvergov.org/files/assets/public/v/1/community-planning-and-development/documents/zoning/text-amendments/housing-affordability/eha_proposal_summary_february_2022.pdf
Denver Department of Housing Stability, Denver Affordable Housing Residential Nexus Study, September 8, 2016. https://www.denvergov.org/files/assets/public/v/1/housing-stability/documents/denver_r_nexus-study-final-090816.pdf
Denver Inclusionary Housing Ordinance Rules and Regulations, 2024. https://www.denvergov.org/files/assets/public/v/1/housing-stability/documents/2024-iho-rules-regs-2024-final.pdf
