Denver Mayor Mike Johnston is giving up some property tax dollars to get more homes built for the city’s middle class.

At a Wednesday news conference, he announced the creation of a middle-income housing pilot program in conjunction with the Denver Housing Authority and Denver’s Department of Housing Stability, or HOST.

Under the program, up to five new housing projects restricted to those making between 60% to 100% of the area median income will be exempt from paying property taxes and state sales taxes on construction expenses in return for giving the DHA a small ownership stake in the real estate.

Projects also must deed-restrict the apartments to maintain the income requirements for 30 years.

“This is going to allow us to bring on more and more housing units for folks that are working in Denver from $60,000 to $100,000 of income and to be able to offer property tax rebates to folks that are going to commit to building this type of housing,” Johnston said at the announcement.

For the past 20 years, the DHA has had a similar program but only for heavily subsidized projects, typically reserved for those making no more than 60% AMI.

Applications for the tax break open July 15, HOST Executive Director Jamie Rife said. HOST will underwrite each proposal to determine the appropriate length of the tax exemption, which is capped at 15 years and expected to average about 10 years. Recipients of the benefit will be announced this year or in early 2026.

Projects will be weighted on a few different factors. Preference will be given to developments in neighborhoods prone to displacement, near transit, that contain family-size units and that incorporate affordability beyond what is required by the city.

“Make no mistake, if this pilot succeeds, and it will, it will become a permanent tool in our arsenal, one that cities across the nation will look to as a model for bridging the affordability gap. That is how important this program is,” DHA CEO Joaquín Cintrón Vega said.

Local developer Iván Anaya, president of the Mountain West region for Columbia Ventures, is planning to start construction on a 330-unit income-restricted apartment project on the Auraria campus early next year. He spoke at the announcement and hopes that his development will be among those chosen for the tax break.

Anaya estimates that he could save $8 million on property taxes alone over a decade on that project. The sales tax break could add an additional $1.5 million in savings.

“It simply helps you balance out the financial viability of a project with today’s interest rates,” he said.

Denver is facing a $200 million budget hole and preparing to lay off employees. But Johnston said this is one area where it makes sense for the city to voluntarily get less revenue.

“These are families that would otherwise not move to Thornton or move to Broomfield and then try to commute back and forth to their job in Denver or leave a job in Denver,” he said. “So the economic impact of not just that person being in that unit, paying the rent, but them paying sales tax here, property tax here, income tax here, those all really matter.”

Johnston’s program is not the only of its kind targeting middle-income housing in Colorado. The state has its own Middle Income Housing Authority, which was created in 2022 to issue tax-exempt bonds to developments. The Colorado Housing and Finance Authority also has a Middle-income Access Program that helps finance similar projects, along with a separate Middle-Income Housing Tax Credit.