Key Takeaways:

• Colorado’s zoning rules require too much land per home.
• Because land is expensive, these rules drive up housing costs.
• When new homes are required to sit on large, expensive lots, it becomes infeasible to build small, basic starter homes at prices people can afford.
• Lot size flexibility lowers land cost per home and makes starter homes feasible in more places.

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Ever wonder why new homes in existing neighborhoods often end up as $1.5 million “McMansions”? A big part of the answer is land costs.

Over the past decade, residential land prices in Colorado have increased six times faster than inflation. In Denver, land now averages about $1.2 million per acre. In Boulder, it’s closer to $1.69 million per acre. As a result, land cost has become a major driver of home prices, growing from 31% of a home’s value in 2012 to 58% in 2024. 

When land gets this expensive, how we regulate it matters. Minimum lot sizes (MLS) are local zoning rules that dictate the amount of land required per home. Builders and homeowners can always create lots that are larger than the minimum, but not smaller. And Colorado’s lot sizes are unusually large. Many jurisdictions along the Front Range require 6,000 to 12,000 square feet of land per home, which forces each home to absorb the cost of a large and increasingly expensive piece of land. 

At the same time, most residential land is restricted to one home per lot. The result? Instead of adding more homes in desirable neighborhoods, we often see smaller, older homes scraped and replaced with much larger, more expensive ones. For example, in Denver, the average new home in 2024 replaced a 1,299 square foot home with a 4,405 square foot home. 80% of those new houses sold for over $1.4 million.

Allowing homeowners to split their lots so we can build more homes on less land is a key strategy for reducing housing costs and increasing the number of homes in existing walkable neighborhoods – a win for housing affordability, the economy, and the environment.

Bringing back starter homes

Colorado is short roughly 106,000 homes. When there aren’t enough homes to go around, competition makes prices rise – one reason Colorado home values have more than doubled over the past decade.

Colorado has made real progress on rental housing in the last few years. The recent surge in new apartments, especially in the Denver metro area, has helped lower rents across the board, especially for low-income households. Unfortunately, we haven’t seen the same progress in homeownership prices. And while there has been significant action at the state level to increase housing supply and lower costs, many of these recent reforms have focused on new multifamily rental housing rather than for-sale starter homes.

Starter homes – smaller, more affordable options for first-time buyers – have largely been regulated out of existence. While many cities now allow Accessory Dwelling Units (ADUs), those are rentals, not ownership opportunities. In other words, Colorado homeowners who have excess land are now allowed to build a small home in their backyard and rent it out. However, they’re not allowed to sell that home and the land it sits on. 

Minimum lot size requirements not only drive up the cost of land required to build a new house, they also determine the types of houses that are profitable to build. Homebuilders struggle to find a market for new homes if the land makes up more than ⅓ of the final sale price. This means if a lot costs $250,000, the new house must be large and high-end enough to command a final sale price of $750,000. However, if minimum lot size reform allows homebuilders to spend less on land, they will also be able to deliver smaller, more affordable starter homes. Smaller lots thus improve housing affordability both directly and indirectly.

Note: We use “starter home” in the common real estate sense to mean lower‑priced, entry‑level homes, while recognizing that many of these homes can be ideal long‑term homes, not merely a step toward something bigger or more expensive.

HB26-1114 and HB26-1308: Lot size flexibility unlocks more homes on less land

One of the most straightforward ways to address this is to allow more homes on the same amount of land, especially in existing, walkable neighborhoods. HB26-1114 and HB26-1308 tackle this problem from complementary angles:

• HB26-1114 reduces excessive minimum lot size requirements to allow smaller homes on smaller lots.
• HB26-1308 allows homeowners to split existing lots once through a simple administrative process.

Together, they make it legal and feasible to create new housing configurations like:

• A backyard home on a newly created rear lot
• Two side-by-side homes on a wide parcel
• Corner lot splits with separate street access
• Front-and-back homes connected by a driveway or walkway

Lot splitting doesn’t just help buyers, it can also benefit homeowners by allowing them to access the value tied up in their property without having to move. Across Colorado, many longtime residents are hoping to downsize, but can’t find smaller, more affordable options in their communities. Meanwhile, young families struggle to afford housing near jobs and schools and, in many cases, are priced out of the very neighborhoods they grew up in.

There is also a growing mismatch between household sizes (people per home) and available housing options, as Colorado’s demographics change. About 25% of Colorado households have just one person, and another 36% have two. As household sizes shrink, not everyone needs a large, detached single-family home on a large lot. Small-lot reforms would expand attainable housing options in highly desirable neighborhoods.

Smarter growth, not more sprawl

Some Colorado cities already allow small lots, but mostly on the urban fringe. For example, parts of Aurora allow lots as small as 1,500 square feet, but only for greenfield development in undeveloped areas far from jobs, transit, and infrastructure – mostly east of E-470. In more central, urban neighborhoods, minimum lot sizes are four times larger. That means we’re encouraging four times more density where we don’t have infrastructure or public services while restricting it where it makes the most sense. Small lots should be allowed everywhere, but especially in the high-value areas near urban centers.

Allowing smaller homes in existing communities is good for the environment since the homes use less energy and water. When they are centrally located, they require less driving and enable more walking and biking – which is good for public health (enabling exercise while reducing traffic fatalities and air pollution) as well as the planet (less greenhouse gases).

Gaining traction around the state and country

These reforms respond directly to barriers identified in the dozens of Housing Needs Assessments conducted by local governments, pursuant to SB24-174. Almost universally, communities identify minimum lot sizes as a barrier to housing production and affordability, with many reports recommending reform. Among these, Colorado Springs / El Paso County (2025) finds that “these regulations often prevent the development of affordable single family housing,” noting that lot area reductions in turn enable affordable housing options; Larimer County (2025) identifies reducing minimum lot sizes for single family homes as a “best practice” that can be implemented at no fiscal cost; and Thornton (2024) recommends “reducing lot sizes to increase density and lower the cost of each housing unit developed.” The two state bills being considered now, HB26-1114 and HB26-1308, are well aligned with these local findings.

Examples of lot size reform around the country:

• Houston’s longstanding small lot code allows 1,400 square foot (sf) lots, creating more than 80,000 moderately priced, family-sized houses over the nearly 30 years the reform has been in place. This same time period coincided with growth in the city’s Black and Hispanic populations as they decreased in many cities. It’s also an important factor in Houston’s status as the most affordable Sun Belt city, measured by median house price relative to median income.
• Raleigh, North Carolina, reduced its minimum lot sizes from 5,000 sf to 2,000 sf in 2019, leading to the construction of about 250 homes, over half of which sold for under $500,000.
• Austin, Texas, cut its minimum lot sizes from 5,750 to 1,800 sf in 2024. Gainesville, Florida, dropped minimum lot sizes to 3,000 square feet, citing economic segregation and high costs. In Spokane, Washington, minimum lot sizes are now 1,200 sf. 

Together, Colorado’s lot flexibility bills will unlock more housing opportunities – both rental and homeownership – in neighborhoods that currently prohibit it. This legislation will allow more Coloradans to live in highly desirable communities and give existing homeowners the flexibility to downsize. HB26-1114 and HB26-1308 offer an opportunity to use land more efficiently, lower housing costs, and encourage smart growth across Colorado.