Denver has a new plan to build affordable housing: Put it in the yard.

Under a new program, public agencies will partner with Habitat for Humanity to help West Denver homeowners build accessory dwelling units, also known as granny flats, on existing residential properties.

The “West Denver Single Family Plus” program is expected to cut homeowners’ ADU construction costs in half. Some homeowners also can get extra help: The city will offer up to $25,000 as a “forgivable” second mortgage to reduce the cost.

The catch is that the accessory units built through WDSF+ are reserved for rental or use by people with lower incomes. And only a limited number will be built.

The Denver City Council approved $500,000 of city subsidies for the program in a unanimous vote on Monday.

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“This program is attempting to streamline the ADU development process to make sure that from a cost and timing perspective, it is more accessible to low- and moderate-income homeowners,” said Haley Jordahl, housing development officer for the city.

Many of West Denver’s older owners have paid off their mortgages, but they’re struggling with rising costs. Building and renting out an extra dwelling could help.

“Their homes are worth a lot, but their incomes — they’re kind of worried, with property taxes,” said Renee Martinez-Stone, director of the West Denver Renaissance Collaborative, a partnership of DHA, the city and the nonprofits The Denver Foundation and Enterprise Community Partners.

Typically, an accessory unit can cost more than $200,000 to build. The DHA program lowers that to between $100,000 and $140,000. It relies on pre-approved home designs and construction work from Habitat for Humanity.

Most homeowners will pay off the ADU costs through a mortgage, but they can make their money back by renting. Additionally, the city will offer $25,000 forgivable loans for lower-income homeowners, which should further reduce the mortgage and the monthly costs.

The WDSF+ program also temporarily covers some upfront planning costs, such as soil testing, allowing homeowners to instead roll those costs into the mortgage.

The rental restrictions on the units will disappear if the units are sold. However, there are incentives for homeowners to avoid that: If they sell immediately, they’ll be asked to pay back some of their construction savings — potentially tens of thousands of dollars — to the program. The city loans also are gradually forgiven over the 25-year period. (Martinez-Stone said the program could allow homeowners to sell without paying a penalty if the next owner accepts the rules, but that’s not settled yet.)

Housing counselors will work with participants to make sure it’s all financially feasible. The home designs range from one to three bedrooms, and from about 432 to 864 square feet.

The rules are:

The homeowner must make less than 120 percent of the area median income, about $111,000 for a family of four.

To get the extra forgivable loan, the homeowner must make less than 80 percent of AMI, about $75,000 for a family of four.

The owner has to have lived in the neighborhood for at least five years.

The ADU must be occupied or rented by a non-owner making less than 80 percent of the AMI. Alternatively, the non-owner can live in the main house.

The program is available in several gentrifying neighborhoods: West Colfax, Sun Valley, Auraria, Lincoln Park, Villa Park, Barnum West, Barnum, Valverde, Westwood and Athmar Park.

The pilot program is expected to build about 40 units through 2021, but only about half of those will benefit from the city loans. The city has budgeted about $500,000 for the program.