This article originally appeared in the November 24, 2011, issue of Mountain Town News.
by Allen Best
Clearly, different resort communities of the West are responding to diving prices and stalled real estate development in varied ways.
In Eagle County, Commissioner Jon Stavney is calling for a rollback or at least a repurposing of impact fees. “I believe those regulations established at the height of the market must be revised for the new reality,” he wrote in a recent op-ed published in the Vail Daily.
In California, Mammoth Lakes has eased the onus of housing regulations on the last two projects, the assumption being that fewer exactions will prime the pump of development. Tellingly, the town’s housing authority, called Mammoth Lakes Housing, now has 2 employees, down from 5.
Steamboat Springs a year ago scrapped its affordable-housing requirements linked to commercial development. “It was a tax on job creation,” says Cari Hermaniski, who was then president of the city council. “The more employees your building created, the higher the linkage fee,” she told MTN.
The affordable-housing ordinance, was passed prior to a November, 2007 election. New members believed that the housing ordinance had unintended consequences. Since the recession, she adds, there is virtually no gap between market priced housing and the limits set in the ordinance for so-called affordable housing.
Breckenridge town officials are taking advantage of lower construction costs to move ahead with two more phases of Valley Brook, a deed-restricted neighborhood. The only difference is that eligibility is being geared to lower-income segments, those at less than 100 percent of area median income (AMI), reports Kim R. Dykstra-DiLallo, the town’s director of communications. “We don’t want to see people have to drive to Fairplay or Alma if they want to be in Breckenridge,” she says.
Even in Aspen, which has had affordable housing since the early 1970s, the Great Recession has caused more cautious evaluation of the community’s showpiece Burlingame Ranch.
Almost every community with deed-restricted housing is grappling with how to move forward, reports Melanie Rees, a consultant specializing in affordable housing who has worked broadly in resort towns of the West during the last 18 years.
Rees, who is writing a white-paper on the effects of the recession on affordable housing, says the conversations generally fall under two different headings:
1) Has the recession revealed flaws in the deed restrictions placed during boom years?
2) Should affordable housing requirements be scrapped or at least scaled back, in an effort to lower the hurdles so that backhoe operators, carpenters, and others can return to work?
In all cases, the recession has reinforced the need to get price points on affordable housing right at the outset. Consider the case of Eagle Ranch, a large upper-middle-end housing project built around a golf course on the south end of Eagle, which is 30 miles west of Vail. The tastefully constructed development was a perfect metaphor for the New West in the decade of the aughts. Buyers of the homes—single-families tended to fall in the $400,000 to $700,000 range, although many pushed higher as the boom continued—tended to be contractors and others involved in the real-estate business.
In setting price points for the 50-some deed-restricted townhomes, condos and single-family houses, the assumption was of a constantly rising free market. Then the plunge occurred, knocking back free-market prices 30, 40 and even 50 percent—and, in some cases, below the prices of deed-restricted housing.
“In most cases, the market value of deed-restricted housing is coming in at well below the price the owner paid for it,” reports Tori Franks, of the Eagle County Housing Department.
Lesson learned? “When you’re putting deed-restricted affordable housing in place, that initial price point is so important,” says Franks. The pricing can’t be too high to start with, and it must be tied to some measure of affordability, such as the area median income.
Lesson No. 2: Despite words of warning along the way, many buyers of deed-restricted housing assumed that their housing would always appreciate to the maximum 3 percent annually.
Eagle County administers 574 housing units, which does not include those in Vail and Avon. Of them, 289 are at Edwards, mid-way down the valley, in a project called Miller Ranch.
For about year after the recession began, the resale market for deed-restricted units was robust. “Two years ago you could put your (deed-restricted) unit on the market, and the next day you’d have 10 offers,” says Franks.
Now, owners of deed-restricted housing are having to use techniques of the free market: setting a price below the maximum cap, then perhaps lowering it again once or twice and negotiating over sales terms with buyers.
Only 2 of the 574 housing units managed by Eagle County have been foreclosed on. (Programs in Vail and Avon are separate).
In San Miguel County, where Telluride and Mountain Village are located, 34 foreclosures have occurred among 1,124 units. Notable is that all but 2 were on units that had no price restrictions on resale prices. The affordable-housing deeds only require local employment.
Housing values of these units rose significantly during the boom, and as was occurring across the country, people took out equity via second mortgages. When housing prices plunged and jobs dwindled, many couldn’t keep up with their payments.
Telluride, unlike the county and Mountain Village, has had no foreclosures on deed-restricted homes. Why the difference? It may have had to do with limits on loans to value on its 106 owner-occupied homes—preventing owners from using their properties as cash machines. Telluride also has 204 renter-occupied units.
Vail and Summit County seem to be happy with how their affordable housing programs have worked during the recession.
“Where the gap has disappeared between deed restrictions at the free market, or where the free market has dropped below the prices of deed-restricted housing—that’s where the problems are.”
In Vail, there’s still a significant gap between deed restricted housing and the free market, even if some owners of affordable housing are cashing out for larger free-market homes down the valley. But an 1,800-square-foot half-duplex with a two-car garage, all for $395,900, is still a great deal for somebody in Vail—thanks to deed restrictions that were not allowed to gallop upward too quickly.
In Summit County, deed-restricted housing continues to appreciate, reports Jennifer Kermode, executive director of the Summit Combined Housing Authority. The authority administers 825 units in Breckenridge, Silverthorne, Frisco and unincorporated areas, including Keystone.
Why the continued creep upward? Kermode thinks it’s because of the more constrained land. Only 15 percent of land in Summit is privately owned, a figure comparable to Aspen and Pitkin County. Eagle and Routt counties have much more private land.
Plus, says Kermode, Summit County benefited by taking a hard look at older housing programs in Eagle and Pitkin counties. “We looked at what was working and what wasn’t working,” she says.
One key: Tying appreciation caps to local income, instead of the costs of goods (the consumer price index). That keeps affordable housing affordable. So far, thanks to a continued robust tourism economy, the average median income has not dropped.
Everywhere, however, seasonal and for-rent housing remains in high demand. That’s true in Steamboat Springs, despite a 30 percent reduction in real-estate values (and much, much steeper declines in outlying areas such as Stagecoach, 15 miles away).
A two-bedroom rental still requires an annual income of $23 an hour, she points out, or $48,000 a year.
The housing authority’s 55-unit rental project, which is based on income, is “stock full,” says Page-Allen.
In Vail, the community’s largest for-rent affordable-housing project, called Timber Ridge, is completely booked for winter. It has 189 units.
However, the down-market and revised lending practices are causing a down-sizing of redevelopment plans for the project. George Ruther, director of the Department of Community Development, reports new plans call for a 22 percent reduction in bedrooms—although still an increase from the current configuration. The reason: a rental-housing market study by the redevelopment project’s potential lender, the U.S. Department of Housing and Urban Development.
Counties have typically been slowest to adopt affordable housing requirements. Now, some are studying retreat. In Colorado’s Garfield County, an advisory group is scheduled to report to the county commissioners and the planning commissioners in December about steps to reduce requirements. The proposal, says Tamra Allen, the long-range planner, would remove restrictions altogether from New Castle west, and then cut back requirements in the unincorporated areas near Glenwood Springs and Carbondale. In addition, the board will be looking at waiving all requirements for 2012-2014, an in attempt to kick-start construction.
“The county had been reeling from 10 percent growth with 40 percent of our work force involved in building or development—a pace and portion that wasn’t sustainable,” he wrote in the essay, published Oct. 15 at: http://www.vaildaily.com/article/20111015/EDITS/111019887/1023&parentprofile=1065
“That plan responded by establishing that 35 percent of all upcoming projects be set aside for work-force housing. It was a historic response to a historic gap. If the plan had been in place 15 years earlier, the Eagle Valley might have had plenty of work-force housing.
“It was a great vision, and yet today it already seems a relic,” he went on to say. “My take is that there will be great competition in the next decade for entry-level housing and that we don’t need to regulate it so aggressively—at least not like we thought in 2008.”
Another jurisdiction hearing calls for backing-off requirements is Ketchum. The Idaho town has approved plans for four different hotels in the final years of the boom, but although several of the developers have called for reductions in requirements, including public-sector housing, the city council so far has not relented. The council will be taking up the matter on Nov. 29. If a housing needs assessment completed by then shows much more supply, “the council may decide that we can allow a new approach to housing,” says Lisa Horowitz, the director of community and economic development.
Perhaps the most interesting community to watch will be Wyoming’s Jackson Hole. Just 3 percent of Teton County land is privately owned, yet the economics are as robust as that of Aspen. The long term is clear enough: continued high-end development. And so far, there is no evidence of strong local support for backing off regulations. “You hear grousing in some quarters,” says Bob McLaurin, town administrator. “But I haven’t heard it from an elected official in either the town or the county. That doesn’t mean they aren’t talking or thinking about it amongst themselves,” he added.
In Eagle, the first substantial project that might trigger the town’s affordable-housing requirements likely won’t get to entitlement stage for three years, says Willy Powell, town manager. At that time, a housing needs assessment can be done. Another project, Eagle River Station, may reach the same statge earlier, but it only involves for-rent housing and commercial, which does not trigger the regulations.
The recession has slowed, but not stopped, planning for affordable housing in Aspen and Pitkin County. Of course, having been created in the 1970s, the program has seen ups and downs before—although nothing this breath-taking.
“We are moving into new territory in terms of refining the demand side of the equation,” says Tom McCabe, the program’s director.
The program has 2,800 housing units in a community with a full-time population of 6,500—and if you think that might influence elections, you’re absolutely right. This housing spans an enormous variety of situations, in seven separate categories. In addition to the typical condos and townhomes, there are even million-dollar homes (deed restricted) for doctors and lawyers. “You know it’s pretty hard to get the job done here in the free market, even if you have what is considered a really healthy income,” says McCabe.
However, the free market is impacting Aspen’s affordable housing program, especially its 200 seasonal housing units. Two years ago, the rentals filled to 53 percent of capacity, an all-time low for that property, but last year hit 95 percent and will likely be in the 90s again this year. Prices are being adjusted to be competitive in the Roaring Fork Valley. “It has our eyes open, because we have to pay our bills, too,” says McCabe.
Demand for for-sale affordable housing—a given since about 1991—no longer is taken for granted. This new mentality is most evident at Burlingame Ranch, the city’s newest affordable housing complex. Having completed the first phase several years ago, the city is looking at another 60 to 80 units. There’s a new caution about ensuring sufficient buyers.
“We are shooting to get 60 bank-qualified applicants,” says McCabe. And banks have raised the hurdle, reviewing credit and employment history, and giving out lower interest rate and downpayment requirements to the less risky applicants.
A former city councilman, McCabe says elected officials necessarily have a broader perspective than affordable housing administrators. From his perspective now, he wants to ensure that there is no erosion of public support, such as might happen if the city and county overbuilt subsidized housing.
“We’re going to be very careful about how we move forward,” he says. “We have to be more precise in what we produce, so that it matches very closely the need in the marketplace.”
Adds McCabe: “We’re looking at the long view. We’re not one-hit developers. We want to shepherd that public confidence. We have a good reputation, and we don’t want to mess that up.”
Many ski resorts are turning 50 this year, and taking that long, long view, few only investments in workforce housing have been misplaced. The question that continues to be played out is just how strong the recovery is. Only time will tell, of course.