City ready to aid housing

Decisions pending on distribution of $250,000 in affordable housing subsidies

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— Despite the failure of the excise tax, the city and county are still holding $250,000 in affordable housing subsidies and as the developers of the West End Village Project begin to calculate their costs, the first test case of how the city will use public money to fund housing is near at hand.

The city, which has an affordable housing matrix in its current Community Develop-ment Code, is re-examining that matrix in preparation for the adoption of the new CD Code. But before that new code gets adopted, the Regional Afford-able Living Foundation is drawing up a proposal to try to receive as much of the city's $125,000 share of the subsidy money as it can get for West End Village. The city's decision on that proposal, as far as some city officials are concerned, may set a precedent for the use of public funds for housing projects in the future.

The $250,000 is earmarked for the west of Steamboat area, but not necessarily for RALF, said City Manager Paul Hughes. The city's portion of the money comes out of the general fund, Hughes said.

The money, also, is not part of a growing fund. Once the city gives it away, it will be gone, said City Councilman Bud Romberg. That, according to Romberg, puts extra weight on how it is used.

County Commissioner and RALF member Nancy Stahoviak also sees West End Village as a potential test case of how public money may be used to fund affordable housing.

"That's why we need to be careful with how we deal with it here," Stahoviak said.

Living in the Matrix

The city, in reviewing the proposal, will have to decide, based on the housing matrix, what sorts of demands it will place on the applicants in order to part with the cash.

Those demands may include restrictions on the resale price of the house or may allow RALF to enter into favorable mortgage deals with the home buyers that will allow the non-profit to share in the appreciation of market values.

The matrix, according to city planner Tracey Hughes, allows the city to give subsidy dollars in return for certain concessions, which may include restrictions on the use of the houses. Among those restrictions could be limitations on who can own the house, the ability to resell the house for a profit or the amount of time someone must own a house before he can resell it. The matrix dictates that different amounts of subsidy demand different levels of restriction.

Affordable housing is defined in the matrix, as it was in the excise tax, as a residence for which an individual or family making 120 percent of the county's median income pays no more than 30 percent of their monthly income as a rental or mortgage payment.

Based on 2000 statistics from the Department of Housing and Urban development, the median income for a family in Routt County comes out to $54,300; 120 percent of that is $65,160. Each family's median income, however, depends on the household size.

Higher level subsidies, such as the subsidization of tap fees, would require higher level restrictions, such as resale controls. The matrix does not, however, specify what restrictions would be placed on the resale.

The county also uses the city's matrix to decide on the appropriation of the funds set aside for affordable housing.

The matrix was passed on Sept. 14, 1999, but has not yet been used. West End Village will be the first project to test the matrix, and if a new matrix is implemented in the new CD Code, perhaps the last.

"Before it was just talked about as a problem," said city planner Tracey Hughes. "Now we're getting to potential solutions. That's the hard part."

West End Village

West End Village, located on 30 acres off of Downhill Drive, was the first project to be reviewed under the West of Steamboat Area Plan. That plan was designed to encourage developers to build affordable housing by finding ways to help subsidize their developments.

The 137-unit project is seen by many, including both the Steamboat School Board and the Steamboat City Council, as one of the few viable sources of affordable housing for local employees.

RALF, which has teamed up with private builder Steve Cavanagh to purchase the lots, hopes it can get enough help from the City Council to keep the lots affordable.

RALF Executive Director Rob Dick said the lot costs have already escalated to about $42,000 from his original goal of $35,000 because of some of the demands the city placed on the project through the development process.

The developers have not yet purchased the West End Village property, nor has RALF received the loan it will need to purchase its half of the property from Cavanagh. Dick sees the subsidy as an influential tool for RALF to realize its goals.

Land Concessions

vs. Subsidies

West End Village has already received some breaks from the City Council in order to try to keep the project affordable.

The project received a number of "land concessions," primarily in the form of a reduction in the number of sidewalks required.

After asking council for direct subsidies in its initial application, RALF decided to separate the issues of land concessions from the subsidies in order to get the project passed before dealing with the controversial issues.

The reason this issue is controversial is the same reason that the excise tax was controversial. It begs the question, "should public money be used to subsidize affordable housing and, if so, should there be restrictions on the property-owners as to what they can do with the property?"

While the excise tax drew on new development for its money and these subsidies come out of the city's general fund, the question of the use of public money for housing runs through both cases.

Shades of Gray

"There is no right or wrong answer on these subsidies," Dick said. "We're dealing in shades of gray."

The use of the subsidy money will require restrictions on the property as demanded by the housing matrix but the exact nature of those restrictions will be up to the applicants and, in the end, the City Council.

Dick himself has been a proponent of the "silent-second mortgage," a plan that allows RALF to sell a house at cost, using the difference between the cost of building and the appraised value as a kind of subsidy. A house appraised at $150,000 that cost $100,000 could be sold for $100,000, with a $50,000 "subsidy" instead of selling it for a profit. Then, when the buyer decided to sell the house, he would have to share any appreciation with RALF in the same proportion as the initial subsidy. Because RALF subsidized the homebuyer for 33 percent of the value of the house, the homebuyer would have to give RALF 33 percent of the appreciated value. So, if the homebuyer sold the home for $250,000, making a profit of $150,000 on his initial purchase, RALF would receive $50,000 plus its initial investment of $50,000.

The silent-second can also have a fixed interest rate instead of a shared appreciation, Dick said.

The problem with the shared appreciation silent-second, as Dick admits, is that if the value of the land appreciates drastically, the houses may become un-affordable and, even with RALF's share of the appreciation, it may not cover subsidizing enough of the resale price to help another low- or moderate-income buyer.

In order to stop houses from becoming too expensive for people, the city could also impose deed restrictions on affordable housing. Deed restricting could mean limiting the amount of appreciation allowed on the house in the form of price restrictions, probably allowing a few percent a year.

Solutions that keep the prices down over time are appealing to a number of City Council members like Romberg and Ken Brenner, because they insure that the homes will remain affordable even as the market skyrockets.

"Our goal in this is to make sure that the first guy in doesn't make a killing and then we have to go back to the same situation we were in before," Romberg said.

Brenner said that the city would do well by a permanent deed restriction.

"We can learn from the rest of the state by using a permanent deed restriction, which implies that the city has a financial ownership in the property," Brenner said.

Stahoviak also supports restrictions that keep housing affordable in the long run, though she said she thinks there may be a number of ways to achieve that goal.

"We need some housing that is affordable in perpetuity for the people of this community, whether that means deed restrictions or silent-second mortgages," Stahoviak said.

Price restrictions, according to Dick, don't allow people to gain enough equity in the real estate market in order to make up for the risks inherent in home ownership.

"If you're restricting the resale and use of the house, the person doesn't really own it," Dick said. "When you're talking about price restricting someone's house, what you're asking is for somebody to accept all the downsides of ownership but limiting the upside potential.

"In order to justify a price restriction there needs to be a substantial enough subsidy to warrant it."

Dick said that an appropriate subsidy to warrant a price restriction would cover the entire cost of the lot.

City Councilman Jim Engelken, who is also a member of RALF and will have to step down for any discussions on the West End Village Project, also sees price restrictions as a potentially problematic solution.

"Price restrictions are a tool that we should use in the appropriate places for the appropriate purposes," he said. "The problem in price restricting single-family homes is that once people get into a restricted house where the resale is restricted, they never get out of it. Then we get deeper into the haves and have-nots, those who are capitalizing on the appreciation of their homes and those who are not."

Local businessman Jim Gill, who was one of the leaders in the fight against the excise tax, said the city should make sure the subsidies are doled out in an equitable way.

"Assuming that public money should be used for housing, what does it take to qualify for that money?" he asked. "We have to make sure that we know who this is intended for, so that people who have already worked hard to accomplish entry-level housing aren't disadvantaged because their timing was bad."

Others said they hope the city's role as a direct subsidizer of housing can be minimized in the future and that the private sector can receive more incentives to solve the problem.

"City Council is obligated to determine the best possible use of restrictions to meet their objectives," said John Kerst of First National Bank. "But the city should look into a means of incentivization that all of the private sector can use."

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