Exit strategy debated

Developers ask for protection from uncertain market

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— A policy supported by local developers could "defeat the whole purpose" of the city's affordable housing efforts, a city official said Tuesday night.

At a meeting of the Steamboat Springs City Council, debate flared as the council worked on proposed revisions to the city's inclusionary zoning and linkage ordinance, which regulates how the city provides affordable housing in Steamboat's increasingly expensive real estate market. The debate resulted from an "exit strategy" policy currently included in the ordinance.

City regulations already require developers to provide affordable housing units with a new development, as a percentage of the total units built. Those requirements could be increased with the new, revised ordinance, which the City Council could adopt as soon as June 5. But the exit strategy would allow developers to place affordable units back on the free market, if the units don't sell after 18 months from the time they are available - and if the developer pays the city a fee in lieu of providing affordable units.

Specifically, the exit strategy allows 12 months for a consumer to buy an affordable unit, and failing that, six months for either the city or Yampa Valley Housing Authority to buy the unit.

"I think an exit strategy is to the city's best advantage, because we have the option to buy (the unit) at a fixed price or take the cash," City Councilman Paul Strong said.

Some developers in Routt County have had difficulty selling affordable units, due to an unwillingness by consumers to take on the deed restrictions - such as an annual appreciation value capped at 3 percent - that make the home affordable.

"We're extremely concerned about the ability to sell these units," said Garrett Simon of the Atira Group, which is developing the Bear Claw III, or Edgemont, project on the slopes of Steamboat Ski Area. "If there isn't a demand, there's got to be a compromise."

The Atira Group also is the local developer for new projects at Ski Time Square and the current site of Thunderhead Lodge, which together form a large portion of the base area that was purchased April 26 by the Washington, D.C. firm Cafritz Interests.

City Councilman Towny Anderson said that to allow an exit strategy would violate an introductory statement in the housing ordinance that says affordable units should be "permanently protected community assets."

"I think this would defeat the whole purpose of the inclusionary zoning ordinance," Anderson said. "I can see the city and the Housing Authority having to either buy a lot of units, or just watch them go."

Anderson and Richard Levy, a member of the Steamboat Springs Planning Commission, expressed concerns that developers attempt to market affordable units at the highest price possible, with the intent of not selling them and, as Levy said, "taking advantage of the exit strategy."

Strong strongly disagreed with that concern.

"The only way for a developer to make money is to sell units," he said, citing the prohibitive costs of the fee to the city, and of having unsold units on the market for 18 months.

The City Council will continue its work on affordable housing issues June 5.

Comments

Scott Wedel 6 years, 11 months ago

Once government decides to control the market then the well connected turn politics into a game to create rules with highly profitable loopholes for themselves.

Paul Strong's argument is laughably ridiculous. If the "exit option" is bad for the developers then the developers would not care if such an option existed. The very fact they want an exit option means they think the exit option is better than the alternative. And when the alternative is to simply reduce the asking price until a buyer is found then it means the exit option is an acceptable financial strategic move for developers that is preferable to reducing the price of "affordable" units.

Having an exit option makes sense only if the City were to also a fee in lieu of building any affordable units in the first place. It makes no sense to allow developers to pay a fee to escape the affordable housing rules only at the end of the process after they have put on a show of pretending they actually expected to sell the affordable units they built.

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another_local 6 years, 11 months ago

It is not enough that we are going to force private enterprise to sell something that they take a risk in for well below market and cost (inclusionary zoning) AND then require an additional payment (linkage) but now there should be no limit to the loss?

Paul was the only councilman present with a lick of sense. The proposed exit strategy is a good idea. Where is the downside? If these units are so desirable and needed there would not be a problem selling them. If there is a problem the housing authority can buy them and they are still available.

"Put on a show of pretending they actually expected to sell the affordable units they built" You really don't have a clue do you Scott? Nobody wants to build something at a loss and then sit on it for 18 months just so they loose a little less. If dropping the price a few points will move the unit promptly I can tell you with confidence that that will happen long before 18 months.

The fact is, that not many people want these units if they have a choice. Right now there are choices; Stagecoach, Hayden, non-deed-restricted units in older condos, fixer-uppers in some parts of town. Buying something with appreciation capped below the cost of funds is a last choice option.

Our ability to absorb new units will be challenged as these deed restricted units come on line. We have something approaching 100 of them that will be built in the next year or so. Asking businesses to hold them indefinitly is not right or fair. Let the housing authority buy them and rent them until a buyer can be found if the market does not absorb them within a year and a half.

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upriver 6 years, 11 months ago

I agree with the previous three comments. This attempt by the city council to provide adequate affordable housing is doomed to failure. Everywhere that government has tried to control markets at the micro level it has been a colossal failure and creates political problems and opportunities for funny business. This ordinance is very ill conceived and won't solve the affordable housing problem in Steamboat.

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WZ 6 years, 11 months ago

If an "exit strategy" is needed, then I think there is something enharently wrong with the entire structure of the arrangement to begin with.

I think when you get down to it, at issue here is the 3% flat cap. From what I can tell, that is the reason for exit strategy. Re-work the cap then. Make it more appealing to purchasers.

For example, perhaps a gradient % system might work. You sell the first 5 years, 3% cap. You sell 6 years, 4%, 7 years, 5%. etc.

Or, perhaps a shared distribution of an uncapped %. Let's say a new owner has to hold a five year minimum, or the cap is limitted to 3%. sale. If after 5 years the owner wants to see, it goes back on the free market. 33% of profits goes to the owner, 33% to the builder and 33% goes to the city/affordable housing effort at large. All three of those entities are taking a risk by controlling the free market to begin with. You share the profits with all three, and the risks are reduced for all three.

I don't know. But what I do know is, as a prospective consumer, I don't like that 3% cap. There's got to be a better system, but I don't think the "exit strategy" is the way to go. I'm curious to hear other's thoughts and ideas on this matter.

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Dave Moloney 6 years, 11 months ago

A basic economic principal is that the market gets what the market wants! Many consumers don't want their profit potential capped and so the deed restricted units lanquish on the market. Funny how the same people who think they should get a hand out at everybody elses expense to buy their home, don't think that they should have to give up the profits.

If the City and Housing Authority are so sure that they have such a great plan for these type of units, they should have no problem buying them back from the developers that they force them on. 18 months is longer than the average time it takes to sell a home in this market. If the developer can't sell that at some agreed upon price in that time, let the City or housing authority put their money where their mouth is and buy the units. Then we can have even bigger, more inefficient government. Maybe we can even create a new position at taxpayer expense to manage it all.

Seriously, if we want to do something about this issue. Let's stop wasting our money on studies and consultants and buy some land at fair market values. Use powers already vested in the city like the ability to rezone land, grant variances, or waive fees and create incentives for free market entrpeneurs to provide the market with what the market wants. The counties Land Preservation Subdivions regulations are good example of how a government can create incentives for the private sector to create development that has the desired outcome. (For those that aren't familiar with this a developer is granted one additional building site for each 100 acres set aside as open space. So a 350 acre parcel that could have been divided into ten 35 acre tracts with roads all over the place is instead allowed 13 building sites clustered on 50 acres with a minimal amount of roads and infrastructure and 300 acres that are retained in open space. Everybody wins.)

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snowysteamboat 6 years, 11 months ago

Whole-heartedly agree with the affordibale bit. Who is going to start a PETITION drive for November in case this ludricrious stuff passes?

The only problem I have with the LPS process is that the open space is private. For the incentive offered, it would be nice if it were open to the public. Perhaps an additional density bonus could be offered for such a situation.

As for the clustering, that is larely not true. The homes are generally strung along a linear alignment of 5 acres lots.

LPS is good, just could be better.

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