Return of housing market once again could put affordability at heart of discussion |

Return of housing market once again could put affordability at heart of discussion

Michael Schrantz

— The collapse of Routt County's real estate market was, quite simply, painful for many property owners here. Some were burned by the loose lending practices that became commonplace across the country in the mid-2000s. Others found themselves underwater on homes they had just purchased. Local foreclosure starts skyrocketed to record levels, filling the market with distressed properties that only recently are disappearing en masse from sale listings.

By upending the market for free-market homes, the financial crisis and resulting recession also upended the discussion about affordable workforce housing in Routt County. Suddenly, homes were selling for hundreds of thousands of dollars less than they had commanded just months before. The lines of cars commuting into Steamboat Springs from the west and the south during the boom shrunk as jobs dried up. Fewer jobs meant less competition for rental housing. As the market corrected, the local housing discussion that dominated the middle part of the decade seemed to fade away. Empty units and failing projects turned the focus to relieving the burdens placed on developers during the height of the market.

But by most accounts, the housing market has seen the bottom. Population growth has continued, and housing inventory is shrinking. Now, before the next potential housing shortage develops, the community is faced with the opportunity to consider what was learned during the last run-up and what, if anything, should be done to influence how Steamboat Springs and Routt County grow in the future.

Workforce issues dominate

In 2007, Routt County's workforce was the center of discussion. The number of wage and salary jobs in the county peaked that year. Workforce issues were the subject of a summerlong lecture series by the Steamboat Springs Chamber Resort Association. The national recession officially would begin in December, but the real estate run-up created real concern that hard-working professionals like teachers, police officers and firefighters would be permanently priced out of the market.

"There was a real expectation that real estate would never go down," said Kathi Meyer, president of the Yampa Valley Housing Authority board of directors.

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Meyer recalled the fear that affordable housing efforts never would be able to catch up. Local governments tried nonetheless, taking a number of steps to address what many considered the most significant issue facing Routt County.

In a move now widely panned, a previous Steamboat Springs City Council purchased the Iron Horse Inn in late 2007 with plans to house city employees there. A Community Housing Ordinance was passed in 2006, and with it came inclusionary zoning and linkage provisions. The former required affordable units to be included in residential development projects within city limits. The latter sought to offset the housing impacts of new development through fees.

"Much of our workforce was in construction," said Steve Lewis, a member of the Steamboat Springs Planning Commission from 2005 to 2008 who actively was engaged in community discussions about affordable housing and growth. "So we were asking the construction industry to be part of the solution."

When the economy was booming, Lewis said, he worried provisions like exit clauses — which allowed developers to reduce their affordable housing requirements if those deed-restricted units remained unsold after a given time period — provided developers a reason for their affordable units to fail.

But as the economy faltered, he found himself sympathizing with developers seeking relief from the affordable housing ordinances.

"I understood that everyone was struggling, even the big boys," Lewis said.

Other Colorado resort counties, including Pitkin and Summit, had put in place affordable housing plans decades earlier. Conversely, the time period between the passage of Steamboat's Community Housing Ordinance and the housing downturn was dramatically short.

"We came late to the party as far as getting local government involved," Meyer said.

Steamboat Springs City Council member Cari Hermacinski said the original community housing ordinances were passed hastily.

"It actually was one of the reasons I ran for City Council," she said. "I was not a fan of those" ordinances.

When real estate prices began to plummet, the gap between the cost of deed-restricted properties built under the ordinance and comparable free-market units virtually was eliminated. Developers fought for — and often won — the reduction of numerous provisions in the original community housing measures. The Iron Horse Inn now sits half shuttered, and the debt incurred by the city from its purchase continues to be a point of public ire.

Markets and programs

Timing certainly was an issue in the problems affecting deed-restricted properties during the market collapse. The deed-restricted Fox Creek Village condominiums project constructed by the Housing Authority sold out in less than a year. Deed-restricted properties intermingled in the West End Village subdivision had little difficulty finding owners in the mid-2000s. But the First Tracks condos, which were the community housing component of the Trailhead Lodge at Wildhorse Meadows development near the base of Steamboat Ski Area, struggled to attract buyers as the economy faltered. The developers eventually were granted relief from many of the city's affordable housing requirements.

Melanie Rees, a housing consultant who's prepared reports for Steamboat Springs and other Colorado resort communities, said targeting the right income level plays an important role in the success of deed-restricted developments.

In a January 2012 report titled Deed Restrictions in a Down Market, Rees wrote that high initial prices and short marketing periods were factors that led to lifted restrictions.

"I've seen some expensive affordable housing," she said about units targeted toward income levels as high as 150 or 200 percent of area median income.

Developers in Steamboat were offered the choice of reaching the city's affordable housing requirements by building more units targeted toward a higher income level or building fewer units targeted toward lower-income buyers. Developments like First Tracks chose to included more units targeted toward buyers with higher incomes. The units in First Tracks targeted toward those making 80 percent or less of area median income sold out early. The units targeted at those making 120 percent of area median income ended up being priced similarly to market-rate units after the collapse, and they languished unsold.

Lewis concedes that he no longer knows how ownership and deed-restricted housing fits into the bigger picture of affordable housing here.

"Probably in the short term, deed-restricted properties are going to be a hard thing to sell," said Jason Lacy, chairman of the city's Planning Commission. "But in the long term, they could still be a viable tool."

Permanently deed-restricted housing, Hermacinski said, can be problematic to sell when jobs leave. Those who bought during the boom sometimes found themselves asking for restrictions to be lifted or face the house going through foreclosure, she said.

Rees' report states communities where deed restrictions have succeeded during the downturn now are more accepting of them. Resistance has waned where programs have proved stable, Rees wrote, making them easier to market even in down times.

Linda Venturoni, another housing consultant who has prepared reports for Colorado mountain communities, said now is the time to develop employee housing for the future because land and building costs are less expensive.

"The overall forecast for the future is to go back to those types of trends we saw before the recession," Venturoni said. "Even with the reduction in prices after the recession, there hasn't been enough (housing) for workers."

"Creating units while it is less expensive has been appealing to many," Rees wrote.

Upside of a downturn

The dynamic that undermined some deed restrictions also allowed people who might have qualified for affordable housing projects during the boom to buy at free-market prices during the recession.

In the first quarter of 2007, the median single-family home price in Routt County was $625,000. That number hit a low of $380,000 in the second quarter of 2011 and has been hovering in the low to mid $400,000 range during 2012.

"It's been a good market for first-time homebuyers the last few years," said Cindy MacGray, a broker with Prudential Steamboat Realty. Although financing has been more work, she said, most of her clients have been able to get into a home in their price ranges.

But inventory is starting to shrink outside of the luxury market. Multiple listing service information shows that the number of listings in Routt County is on the decline. The sell-through rate for homes — calculated by taking the amount of housing units sold in a month and dividing it by the total number of housing units listed — has been above 2 percent since August 2012, a positive sign for the market. If the rate stays above 2.5 percent for more than a year, it's typically a sign that residential construction could start to return. Stan Urban, of Land Title Guarantee Co., still put the time frame for a rebound in new construction at five years out. A combination of lot prices and lending practices could delay the industry's revival, Urban said.

MacGray said she's heard conflicting accounts of how much shadow inventory — homes that have owners who are waiting for the market to improve before listing them — there is in the lower price ranges. There could be few willing to sell even at higher prices.

A shift to renting

Although ownership makes up a greater percentage of occupied housing in Routt County, its role in affordable housing is uncertain. There's been a shift in mountain resort communities toward looking for more rental housing for members of the workforce, according to Rees.

The approach toward home ownership will be conservative for the immediate future, Rees said, as more people are choosing to remain renters.

Of all the occupied homes in Routt County, about one-third are filled by renters, according to Census data. Of the roughly 3,000 renters in the county, more than half spend more than 30 percent (the standard of affordability) of their income on housing.

"What this community really needs is affordable rentals," said Mary Alice Page-Allen, who was a Routt County planner and then executive director of the Yampa Valley Housing Authority before becoming town administrator of Oak Creek in January 2012.

The Hillside Village Apartments complex owned and managed by the Yampa Valley Housing Authority targets low-income residents, and it consistently has a waitlist, said Jason Peasley, executive director of the Housing Authority.

According to Peasley, 36 of the 55 renters at Hillside Village Apartments receive some amount of federal rent assistance, which is allocated based on greatest need. One bedroom units start at $662 per month, and two-bedroom units are $752 per month.

Meyer said the Housing Authority would like to build and operate another apartment complex, likely taking advantage of tax credits for low-income housing.

"The key is getting the numbers to work," Meyer said.

For now, the Housing Authority is focusing on improving the units it currently manages.

Conversely, a market-rate apartment complex is working its way through the city planning process.

Paul Brinkman, of Brinkman Partners, said his firm hopes to start building Skyview Apartments at Whistler Road and Skyview Terrace in the spring. The building would include 33 one-bedroom units and nine two-bedroom units. The community housing plan has not been approved, but it proposes that two one-bedroom units be rented to tenants making below 50 percent of area median income. For one person in fiscal year 2013, that would be $27,750 or less per year, according to the U.S. Department of Housing and Urban Development website.

The one-bedroom market-rate units would rent for $950 to $1,050 per month.

Lacy said the Planning Commission was mindful of the demand for one-bedroom units in Steamboat. The vacancy rate for one-bedroom units in the third quarter of 2012 was 2 percent compared with 15 percent for two-bedroom, two-bath units, according to a Colorado Division of Housing survey.

Growing larger, older

The steady population growth Routt County has seen for decades likely is to put pressure on ownership and rentals. Demographic data also show a shift is taking place in the county. The median age in Steamboat Springs is 36.5, up from 32.4 in 2000, according to 2010 Census data. The median age in Routt County is 38.9, up from 35 a decade ago. That trend also holds true for growth in the 1990s.

The percent of families with children younger than 18 is falling in Steamboat. So is the average size of households. Rees said normal workforce aging accounts for much of the shift. But the number of second homes in Steamboat Springs also has seen explosive growth. From 2000 to 2010, the amount of second homes grew by more than 211 percent, according to a report by Rees. She said the trend she's seen in counties such as Summit is people purchasing second homes with the intent to eventually retire to them. The owners of second homes tend to be older and wealthier compared with the rest of the population.

As the median age has climbed here, the way residents make money has shifted, as well. The growth of income earned from wages, according to Bureau of Economic Analysis data, is outpaced by the growth of rent, dividends and retirement.

A population that is getting older and wealthier coupled with continued demand for second homes will at some point demand an expansion in existing services. That could mean, for example, an increase in the number of food service jobs, which almost are back to prerecession levels. Or it could be in the arts, entertainment and recreation sector, which has surpassed previous levels. But the main employment sector still lagging is the construction industry, which in 2011 was at its lowest level in a decade. The return of construction jobs could spur open positions across employment sectors as low-wage earners migrate to higher paying work, according to Rees.

Diagnosing a need

Difficulty filling low-wage service jobs will be the indicator that housing has reached a critical point, according to Rees. If, like in 2007, workforce issues take over public discussion, the community again will return to the issue of where housing growth will occur. The document that outlines the plan for growth is the Steamboat Springs Area Community Plan. The focus of the plan is infill within city limits and new construction west of Steamboat Springs.

Other areas of Routt County are left largely unaddressed in the plan. The directive of Routt County's master plan is to preserve the rural character of the area. Apart from 35-acre homesites and land preservation subdivisions, which allow developers additional homesites in exchange for grouping homes, residential expansion is limited to Hayden, Oak Creek or the subdivisions around Stagecoach Reservoir. Although there are buildable lots and homes for sale in all of those areas, transportation costs and the preference of many for living in or closer to Steamboat work against them.

The rejection of Steamboat 700 by city voters was seen by some as a rebuke of the strategy of westward growth that was codified in the West of Steamboat Springs Area Plan in 1999 and updated in 2006.

"That to me was one more game changer," Lewis said. "We said 'no' to the annexation with the argument that we can do it with infill."

Hermacinski said Steamboat 700 might have stood a better chance had the plan been phased but agreed that infill is the immediate option for Steamboat.

In the wake of Steamboat 700, then-City Manager Jon Roberts conceded that calls for an update to the Steamboat Springs Area Community Plan were appropriate.

The Steamboat Springs Planning Department started gathering public feedback in spring 2011 and continued with workshops in 2012.

"It's going to require some choice from the community," Lacy said about future growth. "If you look at our community area plan, we have some interesting inconsistencies. We say we want infill but also to grow west. What areas of town would we want infill to occur?"

City of Steamboat Springs Planning Director Tyler Gibbs said public input thus far has been condensed into three scenarios for growth, ranging in density and the location of potential growth. Planning staff is working to create concise graphic representations of the three options, Gibbs said. Further feedback will be solicited by allowing the public to vote on its preferred option.

The city then can look at its zoning and see whether it encourages what the community wants, he said.

"Some people are going to be reluctant to look at zoning in their neighborhood that could allow more density," Lacy said. "That's where we're hoping to get more input from the public: Do you want more infill? Where do you want us to go?"

A child's bike sits buried in snow in front of Hillside Village Apartments. The project was an early effort to bring affordable housing to Steamboat Springs.John F. Russell

Place of affordable housing

City ordinances still include affordable housing, with the stated purpose to "ensure that a reasonable amount of community housing is provided in the city of Steamboat Springs that meets the needs of all economic groups."

But for now, affordable housing is in a state of dormancy.

While the demand for rentals still is strong, wage jobs have not fully returned, and service positions aren't sitting unfilled for months.

The shift toward rentals and the availability of market-rate homes means the role of ownership in affordable housing is reduced.

"I don't think communities are seeing it yet or waking up to it yet," Rees said. "It's not come to the forefront."

"We are a destination economy. People come here for our lifestyle," said Rich Levy, of the Community Alliance of the Yampa Valley. "I think that need (for affordable housing) will arise again."

Levy said now, when the pressure from the market is less intense, is the perfect time to start planning for housing growth.

"If we try to do a plan in another three, four or five years when the crush is back on … then things are happening even before we get our plan in place," he said.

"Steamboat is never going to be anything but a desirable place to live," Lacy said. "If we don't really set forth some good, concrete plans and think about our community development code, then that development will happen in a way that is probably not what we want."

Lewis said he was disappointed the City Council cut back much of the community housing ordinance. Measures like inclusionary zoning are dormant during times of low growth, he said, and a different tactic could have been taken to address the lag of its effects.

"I would have preferred that they would have reduced (inclusionary zoning) during a time frame and then let it rise to its previous stature," he said.

Hermacinski said the effects of the measures are more complex than assumed at first glance. Fees assessed on developers through linkage, payments in lieu or the construction of extra units to satisfy requirements drive up the cost of living here because the costs eventually are passed to business owners, residents and consumers, she said.

"Doing nothing has its downsides," Hermacinski said. "And doing something often has unintended consequences."

She said she thinks the city should have started with more modest and predictable measures, such as changes to the planning process or building requirements.

Whether because of inclement weather, geographic remoteness or the high cost of living, it can be hard to live here, Hermacinski said. "I don't know if we'll ever solve that," she said.

The mindset of the current City Council, Hermacinski said, is to have the Yampa Valley Housing Authority be the primary entity tasked with an affordable housing vision.

The Housing Authority has significant debt obligations from the purchase of an Elk River Village building lot near U.S. Highway 40 and Elk River Road and lists its top strategy as "asset management model." Meyer said the organization is focusing on providing services like down payment assistance, which the city committed funds to, and education in the interim before it can take on another project.

Hermacinski said the deed-restricted homes in West End Village are an example of a private sector project that was able to successfully address affordable housing.

Gibbs agreed that the private sector could be effective.

"I've seen circumstances where the private sector was able to come up with an approach without a whole lot of" government assistance, he said.

Look for the most creative best practices, identify a product that's needed and deliver it to market as efficiently as possible, Gibbs said.

"Now is a great time for us before we take that next step," Lacy said "What do we want? Where do we want it?"

To reach Michael Schrantz, call 970-871-4254 or email

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