Deed-restricted affordable housing project struggles to hit mandate target
June 22, 2008
Steamboat Springs — The developers of First Tracks deed-restricted affordable housing say they may not be able to sell the condominiums to the target market without the city’s cooperation in changes to the project’s approved housing plan.
“We’ve done everything we could,” Brent Pearson said. “It’s just been difficult to get people to buy into it based on the facts of the deed restrictions.”
Pearson is vice president of Resort Ventures West, developers of the larger Wildhorse Meadows project adjacent to Steamboat Ski and Resort Corp.’s Meadows parking lot. The first phase of First Tracks is under construction and being built to satisfy the city’s affordable housing requirements for Trailhead Lodge within Wildhorse Meadows, as well as for an unrelated project, One Steamboat Place, at the base of the Steamboat Ski Area gondola.
Nancy Engelken, the city’s community housing coordinator, already has presented the Steamboat Springs City Council with several options for amending the project’s Community Housing Plan, to make the deed-restricted units more attractive to buyers. City Council might wait to take action until the results of a demand analysis study of the city’s affordable needs are released later in the summer.
Pearson said his company’s perception is that many potential buyers continue to be tempted by market-rate housing and are resistant to accepting the limited appreciation of a deed-restricted home.
“From our standpoint, the difficulty is due to the size of the gap” between the price of market-rate and open-market housing, Pearson said. “It’s not as large as originally perceived. The inability to find these buyers is due to the deed restrictions. People who could stretch to market-rate housing tend to veer off.”
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The deed restrictions cap annual appreciation of the condominiums for resale purposes at 3 percent.
Resort Ventures West Development Manager Mariana Ishida said pricing of the deed-restricted units is complex and varies with household size and percentage of the area median income for those different households.
However, for purposes of comparison, she said, she uses an 1,140-square foot, two-bedroom unit, where she assumes three people will live.
At 80 percent AMI for a household of three – $51,475 – the two-bedroom units are priced at $213,000. For a similar-sized household making 100 percent of the AMI, or $64,350, the price is $266,000. At 120 percent AMI, or $77,200, the price jumps to $319,000.
Size versus market
And here’s the rub. A family of three earning $77,200 could shop for a 920-square-foot Whistler Village townhome with a remodeled kitchen and hardwood living room floor currently listed at $322,000.
That home is more than 200 square feet smaller, but for $3,000 the buyers would know they could participate fully in equity growth in Steamboat’s resort market.
There are other similarly priced condos for sale on the Steamboat Springs Multiple Listing Service.
Resort Ventures West needs buyers at 120 percent to achieve its average for the entire project of 100 percent AMI, but most of the buyers who are intent on buying at First Tracks make less money.
“We’ve been working since January to collect the names of interested buyers, educate them and work toward commitments,” Ishida said. “But the average is coming out to be 80 percent” AMI.
In a memo to City Council, Ishida and Pearson said they initially collected the names of 300 interested households. Of those, 65 percent were below 80 percent AMI, 25 percent were between 80 and 120 percent of AMI and 10 percent were above 120 percent.
When Resort Ventures West moved to the education phase, only half of the 300 households remained in the mix. And when they began the nitty-gritty work of qualifying prospective buyers for deed-restricted housing, only 50 were in the hunt. The developers wound up with 36 qualified buyers for the 47 condominium homes and their certified average medium incomes in aggregate were 80 percent.
Resort Ventures West has formally asked City Council to consider amending its approved Community Housing Plan in an effort to hit the 100 percent average AMI target. Pearson stressed that his company is not seeking to be absolved from the requirement that it provide community housing.
The three changes Pearson is asking the city to consider include:
– Allowing employers or businesses to purchase the units to be able to rent them to employees. He suggests that an employment- and occupancy-based deed restriction would apply.
– Allow anyone to purchase the condos as long as the unit is occupied on a full-time basis by the purchaser. In that case, an occupancy-based deed restriction would be in force.
– Supplement the existing deed-restriction options with an appraisal-based deed restriction that would allow the owners to realize greater growth in equity once they became vested.
Equity over time
The options presented to City Council by Engelken are similar to Pearson’s suggestions, but include more detail.
One option she described would change the way a developer’s affordable housing obligations are calculated from a specific number of units to total square feet. That would allow them to adapt the size of units to meet current demand among homebuyers, for example.
Engelken’s twist on allowing employers to purchase affordable units for rental to their employees would require the business owners to certify that their employees meet AMI requirements. At any point of sale, the owners would be required to market them under the limits of the original deed restriction.
Engelken also offered City Council the option of an appraisal-based deed restriction. She suggests it might allow a certain percentage equity gain based on the difference between the appraisal at the point of acquisition and the appraisal at a point of future sale.
“Several organizations and communities nationally have set that percentage equity gain based upon the numbers of years in the unit, i.e. a greater equity gain for households residing in a unit for 10 years versus two years,” Engelken wrote.