With the economic downturn causing construction commodities prices to fall rapidly, along with a local construction and development sector hungry for work, Aspen City Council members think 2009 could be an attractive year to build affordable housing.
Councilman Dwayne Romero calls it “taking care of your own.”
The local construction and development sector — a major piece of the Aspen economy — is experiencing shrinking demand. The city, on the other hand, not only still has a need for affordable housing, but also land on which to build. Since 2006, the city has spent $34 million buying up land for affordable housing, including a 4.6-acre parcel at the Airport Business Center, a Castle Creek Road parcel and three in-town properties. And don’t forget phases II and III at Burlingame.
“There’s an alignment of interests here between the public sector, various public agencies and the private sector,” Romero said. “We still have essential public service housing needs.”
“If there is a silver lining to the downturn,” Mayor Mick Ireland wrote in an e-mail, “[it is that] some capital project financing and construction costs are likely to be lower. The cost of bonds may be very low by May and we may be able to construct affordable housing at much lower costs than in the past. The [housing] problem is unlikely to go away and it may make sense to address it when costs are low and contractors are actually looking for work.”
A construction industry insider confirmed that prices are dropping.
“Lumber is at the same price or lower than it was 16 years ago. We’ve had three steel price decreases in the past 10 weeks,” said Clark Atkinson, president of Shaw Builders, a Colorado firm which specializes in multi-family projects. Shaw was the general contractor for Phase I of Burlingame.
To illustrate the point, Atkinson referenced a $6 million Western Slope project that Shaw initially bid out in late summer. There was a delay, and eight weeks later, they recalculated the bid for the same project and it came in 15 percent lower, Atkinson said.
“That’s how quickly things changed,” he said, adding that subcontractors are also lowering their margins, meaning they are charging less.
The Western Slope played host to “a perfect storm” of price spiking effects in the construction industry from 2005 through 2007, Atkinson said. There was the global competition from India, China and Brazil driving up commodities prices, coupled with unprecedented increases in oil and energy prices. Locally, there was the boom in the oil and gas industry siphoning off labor to well-paying gas fields, along with immigration reform that stemmed the flow of undocumented workers that so often made their way to job sites.
In Atkinson’s opinion, commodities prices will bottom out in the second quarter of 2009, and the window of opportunity for owners to get the best bang for their buck will be between the second and fourth quarters of this year.
He said it’s possible that Aspen could pay the same or less for phases II and III at Burlingame than it did in the 2005 contract for Phase I, which was between $138 to $184 per square foot (depending on building type) for hard construction.
While there is agreement on council on the need for more affordable housing, and that this could be a good time to build it, there may be disagreements on the means to the end.
Depending on the details, Councilmen Jack Johnson and Steve Skadron said they support placing a question on the ballot in the May city election asking voters to approve a significant amount of debt to fund affordable housing projects. Council declined to put a similar proposal on the November ballot in the face of drama over newly disclosed Burlingame cost figures.
Johnson, who sees the economic downturn as a golden opportunity to make progress on the affordable housing front, said he supports more land banking.
“I think we should buy land as soon as we can prove prices are going down,” he said. “Until you solve the affordable housing problem, you need land.”
To truly address the problem, the city will likely need another source of funding for affordable housing, particularly with real estate transfer tax revenues tanking as the real estate market cools, Johnson said. He’s not sure what this would be, although he floated possibilities like excise fees on new development or more use taxes on construction materials.
The RETT, which is the city’s primary source of affordable housing funding, assesses an additional 1.5 percent onto real estate transactions in Aspen with 1 percent going to housing and 0.5 percent going to support the Wheeler Opera House endowment fund.
Ireland and Councilwoman Jackie Kasabach said they are not sure yet if they support a May bond initiative for housing, although they are open to the idea.
Romero said he would like to see more partnership with the private sector and with other public agencies that need the housing. There also must be a clearly developed “plan of attack” for how any newly built housing should be allocated, he said.
He dismissed the notion that there needs to be a bond issue to make the housing happen, or that a bond needs to be voted on in May.
“I don’t think there’s any set of data that says you have to pull the trigger on the bonding,” he said. “I think there is an opportunity to be more creative where the city doesn’t have to carry all the burden of risk. You can bring in the private sector to spread the risk and the goodwill.”
curtis@aspendailynews.com