Over the past five years, local developer Peter Fornell’s push for the city to adopt an affordable housing credit program has created a new business model for private developers to build affordable housing for profit.
The credit program allows developers like Fornell to build affordable housing and then sell credits to others facing a housing requirement for their projects.
The city typically requires commercial developers to provide affordable housing for 60 percent of the employees generated by their projects. Prior to the credit program, the only options were paying a fee to the city supposedly equivalent to the cost of building the housing, providing it on site or elsewhere.
“There was never a venue created to get your money back for affordable housing and credits created that venue,” Fornell said. “So far I’m the only one that’s taken advantage of that opportunity.”
The idea for the program came after Fornell purchased 301 W. Hyman Ave. with the goal of selling it to developers who need to meet housing requirements for their projects.
The plan didn’t work because most project mitigation requirements do not warrant building an entire complex and developers often opt out of constructing their own housing units, Fornell said.
Fornell realized a program that would allow someone who specializes in building affordable housing to sell mitigation credits to developers would solve the problem. It took Fornell about a year to get land use codes changed in order to legitimize the program, but it got the backing of the city’s planning department, which saw it as a way to promote private-sector affordable housing development.
In March 2010, the program was launched and Fornell began construction on an eight-unit affordable housing complex at the Hyman Avenue property made up of seven category 2 units and one category 3 unit. The lower category units are generally in high demand, because there is not a large inventory of them and they are highly subsidized.
The building was issued its certificate of occupancy in February and Fornell received 14 housing credits.
All seven category 2 units sold within the first month of being on the market and they attracted 62 bidders. The category 3 unit sold in May.
Meanwhile, Fornell has 14 housing credits he’s waiting to sell to developers who need to mitigate for their projects.
The program is necessary for the community, because the affordable housing credit developer is the only person that can build highly subsidized, low category units and break even, Fornell said. The city would build those units at a loss, because it wouldn’t be allowed to sell housing credits for profit on the free market to people needing to mitigate, he said. As a private developer he can do that, Fornell said.
Fornell doesn’t have a specific price per credit designated yet, but he says they will be priced “competitively.” He does have one potential buyer for his credits so far, he said.
Most developers appear to be holding off from purchasing Fornell’s credits, because of what he said is an unrealistically low cash-in-lieu fee structure. The city is currently in the process of changing the methodology used to calculate the fees.
As it stands, cash-in-lieu fees range from $139,890 to $283,864 per employee housed, depending on the income category of affordable housing that the developer is funding.
A recent study indicates that those numbers need to be doubled in order to account for the actual cost of building. If that happens, the value of Fornell’s credits could jump. The new methodology will be reviewed by City Council early next year.
According to Fornell, one of the biggest challenges facing affordable housing is finding properties in Aspen where new complexes could be developed. The city’s zoning districts limit where residential buildings could be practical, and property is expensive in the core, Fornell said.
Still, Fornell hopes to win a bid to build five units at 1230 E. Cooper Ave., which is owned by the Aspen/Pitkin County Housing Authority (APCHA). The housing authority has plans to put out a request for proposals (RFP) for the property in the new year.
Fornell said the credit program benefits the community, because it speeds up the development of affordable housing.
“I really try to look at unintended consequences when things are happening and I can’t find any unintended consequences that are negative about the affordable housing [credit] program,” Fornell said. “I think that there has been unintended benefits since it’s been created. One of the main ones is that the housing comes before the development that it’s mitigating and that’s huge.”