menter

Aspen ended 2021 by kicking off an old-fashioned political controversy. City Council Emergency Ordinance #27 of 2021 placed a moratorium on free market residential development and the recently emergent and lucrative residential property use known as short-term rental permits (STRs). This act triggered what some view as a class warfare conflagration between those living in city-subsidized affordable housing and Aspen free-market homeowners who argue that real growth comes from subsidized housing itself. Only a few so positioned Aspen citizens have proven brave enough to risk the elitist worker-hater label for opposing the STR limitation and mitigation fee proposal that their taxes and fees would fund, and which together constitute a “lose-lose” proposal that threatens the foundation of Aspen’s affordable housing program.

The city claims, without evidence (in the form of an updated employee generation study), that STR popularity drives free-market residential growth, generating more workers requiring subsidized housing. Consequently, free-market residential development (primarily existing home renovations and replacements in functionally built-out Aspen) requires far higher affordable housing mitigation than the current code provides. If approved as proposed, the updated housing mitigation fee triples from about $60k to $181k for a free-market homeowner seeking to scrape and replace an existing 2,000-square-foot home with a 3,000-square-foot home. Add a 3,000-square-foot basement and the fee skyrockets to $474k from the current code’s $181k requirement.

Last month, facing mounting opposition, council paused the mitigation fee amendment for further study. However, they quickly approved the emergency ordinance moratorium that prevents free-market residential property owners from submitting renovation plans or applying for short-term rental permits under the current code. A citizen-initiated lawsuit currently challenges the emergency ordinance on procedural grounds and moratorium opponents are collecting repeal petition signatures.

I was, long ago, Aspen’s finance director, and I spent many an hour gazing in wonder at the fiscal infrastructure underlying the city’s multi-faceted subsidized housing program. I concluded back then that such a system remains sustainable only so long as free-market property owners will pay the ever-increasing price in the form of real estate transfer taxes and mitigation fees. It’s a threshold for admission into the rarified air of Aspen free-market real estate ownership, and it’s a threshold the city seems intent, quite recklessly, to test.

Real estate transfer and sales taxes feed the housing program’s fiscal cornerstone, the city’s housing development fund. With a balance today of more than $60 million, at first blush it seems sufficient to absorb any challenge. But looks can deceive. There are currently about 3,000 deed-restricted affordable housing units in the Aspen Pitkin County Housing Authority (APCHA) regulated system for which this fund serves as the primary governmental resource. Several hundred of those units lose their deed restrictions in coming years based upon decades old development agreements and hundreds will transition to retirement homes for owners meeting APCHA’s work tenure and retirement age requirements.

This impending unit attrition begs the question: How many units are enough? It’s a classic taxpayer-subsidized, public-goods supply problem. Aspen’s workforce housing program suffers from a lack of pre-established and universally communicated policy limits on its supply. The city should predicate such policy on its fiscal capacity and the community’s desire for real growth. But they have not, so perceived demand for subsidized housing in Aspen remains, to the untrained eye, effectively unlimited.

Meanwhile, unit development costs soar. The city’s $330 million price tag for its 310-unit BMC Lumberyard project demonstrates the inadequacy of its housing fund’s $60 million balance at only 18.2% of that project’s estimated $1 million per unit development cost. Compared to the $3 billion or so hypothetical replacement cost of the entire 3,000-unit APCHA system, that fund balance equals a mere 2%. Most units are supposed to come with adequate owner- or renter-generated funding sources for upkeep and renovation, but that’s a subject for another column.

Since 2001, Aspen’s housing real estate transfer tax collections have averaged annual growth of 13.4%, with 2020’s Housing RETT collections of $17.3 million (more than double 2019) driven by COVID-fueled and unsustainable price and transaction velocity. 2021 will provide a similar windfall, but final numbers are not in. This runup in RETT taxes reminds me of the pre-Great Recession period, when in 2006, RETT taxes doubled in two years to $11.1 million, a level not eclipsed until 2020’s COVID-induced explosion, 14 years later.

Only its volatility exceeds the RETT’s growth. Based on its standard deviation calculated from the past two decades of collections, RETT tax collections are expected to fluctuate up to 40% annually, making it a uniquely challenging tax upon which to rely for a stable income stream supporting large-scale development financing.

These factors point to the impending loss of hundreds of existing affordable housing units to deed restriction expirations and retirements over the coming two to three decades and the need to stabilize and augment its income sources to fund replacement housing, as the true drivers of the city’s rush to triple its housing mitigation fees. The city’s short-sighted and factually unsupported efforts to limit STRs and increase residential affordable housing mitigation fees will further increase the cost of free market real estate, consequently reducing post-COVID real estate sales and future RETT collections once normality returns, the opposite of the city’s intent, and a lose-lose proposition for everyone involved.

But in Aspen city government it seems it’s more expedient to blame the citizens whose money you desire for the housing units you think you need, rather than honestly address the problem of a subsidized housing program bereft of policy guidance with consequently limitless demand.

 

Paul Menter can be reached at pmenter98388@gmail.com.