Affordable Housing Fee Methodology City of Aspen/Pitkin County/APCHA

Transcription

1 Affordable Housing Fee Methodology City of Aspen/Pitkin County/APCHA December 2012 Prepared for: City of Aspen, Pitkin County, and APCHA Prepared by: RRC Associates, Inc Pearl East Circle, Ste. 103 Boulder, CO / Rees Consulting, Inc. PO Box 3845 Crested Butte, CO / CONTENTS

2 TABLE OF CONTENTS Introduction... 1 Purpose of This Report... 1 Organization of the Document... 1 Terminology... 2 The Recommended Approach... 3 Advantages Over Other Approaches... 4 Defensibility... 5 The Gunnison County Decision... 5 Colorado Revised Statutes... 7 Calculating the Gap... 7 The Affordable Price... 9 The Market Price The Per-Unit Gap and Conversion Factors Fee Calculations in Comparable Communities Examples of Fees Based on Market-Affordability Gap Communities No Longer Using Market-Affordability Gap for Fee Calculation Communities Using Alternative Approaches for Calculating Fees-in-Lieu In-Lieu Fees Not Allowed Fee-in-Lieu Model for Aspen and Pitkin County Income Targets Affordable Price Market Sales Price per Square Foot Conversion Factors Comparison Existing and Proposed Fees Appendix A: Excerpts from Aspen Land Use Code Appendix B: Local Government Land Use Control Enabling Act RRC Associates, Inc. / Rees Consulting, Inc. Contents

3 Introduction Purpose of This Report The purpose of this report is to provide a methodology for calculating fees that could be assessed by the City of Aspen in lieu of the provision of required affordable housing and by Pitkin County though its affordable housing impact fee program. The methodology for calculating the fee must be sound, easily understood and readily updated. It must be compatible with existing codes and enacted through the Guidelines of the Aspen Pitkin County Housing Authority (APCHA). This report recommends an approach based on the difference between the market price of housing and the price that is affordable for households for which the housing is intended. It is referred to herein as the Market-Affordability Gap approach. Organization of the Document This report consists of six major sections as follows: The Recommended Approach, which describes the Market-Affordability Gap methodology and its benefits. Advantages Over Other Approaches, which contrasts the Market-Affordability Gap with the methodology used historically by APCHA and in place in three comparable communities. Defensibility, which examines case law and statutes in Colorado related to housing fees. Calculating the Gap, which presents the formula and the variables within each of the two main components the market price and the affordable price. Factors for converting the fee from per-unit to per-employee and per-square-foot amounts are also presented. Fee Calculations in Comparable Communities, which examines four groups: 1) towns and counties with fees based on the recommended Market-Affordability Gap methodology; 2) places where similar fees were in place but have since been eliminated; 3) jurisdictions with other approaches for calculating housing fees; and 4) communities where fees in lieu are not allowed. Fee in Lieu Model for Aspen and Pitkin County, which provides 2012 fee amounts for APCHA s income categories 1 through 4 and Pitkin County s 100% AMI target with justification for each variable used in the formula. RRC Associates, Inc. / Rees Consulting, Inc. 1

4 Additional supporting documents are provided as appendices to this report. Terminology Multiple terms are used by the City, County and APCHA when referring to payments by developers to satisfy affordable housing requirements. Consistency is recommended in ordinances, codes and guidelines used by all three entities. The terms fee and fees in lieu seem to be the most appropriate for the following reasons: While there are also inconsistencies in other communities, fee seems to be the term most often used. Pitkin County s affordable housing requirements are structured as an impact fee. Technically, developers do not pay with cash but rather with checks or some form of bank draft; the term cash is not accurate. In this report, the term fee or fee in lieu will be used. Each of the terms now used by APCHA, the City of Aspen and Pitkin County is summarized below. APCHA Guidelines Section 12 of APCHA s Guidelines is titled Affordable Housing Dedication Fee (aka Payment-in-Lieu or Cash-in-Lieu Fee). Within this section (Paragraph 4), the term Affordable Housing Impact Fee is also used. City of Aspen Chapter , Growth Management Quota System (GMQS), of the City s Land Use Code contains 14 references to: Affordable housing impact fee, used when referring to the fees paid for single family and duplex units; Affordable housing mitigation fees, used when indicating that affordable housing requirements are waived for temporary food vending; Cash-in-lieu payment, which is the term most often used in the Code; and, Cash in lieu, which is used with and without hyphenation interchangeably with cash-in-lieu payment. RRC Associates, Inc. / Rees Consulting, Inc. 2

5 Excerpts from the Code containing these references are in Appendix A to this report with the references highlighted and the page and section numbers provided. The terms employee housing, affordable housing and workforce housing are all used in the Code. Distinctions among these terms are not clear. Pitkin County Pitkin County differs from the City of Aspen in that its requirement is structured as an impact fee, not a fee in lieu. In the unincorporated county, building units, buying and deed restricting existing units or providing land for the construction of employee housing are allowed as an in-lieu compliance options. Pitkin County Ordinance adopted the employee housing impact fee and repealed all existing provisions within the Land Use Code related to affordable or employee housing mitigation or impact fees. Article 11 of the Pitkin County Land Use Code implements the adopted employee housing impact fee. The Ordinance uses two terms: affordable housing impact fee and employee housing impact fee. The Code consistently uses the terms employee housing impact fee or impact fee; the term affordable is used to describe units but is not used in tandem with the term fee. The Recommended Approach The Market-Affordability Gap methodology is recommended for calculating fees/fees in lieu applicable to both the City of Aspen s and Pitkin County s affordable housing requirements. It is based on the difference between the market price of housing and the price that is affordable to households with incomes that are targeted by the underlying affordable housing requirements. This methodology: Is transparent and relatively simple, allowing for regular updating with readily available information from highly regulated public sources the County Assessor and U.S. Department of Housing and Urban Development (HUD). Can be used with both the City of Aspen s and Pitkin County s programs without requiring that the programs be modified and would still likely be applicable if revisions are made since it can be expressed in per-unit, per-employee and per-square-foot amounts. Has been tested in a lawsuit in Gunnison County and found by the Gunnison County District Court to be reasonable and sound. Incorporates variables that can be adjusted in response to local conditions and unique circumstances. Can be used to calculate fees for existing income categories as well as other categories that may be targeted in the future. Reflects changes in land and construction costs since they adjust to market conditions. RRC Associates, Inc. / Rees Consulting, Inc. 3

6 Is applicable to both ownership and rental housing since sales of both types of units are included in market price calculations 1 and since the affordable housing payment is assumed to be the same regardless of whether the targeted households owns or rents. Represents the actual cost of housing available to employees without public-sector subsidies and responsibilities; neither the City s nor the County s housing programs intend for the public sector to subsidize compliance with affordable housing requirements. Provides sufficient revenue to purchase and deed restrict existing units since opportunities for development of new units is limited. Is based on a widely-used method for examining the affordability of housing; the gap between market and affordable prices is a key indicator/metric of need. Is the methodology most used by other mountain towns and counties in the Rocky Mountain region for calculating housing fees. Advantages Over Other Approaches Aside from the recommended approach, the only other approach for calculating affordable housing fees/fees in lieu identified through research of towns and counties in the Rocky Mountain Region is based on the gap between the historical cost of building affordable units and their affordable price, or the income received from sales and rental income. This is the methodology originally used by APCHA in calculation of the fees now in their Guidelines. The market-affordability gap approach is recommended over the historical cost-affordability gap approach for multiple reasons: It is easily calculated through up-to-date, reliable data on the market price of housing from a public source (County Assessor) whereas documenting the total actual planning and construction costs of affordable housing can be very complicated and staff intensive, especially when land might be acquired by means other than market-rate purchases. Keeping pace when land and construction costs increase requires regular updating of information from multiple sources. The complexity of the documentation is not only time consuming but also involves many figures and assumptions that are subject to challenge. Does not require adjustment factors to make the fees relevant to current conditions. Past costs do not represent current costs. Affordable housing projects are not built every year. Historical 1 Note: Housing authority (deed-restricted) units are excluded from the analysis. Free-market sales include both owner- and renter-occupied units, and vacant units. RRC Associates, Inc. / Rees Consulting, Inc. 4

7 costs must be updated using multiple assumptions on changes in land, design and construction costs in order to be kept up to date. Likely involves less fluctuation in the amount of the fee. The cost to build affordable housing has varied widely in the past. The market price of housing has gone up and down in recent years but the changes have been less than the differences in the price of affordable housing construction. Averaging of the market price over a two- or three-year period could be used to further reduce variability in the fee amount. Revenues should be sufficient to build, buy or partner with private developers to produce housing when based on market prices; calculating fees on the cost of public-sector construction of affordable units might under-represent the real cost to produce units given future options. Defensibility The right to impose affordable housing requirements on new development is well established and founded in the authority of municipal and county governments to: provide for the health, safety and welfare of residents; control land use; and require development to mitigate impacts it creates. The existing ordinances and land use codes enacting affordable housing requirements in both Aspen and Pitkin County address authority, justification for and purpose of the requirements. Additional justification for the requirements that could potentially result in fees being paid does not appear to be needed. The methodology used to calculate the fee amounts is not documented in APCHA s existing Guidelines but should be for defensibility; the methodology should be sound and easily understood. There is little guidance in statutes or case law, however, concerning how impact fees or fees in lieu associated with affordable housing programs should be calculated. Only one lawsuit has been brought against an affordable housing fee in Colorado, and Colorado statutes offer limited direction. Both are examined as they relate to the calculation of affordable housing fees. The Gunnison County Decision As mentioned previously, one significant advantage of the market-affordability gap approach as a basis for calculating fees is that it has withstood a legal challenge. In 2008, the Gunnison County Contractors Association, Alpine Construction and Nicholas and Sara Mirolli, a couple who had applied for a permit to build a new home, filed a complaint against the Gunnison County Board of County Commissioners and the Gunnison County Housing Authority (the defendants). The plaintiffs filed the action in an attempt to RRC Associates, Inc. / Rees Consulting, Inc. 5

8 invalidate a 2006 resolution creating a workforce housing fee applied to all residential construction in the county. A summary judgment was issued by Gunnison County District Court Judge J. Steven Patrick on March 10, 2009 finding on behalf of Gunnison County and dismissing the complaint. The judgment ruled on many issues including the authority of the County to impose an impact fee and the multiple reasons why the fee was not a tax. Of particular relevance to this report is that Gunnison County s workforce housing fee is based on a market - affordability gap as proposed in this report. The gap was calculated in a study entitled Nexus/Proportionality Analysis for Commercial and Residential Linkage Program (referred to as the Analysis in the decision) prepared by Rees Consulting, Inc. and RRC Associates, Inc. using the same methodology presented in this report. Citing case law from multiple states, key findings from this judgment included: TABOR (taxpayer bill of rights) is not applicable since An impact fee is a type of special fee that is not designed to rain revenue to defray the cost of a particular government service. Judge Patrick indicated the language of the enabling statute or ordinance is the primary determinant, not how the collected revenue is actually spent. At that time, Gunnison County had spent very little of the revenue received from the newly created workforce housing fee. Plaintiffs must bear the burden of proving that the workforce housing fee is invalid beyond a reasonable doubt. This is an important point. It is not up to the City or County to prove it is valid and sound but for parties objecting to the fee to prove it is not. The burden of proof is on the plaintiffs. The Analysis demonstrated that The Resolution was reasonably designed to meet the overall cost incurred by the County in alleviating the impact of residential and commercial development on the availability of workforce housing. In concluding that the workforce housing fee was legitimate, the ruling found that the data in our analysis on job generation and the fee schedule seems reasonable. Specifically, The Court finds nothing inherently unsound in the methodology used by the County in imposing the fee. When addressing the plaintiff s claim that the County had not shown that the lack of low cost housing is caused by new development, the Judge found that The recommended fee calculation is designed to close the gap between prevailing market prices and what low-income households can afford to pay for housing. RRC Associates, Inc. / Rees Consulting, Inc. 6

9 The District Court s decision was not appealed. Colorado Revised Statutes C.R.S expressly authorizes local governments to impose impact fees as a condition of approval of development permits. In accordance with this statute, Pitkin County imposes an impact fee on residential units greater than 5,750 square feet in size and on non-residential development. While Aspen allows a fee in lieu at the Council s discretion for requirements that are structured as inclusionary policies or impact mitigation, the fee could potentially be considered an impact fee by the courts. The focus of this examination is on language in the statute that pertains to how impact fees can be calculated. The entire statute is provided in Appendix B to this report. Among other less relevant stipulations, the statute specifies that impact fees are allowed when: Fees are assessed according to a schedule that is legislatively adopted and generally applicable to a broad class of property. Fees should not be established on a case by case basis. o Note: Since City and County approval is required of substantive changes to APCHA s Guidelines where the fee schedule is located, adoption of the fee formula by both the City and County is recommended. It appears that annual updating of the fee could be handled administratively if the enacting ordinances sufficiently describe the methodology and the update process. Local governments establish the fee at a level no greater than necessary to defray impacts related to proposed development. Impact fees cannot be charged to remedy existing deficiencies. o Note: The statute does not give guidance as to how the level of the fee should be established. Using the gap between market and affordable prices to establish the fee, and applying this fee only when impacts and mitigation requirements have been determined based on job generation or public policy, appears to be sound. The statute specifically allows impact fees on the development of low-or moderate-income housing or affordable employee housing to be waived. Calculating the Gap Simply stated, the market-affordable price gap is the difference between the market price of a housing unit and the price that is affordable for employees. The basic formula involves a three-step process: RRC Associates, Inc. / Rees Consulting, Inc. 7

10 1. Calculating the amount that households in each targeted income category can afford to pay for housing. 2. Determining the market price for housing using records for previous home sales. 3. Comparing market prices to affordable amounts to determine the per-unit gap that exists for each income category. This amount is then translated into per employee and per square foot amounts based on conversion factors including the number of employees per unit and the number of square feet of housing per employee. Crested Butte s fee-in-lieu calculation from 2009, illustrated in the table below, serves as an example of this formula. The per-employee and per-square-foot conversions were not part of the Town s calculation since its code is based only on per-unit requirements. Town of Crested Butte Fee-in-Lieu Formulas (For Illustration) Category AMI Range 80% AMI 81% -120% 121%-160% 161% - 200% Max. Income: 2-person HH's $42,300 $63,480 $79,350 $105,800 Targeted Income Point (middle of range) 40% AMI 100% AMI 140% AMI 180% AMI Average Income to be Served $21,160 $52,900 $74,060 $95,220 Gross Monthly Income $1,763 $4,408 $6,172 $7,935 Affordable Monthly payment $529 $1,323 $1,852 $2,381 Prop. Taxes/Ins./HOA = 20% of pmt $106 $265 $370 $476 Mortgage Payment $423 $1,058 $1,481 $1,904 Max. Mortgage Amount (6% int, 30 yrs) $79,160 $197,899 $277,058 $356,218 5% Down $4,166 $10,416 $14,582 $18,748 Affordable Purchase Price $83,326 $208,315 $291,640 $374,966 Average Sq. Ft of Units 800 1,000 1,200 1,400 Median $ per Sq Ft sales $382 $382 $382 $382 Market Cost per Unit $305,600 $382,382 $458,400 $534,800 Affordability Gap: Market Cost-Affordable Price $222,274 $174,067 $166,760 $159,834 Plus 15% Administrative Fee $39,225 $30,718 $29,428 $28,206 Payment in Lieu per Unit $261,498 $204,785 $196,188 $188,040 Per Employee Payment in Lieu (1.8 employees/unit) $145,277 $113,769 $108,993 $104,467 Per SF Payment in Lieu (SF from avg size above) $327 $205 $163 $134 RRC Associates, Inc. / Rees Consulting, Inc. 8

11 There are many variables in this equation that impact the bottom line. These variables are described for each of the main components of the formula 1) the market price; 2) the affordable price; and 3) the gap per unit and the translation of the per-unit gap into per-employee and per-square foot amounts. The Affordable Price Calculating the affordable price involves six variables for which there are options. Incomes To calculate affordable price, the income of households the housing requirement is intended to benefit is first established. There are often multiple incomes categories as is the case in Aspen, and distinct fee-in-lieu amounts for each category. Since households with higher incomes can afford higher priced homes, the gap/fee is lower for moderate income categories than low income categories. Most of the City of Aspen s affordable housing requirements target Category 4 with lower income targets allowed, while the requirement on single-family and duplex units allowed through administrative approval is based on an average of Category 2 and 3. Pitkin County s impact fee is based on 100% AMI (i.e. Area Median Income for Pitkin County, as published yearly by HUD). In Aspen, eligible incomes by Category are not tied to the AMI and, with the number of dependents considered for ownership units, is not easily converted to AMI, which is based on household size irrespective of the number of adults and the number of dependents within the household. Average Household Size AMI s and APCHA s income guidelines vary by household size. Most affordable housing requirements, however, including the City of Aspen s and Pitkin County s, do not specify the size of households that must be housed or the number of bedrooms that must be provided. Therefore, for each income category, only one gap/fee amount is needed. To get to this single number, the income for the size of household closest to the average household size is used, typically either two or three persons per household. According to the 2010 Census, the average household size was in Aspen and 2.09 in Pitkin County as a whole. Communities occasionally combine income categories to derive at a single figure, as in the case of Glenwood Springs which calculates the income for a 2.5 person household. This slightly complicates the initial calculation and annual updating process, and seems not necessary given that the average household size in both Aspen and Pitkin County is very close to two. Percentage of Income Spent on Housing Payment The standard is 30% among the other resort communities studied. The percentage stems from mortgage criteria and Federal housing programs though these vary somewhat, with mortgage underwriters usually using 28% to 32% and Federal programs, like Section 8 rent subsidies, including utilities. For purposes of calculating cash-in-lieu amounts, communities usually assume that housing is affordable if 30% of gross household income covers the monthly mortgage (PITI principal, interest, taxes, insurance) or rent payment. RRC Associates, Inc. / Rees Consulting, Inc. 9

12 Property Taxes, Insurance and HOA Fees It is usually assumed that 20% of the affordable monthly payment will cover taxes, insurance and HOA fees. This percentage has been tested in some communities like Vail and found to be appropriate. In others, it has been assumed to be adequate. Mortgage Interest Rate The interest rate assumed for calculation of the maximum affordable mortgage amount very much impacts the affordable price and resulting gap/fee. The following table shows the differences in the amounts that can be borrowed assuming that 30% of income covers PITI. For example, with a 30 year mortgage at 4%, a buyer could borrow times their gross annual income. At 5%, they could borrow only times their income. Mortgage Calculation Factors Factor x Income Interest Rate = Max. Mortgage Amount 4.00% % % % % % % Note: Due to rounding, use of these factors could result in a slightly different amount than an amortizing calculation. Communities vary regarding the interest rate they use when calculating affordable price. The current rate ranges from 4% to 7% among the communities examined. Communities with the higher rates argue that their buyers seldom have a 20% down payment and must pay premium interest rates to obtain mortgages. Down Payment Most of the communities examined assume that employees can afford 5% down. The higher the down payment assumed, the lower the resulting gap/fee. Mortgage Term Every community examined calculates the affordable purchase price based on a 30-year fixed rate fully amortizing mortgage. The Market Price Within the calculation of market price there are seven items for which options exist: RRC Associates, Inc. / Rees Consulting, Inc. 10

13 Per-Square-Foot vs. Per-Unit Price Most high-cost mountain resort communities calculate market price based on the market price per square foot. The per-square-foot price is then multiplied by the size of an affordable unit to determine market price. Since many free market homes are often much larger than affordable workforce housing with average prices that exceed $1 million (or substantially more), the market price per square foot is derived and applied to the average/typical/desired size of an employee unit. Otherwise, if the market price per unit was used to figure the gap, the gap would often be a seven-digit figure. In some communities where market units are smaller and more affordable, like Glenwood Springs, the average per unit price is used. Average vs. Median Price The market price per square foot can be expressed as a median or average. Communities are divided on this. The average price per square foot is typically higher than the median price; the average is more influenced by high-end home sales. Type(s) of Units Included Most communities use all free-market sales other than fractional ownership and (where applicable) mobile homes. Glenwood Springs uses the average of twoand three-bedroom units. Jackson and Teton County use only condominium sales. Outliers may be excluded. Accessory dwellings are included in some communities but not others. A square footage range is applied in Park City. Source of Sales Data Assessor records are typically used. Assessor records are public, unbiased, relatively easy to obtain, comprehensive including sales not captured by the MLS, consistently reported and usually available for the previous year in January or February. In nondisclosure states like Wyoming, MLS or sales reports produced by real estate offices are used. Period Covered Communities usually base the calculation on sales in the previous calendar year. Due to recent volatility in prices that caused variation in the cash-in-lieu amount, the Town of Vail is now averaging for three years. If the number of sales in any given year is low, use of two or three years of data would increase the sample size and thereby reduce the margin of error. Location Towns/cities typically use their municipal boundaries. Counties use county wide data but may divide it into separate regions if there is significant price variation by area, as is the case in Gunnison County. Incorporated areas are usually included in County calculations since the preference is for employee housing to be located in communities with water/sewer services, public transit and proximity to employment. Size of Employee Unit The final step in the calculation of market price is to apply the median or average price per square foot to the square footage of employee housing units. The size is typically in the range of 800 to 1,100 square feet. It may be based on the size of existing employee units, adopted guidelines, or what is desired as a policy. The size may vary if cash-in- RRC Associates, Inc. / Rees Consulting, Inc. 11

14 lieu amounts are needed for multiple income categories, as is the case with the City of Aspen. The size usually increases with income at least in part due to the ability of employees with higher incomes to afford larger units. The size requirements in APCHA s Guidelines are smallest for Category 1 and increase with incomes. The Per-Unit Gap and Conversion Factors The simplest step in the fee calculation process is the subtraction of the affordable price from the market price. The result is a per-unit gap. Because of fluctuations in the amount from year to year caused by market volatility, the Town of Vail has adopted a process that involves three-year averaging of the gap. To translate the per-unit fee into per-employee and per-square-foot amounts, two conversion factors are used: Number of Employees per Household The average in Aspen is 1.6 employees per unit based on a 2008 survey sample of 471 resident households living in affordable ownership and rental housing. With a relatively high percentage of respondents living in studios (16%) and onebedroom units (28%), the figure is slightly lower than commonly found in mountain resort communities (1.7 to 1.8 is more typical). Number of Square Feet per Employee Some communities convert the per-employee gap into a per-square-foot fee by applying a size standard. Snowmass requires 448 square feet per employee. Breckenridge uses a standard of 385 square feet per employee. Some communities, like Crested Butte, divide the per-unit gap by the average or required number of square feet for affordable units to develop a per-square-foot amount per unit. For purposes of the Aspen/Pitkin County fee-in-lieu model, this second approach is utilized based on applicability City and County codes, as described later in this report. Basalt, Eagle County and Vail charge an administrative fee to partially cover the costs associated with administration of the program. Spending the funds received through fee-in-lieu payments to produce affordable housing through construction or acquisition and deed restriction of market units can take considerable staff resources and can involve hiring of expertise in land development, soils analysis, project design and construction. Crested Butte previously charged an administrative fee but it was dropped recently when the City Council wanted to retain its mitigation rate but lower the amount of the fee. RRC Associates, Inc. / Rees Consulting, Inc. 12

15 Fee Calculations in Comparable Communities Research on the methodologies used in resort and down valley communities in the Rocky Mountain region with affordable employee housing programs found that there are few differences in general approach but significant variation with regard to the variables within the formulas. This research did not attempt to cover all communities within the region but rather focused on ones that have similar affordable housing programs or are located in the Roaring Fork Valley. Communities generally fall within four categories: 1. Municipalities and counties that utilize a Market Affordability Gap approach for calculating fees. 2. Cities and towns that had affordable housing programs with fees based on the gap between market and affordable prices but have since eliminated their requirements. 3. Communities that utilize alternative approaches for calculating fees in lieu. 4. Communities that do not allow fees in lieu. Examples of Fees Based on Market-Affordability Gap The market-affordability gap methodology is the most commonly used approach for calculating the fee in lieu as a means for satisfying affordable housing requirements in Rocky Mountain communities. Ten towns and counties have been identified that base their affordable housing fees in lieu on the gap between market prices and prices that are affordable to the targeted population. Basalt The Town of Basalt generally allows, with some exceptions, payment in lieu only when a fraction of an affordable housing unit is required. It is based on a standard market - affordability gap formula developed in It is referred to as a Community Housing Dedication Fee with Payment-in-Lieu Fee in parentheses in the Town s Guidelines. Separate fee amounts are calculated for residential inclusionary requirements (average of Categories 2 and 3) and commercial linkage/job generation requirements (Category 2). Crested Butte The Town of Crested Butte recently adopted fees in lieu for two income categories ( 80% AMI and 81% - 120% AMI). The market price is based on all units within the Town. The fee does not include an administrative charge. Until last year, the fee was based on the gap between the cost of developing affordable housing and the affordable price but was not regularly updated. Eagle County The Eagle County Housing Office is updating their program requirements and their fee-in-lieu amounts using the same basic formula as recommended herein. The revised but not yet adopted figures show the gap between market and affordable prices disappears above 100% AMI. RRC Associates, Inc. / Rees Consulting, Inc. 13

16 Glenwood Springs The City of Glenwood Springs bases its market affordability gap on 100% AMI. The market price is determined by taking an average of the sale prices for two- and threebedroom units using Assessor data. All sales within town limits are averaged except for mobile homes and deed restricted units and the two units with the lowest and highest sale prices. The total gap was calculated as $129,299 in 2010 but the fee in lieu was reduced to 25% of the total ($32,325) due to market conditions. Gunnison County The County s affordable housing requirement is structured as an impact fee on new residential and commercial construction rather than an option in lieu of providing units. With a mitigation rate that increases with house size, the fee ranges from Gunnison County s requirements withstood challenge in 2009 in a lawsuit filed by an applicant for a building permit, their general contractor and the Gunnison County Contractors Association. Jackson and Teton County, WY Jackson and Teton County s affordable housing programs are administered by the Teton County Housing Authority, which has the responsibility for annually updating fees in lieu for three income categories. The methodology is based on a market affordability gap yet it is unique in that the per-unit gap is converted into a per-person fee rather than per employee. The per-person affordability gap for a unit with one, two, or three bedrooms is calculated by subtracting the maximum resale price of an affordable unit with one-, two- or three-bedrooms from the average sales price of free-market condominiums in the Town of Jackson with the corresponding number of bedrooms. Teton County uses a different approach for calculating the gap for seasonal worker housing using wage data rather than AMI and construction costs rather than market prices for condominium units. Mt. Crested Butte The Town of Mt. Crested Butte annually updates their fee for two income categories ( 80% AMI and 81% - 120% AMI) near the first of every year using Assessor data for all sales other than fractional in the previous year. The affordable purchase price is based on a 4% interest rate as published by Community Banks on the date when the fee is updated. The Town does not include a charge for administration in its fee. Park City, UT Park City has a unique approach for calculating income. The median monthly wage for the previous year is determined then 6% is added for income from other sources (tips, interest, etc.) then multiplied by 1.5, the average number of employees per household. The City s calculation of market price is based on units sold in the previous year between 600 and 1,600 square feet, with sales excluded within areas of the community that are primarily second/vacation homes. Vail The Town of Vail annually calculates a single fee for its inclusionary and linkage programs based on 120% AMI and the median price per square foot of all units sold the previous year within the town except for fractional ownership. Due to wide variation in the fee from market RRC Associates, Inc. / Rees Consulting, Inc. 14

17 price volatility, the Town has implemented a three-year averaging approach. The interest rate is set higher than the prevailing market rate (5.5% in 2012) since borrowers seldom have 20% down and must pay premium rates. The assumption that 20% of the affordable housing payment covers property taxes, insurance and HOA fees was tested when the fee was first established on older, lower-end condominium properties (since Vail had few deed restricted ownership units), and found to be appropriate. Vail uses both market prices and incomes from the previous year. A $3,000 administrative charge is included in the fee. The following table provides details on selected communities with a similar fee calculation. RRC Associates, Inc. / Rees Consulting, Inc. 15

18 Examples of Communities with Fee-in-Lieu Based on Market-Affordability Gap Glenwood Springs Jackson/ Teton Co. Mt. Crested Butte Park City Vail Crested Butte Market Price per sq ft $380 $219 $395 $460 avg of 2 & 3 $257,975 - per unit BR $480,679 time period geography covered Town limits town limits town of Jackson town limits type units included all all but MH & DR condos all but fractional portions of town units 600-1,600 SF town limits all but fractional calculation median average average average median median acreage exclusion N/A N/A N/A N/A N/A N/A more than 1 unit/lot included N/A N/A N/A primary residence total/finished sq ft finished total total livable total Incomes/Categories 1 80% AMI 100% AMI 80% AMI 80% AMI med wage +6%x % AMI % AMI 120% AMI % AMI % AMI % AMI max or mid point mid max max mid N/A max household size , 2, Affordable Price % income = affordable pmt 30% 30% 30% 30% 30% 30% down pmt 5% 5% 5% 5% 5% 5% interest rate 5% 7% 4% 4% 5.50% taxes, ins, HOA 20% 20% $460 avg 20% 20% sq feet of units 800, 900 N/A 800, Admin fee None None None None $3,000 Market Affordability Gap Per Unit by income cat. 1 $222,034 $32,325 $183,066 $43,200 $135,000 $113,286 2 $136,951 $122,033 $10,373 3 $61,266 Fee per Sq Ft of employee housing required N/A N/A N/A N/A $ Fee per Employee N/A N/A $70,164 avg* N/A N/A $84,298 RRC Associates, Inc. / Rees Consulting, Inc. 16

19 Communities No Longer Using Market-Affordability Gap for Fee Calculation Several communities at one time had affordable housing programs in place that allowed cash-in-lieu to satisfy requirements based on a market-affordability gap approach but have since eliminated their requirements. Steamboat Springs, CO The City of Steamboat Springs rescinded its commercial and residential impact mitigation programs and associated fees in lieu, which had been based on the marketaffordability gap approach. An inclusionary zoning program is still in place but information on fees in lieu is not currently available due to staff turnover. Sun Valley, ID When challenged, the City of Sun Valley s affordable housing requirements were found by the court to be a tax since Idaho only allows impact fees for a limited number of specifically defined uses; impact fees are not allowed for affordable housing. City of Longmont, CO The City of Longmont has repealed all of its affordable housing requirements. When an inclusionary housing program was in place, the fee in lieu was based on the gap between market and affordable prices. No communities have been identified that once used a market-affordability gap approach but have since replaced it by a different method for calculating cash in lieu. Communities Using Alternative Approaches for Calculating Fees-in-Lieu Three communities were identified that have affordable housing fees in lieu based on the gap between the cost to build affordable housing and the price that targeted households can afford. In Blaine County and Telluride, updating the fee on an annual basis has not always occurred. Program administrators citied the complexity of the task as the contributing factor. The Blaine County Housing Authority calculates fees in lieu for Ketchum s incentive-based affordable housing program. It is based on the gap between the cost to develop affordable housing and the price that is affordable for targeted households. Telluride uses a development cost /affordable price gap approach to calculate its payment in lieu that combines the cost of developing affordable housing with the market price of vacant land and then compares the sum to the affordable price. There is an adjustment for the average floor area ratio of affordable projects to determine the actual land costs for affordable housing. The affordable price is based on their Tier 1 income limits of 120% AMI and income targets of 80% and 90% AMI. RRC Associates, Inc. / Rees Consulting, Inc. 17

20 Snowmass Village gives strong preference to development of required affordable housing on site since land is not available on which the Town could develop units if they accepted fee-inlieu. Fee in lieu is allowed for minor developments at the Town Council s discretion. While the Town has not yet accepted fees in lieu, the code indicates that it shall be based on the net cost that would be incurred by the Town in the construction of the units, or as agreed to by the Town and developer. Summit County, CO is unique among the areas researched in that it has a voter-approved housing impact fee of $2.00 per square foot on commercial development and a fee on residential development that increases with unit size as follows: Size of Unit Fee per Sq Ft. <1,500 SF -0-1,500-2,500 SF $.50 2,500-3,500 SF $1.00 3,500-5,000 SF $1.50 5,000+ SF $2.00 The municipalities within the county participate in this program through a revenue sharing approach. In-Lieu Fees Not Allowed While it is common for fees in lieu to be allowed not by right but only as an exception, often requiring the approval of the Council or Commissioners, two nearby jurisdictions were identified that do not allow fees in lieu under any circumstance: Carbondale does not allow fees in lieu. Garfield County does not allow fees in lieu for satisfaction of its inclusionary housing requirement, which is now applicable to only the portion of the county within the Roaring Fork Valley. Fee-in-Lieu Model for Aspen and Pitkin County An Excel spreadsheet model was developed to consider options for the Aspen/Pitkin County fee in lieu formula. For each significant variable, three options were considered. Through discussion with City, County and APCHA staff, the options most appropriate for the conditions, constraints, codes and opportunities within the two jurisdictions were determined. The table to follow shows the RRC Associates, Inc. / Rees Consulting, Inc. 18

21 recommended fee calculations to be in effect from the time of adoption until such time that the amounts are updated following release of AMI figures for Recommended Fee Calculation Method and Components for Aspen and Pitkin County Fee-in-Lieu Calculation Model, /7/2012 City of Aspen Pitkin Category County Income Targets Area Median Income (AMI) - 2 person household 50% 75% 110% 175% 100% Maximum Income $41,600 $62,400 $92,520 $145,600 $83,200 Mid Range/Target Income $20,800 $52,000 $77,460 $119,060 $83,200 Affordable Price Affordable monthly payment (30%) $520 $1,300 $1,937 $2,977 $2,080 Affordable principal and interest (80% of pmt) $416 $1,040 $1,549 $2,381 $1,664 HOA dues, property taxes, insurance (20%) $104 $260 $387 $595 $416 Mortgage interest rate 4.5% 4.5% 4.5% 4.5% 4.5% Maximum mortgage $82,102 $205,256 $305,752 $469,956 $328,409 Maximum affordable price -5% down $86,423 $216,059 $321,844 $494,691 $345,694 Market Price Market Price per SF of heated floor area $1,053 $1,053 $1,053 $1,053 $867 Average Affordable Unit Size Market Price per Unit $947,700 $947,700 $947,700 $947,700 $780,300 2% Administrative Charge (1/2 to APCHA; 1/2 to City or County) $17,226 $14,633 $12,517 $9,060 $8,692 Market-Affordability Gap/Fee per Affordable Unit $878,502 $746,274 $638,373 $462,069 $443,298 per SF of affordable unit (per unit gap/900 SF) $976 $829 $709 $513 $493 per Employee (per unit gap/1.6 employees per unit) $549,064 $466,421 $398,983 $288,793 $277,062 The components of the model are summarized below: Income Targets Income targets are based on the 2012 HUD Area Median Income (AMI) amounts for Pitkin County that most closely align with APCHA s limits for ownership with one dependent. The figures for two-person RRC Associates, Inc. / Rees Consulting, Inc. 19

22 household are used since household size in Aspen and Pitkin County averages close to two persons per unit (2010 Census persons per occupied unit: Aspen 1.88; Pitkin County 2.09; 2008 Resident Survey: 2.1 persons per unit). The decision to switch to AMI-based income limits was done to conform to the practices of comparable housing authorities and funding agencies like the Colorado Housing and Finance Authority (CHFA), the US Department of Housing and Urban Development (HUD) and the Colorado Division of Housing (DOH), and to simplify the updating process. The income limits are shaded on the following table. Income Limits APCHA 2012 Guidelines Compared to AMI Targets Categories APCHA 2012 Limits Equivalent AMI AMI Rounded Max Income, $41, % 50% $41,600 2 $60, % 75% $62,400 3 $92, % 110% $91,520 4 $146, % 175% $145,600 The incomes used to calculate affordable prices are the midpoint in the range between the maximum income and the maximum for the next lowest category. In the case of Category 1, the midpoint is between the maximum income amount and zero. For Pitkin County s 100% AMI category, a mid point is not used since the County s code does not specify a range or multiple income categories. Affordable Price Key variables in the fee calculation formula are assumptions about the mortgage interest rate and down payment used to determine the affordable price. A mortgage interest rate of 4.5% is used for the 2012 calculation, which is one percentage point higher than the best available rates quoted by mortgage lenders in the Aspen area that have historically provided loans for the purchase of affordable units. One percentage point was added since not all buyers of affordable units will have ideal credit and employment history and, therefore, will not be able to obtain the best available rates. A down payment of 5% was used, which is typical. Increasing the down payment and decreasing the interest rate both increase the affordable price and would therefore lower the fees. Several other variables are involved in the calculation of affordable prices including the percentage of income that is affordable to spend on housing payments, the percentage of the monthly payment that covers mortgage principal and interest, the percentage of the payment that pays for HOA fees, property taxes and property insurance, and the term of the mortgage. The following assumptions, which are standard among comparable communities, were used: affordable housing payment = 30% of income; RRC Associates, Inc. / Rees Consulting, Inc. 20

23 mortgage principal and interest = 80% of affordable payment; HOA fees, property taxes and insurance = 20% of affordable payment; The mortgage term is 30 years at a fixed rate. It is assumed that the employee housing units provided through payment of fees will average about 900 square feet in size. With variety in the existing inventory of affordable housing, the construction of which started in the 1970 s, the exact square footage of all existing units is unknown. An average of 900 seems reasonable and flexible. Increasing the size would increase the fee. Market Sales Price per Square Foot Area Covered The most significant variable in the determination of market price per square foot and the resulting gapbased fees is geography. Based on sales data from the Pitkin County Assessor s Office, sales prices per square foot are highest within the City of Aspen and lowest when calculated for all of Pitkin County. Because funds collected from development within the City will be used to provide affordable housing within municipal boundaries whereas fees collected by Pitkin County may also be used in and near Basalt and Snowmass Village, two different per-square-foot prices are used. Only sales within the City are used for calculation of fees for the Categories 1 through 4. Sales throughout the county are used for Pitkin County s fee calculation. This is the only deviation in the fee-in-lieu calculation for the two jurisdictions. Condominium/Small Unit Sales vs. All Residential Sales Basing market price on condominium rather than all improved residential sales would increase fees in lieu. As shown on the chart on the following page, condominiums have cost more on a per-square-foot basis than other residential units, in both Aspen and Pitkin County as a whole. The median price for condominiums sold within Aspen from 2009 through 2011 was $1,073/SF compared with $987/SF for other types of residential units. The overall median was $1,042/SF. In Pitkin County, the relationship was similar with a three-year median for condominiums of $899/SF compared with $792/SF for other residential sales. In Aspen, smaller units (2,000 SF or less) have also sold for more, on a per-square-foot basis, than other residential units. County wide, however, the median price for condominiums and other residential units larger than 2,000 SF has been higher than for smaller units. Note: The figures are for free-market condo and residential properties; "housing authority," commercial/residential, mobile homes, exempt units, fractional ownership units, other Assessor property classifications, properties with two or more residential buildings, and properties with parcel RRC Associates, Inc. / Rees Consulting, Inc. 21

24 Median Sales Price per Sqft $325 $364 $355 $851 $811 $800 $886 $866 $839 $847 $834 $1,005 $1,048 $1,052 $1,083 $1,004 $984 $1,048 $1,045 $1,077 $1,058 $1,075 $1,328 $1,538 Affordable Housing Fee Methodology December 2012 size of more than 5.0 acres are excluded. The median rather than mean/average prices per square foot are used since they are less influenced by outliers. Figure Median Housing Sales Price per Sqft by Unit Type, Geographic Area, and Square Footage $1, Median Housing Sales Price per Sqft - by Unit Type, Geographic Area, and Unit Size (built sqft) $1,400 $1,200 $1,000 $800 $600 $850 $899 $792 $1,042 $1,073 $987 $400 $200 $0 All improved home sales Condo Other residential All improved home sales Condo Other residential PITKIN COUNTY TOTAL CITY OF ASPEN 1000 sqft or less 1500 sqft or less 2000 sqft or less More than 2000 sqft All units, regardless of size Source: Assessor data and RRC calculations. Either approach using condominium sales or all residential sales, would seem to be justifiable. The difference in price/sqft between the two figures is modest specifically, in the study period, the differential in price/sqft between condominium sales vs. all sales was 5.8 percent Pitkin County and 3.0 percent in Aspen. Considerations include: The sample size for all units would be larger and therefore the margins of error would be smaller when calculating the medians. The sample size is sufficient, however, to base the market price on just condominiums with 556 condos sold in Aspen and 915 sold in Pitkin County between 2009 and There has in recent years been greater volatility in median price per square foot for condominiums than for other residential units. Basing the market price on only condominiums would lead to greater year to year variation in fees. RRC Associates, Inc. / Rees Consulting, Inc. 22