HomeMy WebLinkAboutMemo - Mail Packet - 11/2/2021 - Memorandum From Sue Beck-Ferkiss Re: Follow-Up Regarding Items Related To The Purchase And Sale Agreement For City Owned Land At 3620 Kechter Road, Passed On First Reading On October 19, 2021
Social Sustainability
321 W. Maple Street
PO Box 580
Fort Collins, CO 80522
970.221.6758
MEMORANDUM
DATE: October 26, 2021
TO: Mayor Arndt and City Councilmembers
THRU: Kelly DiMartino, Interim City Manager
Kyle Stannert, Deputy City Manager
Jackie Kozak-Thiel, Chief Sustainability Officer
Meaghan Overton, Housing Manager
FROM: Sue Beck-Ferkiss, Social Policy and Housing Programs Manager
RE: Follow-up regarding Items Related to the Purchase and Sale Agreement for City Owned Land at
3620 Kechter Road, Passed on First Reading October 19, 2021
_______________________________________________________________________
At the October 19, 2021, City Council meeting, staff was asked to respond to issues raised by a resident
about the best ways to provide housing opportunities to low wage earners who cannot afford to buy
market rate housing in Fort Collins.
Bottom line: Because Fort Collins has a housing inventory shortage, we cannot rely on Down Payment
Assistance (DPA) programs alone to assist residents, especially low-wage earners, in buying a home.
DPA programs are available and are helping middle income wage earners achieve home ownership
because they have income allowing them to qualify for mortgages for homes available for sale in the
market. For low-wage earners, we need to work on supply because the market is not producing homes
that sell for less than $300,000. The 54 townhomes to be built on the Kechter Land Bank parcel will
utilize several tools and partners to achieve affordability. The need is to offer both DPA options and
restricted home ownership opportunities.
Question: Is DPA a better approach to providing for-sale affordable housing than building restricted
homes requiring substantial subsidy? Would it cost less to provide DPA rather than development
subsidies?
The City has ambitious affordable housing goals to address community needs and acknowledges that
subsidy is typically required to provide housing at price points that are affordable to low wage earners
making no more than 80% area median income (AMI). There is often the need to combine multiple tools
and subsidy sources to make affordable housing projects feasible to finance and build.
In the case of the Kechter townhomes project, direct subsidy of the project is a more effective use of
limited City resources than DPA:
While DPA provides subsidy for an individual buyer and must be repeated for each subsequent
purchase, subsidizing the development of permanently restricted affordable for-sale housing
happens only once and serves generations of families.
There is very little administrative responsibility for the City over time, especially when partnering
with a community land trust partner.
Even with the subsidy provided by the Land Bank parcel, low-income households may still need
to use DPA programs to access even the affordable price point of restricted homes (~$300,000).
Several DPA programs exist statewide (e.g., Impact Development Fund and metroDPA) to assist
with out-of-pocket costs associated with obtaining a loan (down payment and closing costs).
DPA works best when there is affordable inventory available in the local real estate market.
There is very little available inventory priced around $300,000 in our current listings of for-sale
available properties. Our community housing inventory lacks permanently affordable for-sale
homes and projects like Kechter townhomes will help fill that gap. This model allows for the one-
time initial subsidy to be retained in the homes over time by employing a resale restriction on the
improvements that ensures the home will always be priced affordably at the same AMI level,
while still allowing for wealth creation for the owners through shared appreciation.
For affordable home ownership projects, direct subsidy can be more cost-effective than DPA:
DPA programs are having a hard time adequately bridging the gap between market prices and
affordable prices for low-wage earners. The City s experience was that DPA helps the first buyer
and creates wealth building opportunity for that buyer, but then the unit appreciates, and the unit
leaves the affordable inventory with the next sale.
Before a household can benefit from DPA, they must qualify for the loan and the purchase price.
Staff did an analysis of an actual home sold using the City s Home Buyer Assistance and what
happened to the affordability of that home over time, finding that a unit that was affordable to an
income eligible buyer in 2012 would require $132,000 subsidy to be sold at a price affordable to
a household at the same AMI in 2019. At that point, the buyer would still need approximately
$12,000 in DPA to obtain financing. See figure below:
$150,000
$185,000 $185,000 $185,000 $200,000
$40,000
$18,000
$95,000
$132,000
$190,000 $185,000
$203,000
$280,000
$332,000
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
2005 2012 2013 2016 2019
Affordable Purchase Price (80% AMI)Affordability Gap Median Income (2 person household)Income Required to Qualify Home Value
Unlike a one-time subsidy of a home that will remain affordable for multiple purchasers over time, DPA:
Must be provided to each qualifying home sale.
Because the real estate market appreciates at a faster rate than wages, inflation, or interest rates,
even if DPA were available and repaid, a higher level of DPA would be required each time it was
re-deployed to a new household to meet the same level of affordability (AMI target).
In this current market, it is difficult for buyers using DPA to compete for lower priced inventory, as
they are often competing against cash offers, investors, offers of more than asking prices and
buyers who are either willing to waive appraisals or pay additional cash above appraised value.
While a valuable tool when it can be used, DPA alone is not adequate to assist low-wage earners to
achieve home ownership.
Question: Do subsidy programs for development of housing and down payment assistance programs
provide an incentive to owners to invest in, maintain and upgrade their properties since they will share in
price appreciation on resale?
Both homeowners of restricted homes and those that bought using DPA benefit from appreciation that is
achieved while they own the home. For example: Elevation Community Land Trust is a non-profit that will
be responsible for managing the Kechter project in perpetuity. Elevation CLT ties maximum resale price
to the market-based appraisals allowing for 25% share in appreciation. This is an effective balance
between the household needs and community needs allowing each homeowner to pass on an
opportunity to the next buyer and still build enough wealth to enter full market ownership. (Nationally 90%
of community land trust sellers move into market rate home ownership). As previously mentioned, often a
house bought with DPA with no affordability restrictions will not remain affordable to subsequent buyers.
Question: How specifically is Kechter Townhomes subsidy structured?
A 2017 Council priority prioritized the development of affordable for-sale homes on a Land Bank parcel.
Kechter Townhomes, the resulting project, is made possible through the partnership of Elevation
Community Land Trust, the State Division of Housing, Housing Catalyst, TWG Inc. and the City. This
conforms with Council guidance provided last year when the City discontinued its Home Buyer
Assistance program with the intention to assist with income restricted ownership through:
Development subsidies,
Using the Land Bank Program and
Partnering with community land trusts.
This project leverages the City investment very well. The City s contribution of land is valued at
approximately $22,000 per unit, which is less than the typical $50,000 of City subsidy provided for other
restricted for-sale units. This leverages $48,500 per unit in philanthropic funds and $27,500 from the
State Division of Housing. Housing Catalyst is bringing tax abatement. TWG is accepting a much lower
than market rate developer s fee on this project because of mission alignment. Since this land is part of
the City s Affordable Housing Land Bank Program, it may only be used for the development of affordable
housing. None of these resources are available for a DPA program.
Note: The tools and strategies for affordable home ownership are very different than for subsidized rental
housing. Housing Choice Vouchers are most often used for rental homes. While a few Housing Choice
Voucher holders can use that source of income to purchase a home, lack of affordable inventory makes
that very difficult in Fort Collins.
Conclusion: Selling the Kechter Land Bank parcel for 54 permanently affordable town homes contributes
to the Cit goals by:
Increasing restricted affordable inventory
Providing the first permanently affordable for-sale product in the City
Leveraging partnerships and funding