Over the last 30 years I continue to hear about the “affordable housing crisis”. Do we really have an affordable housing crisis or a leadership crisis within the ski towns. A recent proposal in Steamboat pegs the build cost of one affordable housing unit over 1.7m. Should a town take on 700 million in debt? Why would any town vote to build when they can buy units much cheaper? Is this really “affordable”? Who pays? What is a better solution for housing in the various ski towns? Why should you care?
The Steamboat Brown Ranch/Slate Creek debacle
For the last five years Steamboat has been pushing a huge new “affordable” housing development on the West side of town. Before talking about the development, it is important to note that various private developers walked away from the project as they could not make the numbers work. Why would a city who has no development experience think they can do better? Unfortunately, numbers do not lie, and it is very apparent that the city of Steamboat has the same problems as private developers.
Fast forward and the city of Steamboat is still all in on Brown Ranch (which they renamed slate creek as the Brown Ranch development annexation was voted down in the past election. A few recent studies are showing why the development is so problematic.
- Water/Sewer: Steamboat Springs can likely support a limited amount of new housing on its west side under current municipal service capacity, but city staff warn that water — along with streets and long-term infrastructure needs — remains a defining constraint. The solution to adequately support the 400 houses comes with a steep price tag solution and timeline. December estimates placed the cost between $115 million and $187 million, with a development timeline of five to seven years or more.
- Soil Issues: There have been multiple studies showing the Brown Ranch development site in Steamboat Springs faces significant geotechnical challenges, primarily driven by expansive, swelling clay, shallow bedrock, and high groundwater levels. These soil properties significantly increase construction costs, requiring extensive engineering and subsidies to safely build dense, multi-story affordable housing
- Other services/Infrastructure: The city has yet to put firm numbers on the number of new employees needed to support a large development from road crews, police, fire, etc.. along with the infrastructure like a new fire station, police expansion, new roads, parks, etc…
Costs of affordable housing are insane in every Colorado ski town
Based on the information I’ve seen on the costs above, I did a quick proforma of what it would cost to build each unit. Note, this is a best case scenario, if soil and infrastructure costs are higher than my assumption (which they likely are), the costs would increase even further. Furthermore, I assumed they could build these cheaply for 600/ft which is insane in the mountain towns as most cost almost 1k/unit so I am being very generous on my build costs. Long and short, this proposal is absolutely insane and assuming a zero percent interest loan would cost 35 years and take 100% of all nightly rental tax revenue. That is assuming that anyone wants to loan the city of Steamboat 700 million to take on the project. On top of that taxpayers would be on the hook for other costs like increased school staffing, more fire personnel, police, new fire station, etc…
| Affordable housing costs Steamboat (400 units) | ||
| 1 | new sewer/water (187m) | $ 467,500.00 |
| 2 | Soil issues/ infrastructure | $ 100,000.00 |
| 3 | Build costs (600/ft- 2k foot houses | $ 1,200,000.00 |
| Total | $ 1,767,500.00 | |
| Total for 400 houses | $ 707,000,000.00 | |
| Annual Short Term Rental tax collections | $ 20,000,000.00 | |
| payback in years | 35.35 | |
Steamboat needs to quit wasting money on a failed project. The voters already turned down Brown ranch once, if the council is so inclined put a simple question on the ballot: Should the city of Steamboat Springs incur 700 million dollars in debt for affordable housing?
Why even care what is happening with affordable housing in the Colorado mountains?
The attraction of the various mountain communities throughout Colorado is that they are a great place to live and recreate. If the mountains are no longer a great place to live, the heart of the mountain towns is drastically altered which will ultimately impact their desirability. I like to joke that before Covid, when I went running on the trails it was like cheers where everyone knows your name. I would run into 10-15 people that I knew well, knew their dogs, etc… Fast forward to the huge demographic shifts post Covid, and I can go on the trails and not know anyone. It is very apparent they aren’t locals when I am in shorts and a long sleeve, and they are dressed for Antarctica with an ice ax, and their dog has a coat on with shoes! Long and short, without locals the ski resorts are radically altered which will lead to less desirability to visit as every ski town loses its authenticity and becomes a Disney world.
Have Colorado ski towns really met the definition of a crisis?
Before talking about the affordable housing crisis, it is important to define what a crisis even is. A crisis is a difficult or dangerous time in which a solution is needed — and quickly. For example, the crisis caused by a natural disaster might inspire you and your friends to make a donation. Long and short a “crisis” is not a 30 year event, if it has not been resolved in the last 30 years it is no longer a crisis it is a policy failure!
The idea of just building more affordable housing does not work
For the past 30 years, every ski town has harped on the idea that we need to build more housing to solve our affordable housing crisis. Yet here we are 30 years later having spent hundreds of millions of dollars and yet every mountain town is in a worse position than they were before. Furthermore, every ski town continues to harp on the same failed policies of just building more units to try and solve the 30 year crisis. THE CURRENT SOLUTION OF JUST BUILDING MORE DOES NOT WORK!
Why are the current affordable housing solutions in every Colorado ski town not working?
It doesn’t take a rocket scientist to figure out why the current solutions do not work. Demand in each of the mountain communities far outpaces any supply. Even when supply is increased demand still far outpaces any new supply. This leads to huge increases in prices. This is further exacerbated because of a tourism economy as essentially no workers employed as servers, liftees, etc… can afford to buy in the expensive communities which leads to the problem we are in today.
What should every Colorado Mountain town be doing instead to solve their affordability “crisis”?
Every ski town needs to get out of the mindset that just building more affordable housing will come anywhere close to solving the current problem. As we can see in every Colorado ski town, this solution has not worked and yet it is still the only solution being proposed. There are alternatives to just building more units.
One of the issues facing every ski town is that tourism continues to demand more low paid workers. For every hotel you need cleaners, servers, etc… and as tourism increases so do the number of workers. Unfortunately, no Colorado ski town has put the dots together that tourism and housing are linked which means if you are going to address the housing crisis, you must also address the demand side by increased tourism.
So, what should every ski town do based on the information above? First, stop building more affordable housing. By continuing to build housing, each town is primarily subsidizing low paying tourism related jobs which ultimately exacerbate the current situation we are in. There is a much better solution:
- Identify your most critical workers like teachers, plow drivers, police, fire, EMS, etc… and prioritize housing for these critical workers. How you do this is through a grant program. For example, the school district could provide a grant of 200k to put down on a house that is interest free and a deed restriction is placed on the property. This is to purchase existing housing stock, for example a condo for 600k which would allow their salary to support the price point. Under 1 million dollars there are 136 units currently for sale in Steamboat. The city should buy not build units that cost more than what they could buy units for.
- Instead of building more units, use the same funds to buy units on the market, place deed restrictions and then rent to locals. For example instead of spending 1.7m to build, take even 500k/unit and go out and buy condo units throughout the area.
- For large new projects require an affordable housing component, if a property is built, 10 percent must be deed restricted or whatever that number is.
- Companies can band together to create a similar fund for their workers to provide grants for down payments or rate buydowns or whatever is most efficient. This is what they are doing in a small town in Arkansas (here is the article from the WSJ)
Where does this money for grants come from? There are already millions of dollars ineffectively spent on affordable housing from various taxes, use all these funds towards the new solution as there are properties available today to implement this with.
By focusing on grants and buying existing real estate, this addresses two items. One it slows down the amount of tourism as these units would now become deed restricted, which should ultimately slow the demand for more lower paid workers. Second, it gives workers the ability to stay in the community long term helping keep critical workers like Teachers, Firefighters, Police, City Workers, etc…
Every Colorado ski town needs to do a 180 on affordable housing
I’m tired of our politicians continuing to proclaim that we have an affordable housing crisis. The reality is that we have a leadership crisis in every single ski town that is unable/unwilling to think outside the box to come up with a long-term solution to mitigate the huge demand from tourism while at the same time providing locals with a path to ownership. We have seen over the last 30 years and hundreds of millions of dollars that the current solutions are not working and yet in Steamboat they are still harping on trying to build a crazy expensive affordable housing development that will saddle taxpayers with hundreds of millions in debt and yet still lead to the same situation we are in.
I implore anyone who lives/works/plays in the Colorado ski towns to demand change from the current failed policies to use the ideas above to actually begin to address the affordable housing issues in each community.
Note, I focused the above solution on the ski towns, but a similar solution could easily be implemented in Denver as there are thousands of low cost condos within the city that are much cheaper than building new units.
Additional Reading/Resources:
- https://www.steamboatpilot.com/news/steamboat-springs-affordable-housing-slate-creek-units-water-services/
- https://www.wsj.com/us-news/arkansas-steel-industry-jobs-rural-america-b81b370d?
- https://www.denver7.com/about/community-affairs/denver7-your-voice/with-affordable-housing-like-winning-the-lottery-frisco-leaders-weighing-changes-denver7-your-voice
- https://coloradohardmoney.com/colorado-vacancy-tax/
- https://coloradohardmoney.com/one-colorado-city-proposes-5k-room-in-short-term-rental-fees/
- https://coloradohardmoney.com/ski-passes-rise-impact-on-real-estate/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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