Improving Workforce Housing Structure in Frisco
Frisco is revisiting the development of the Lake Hill workforce housing subdivision. https://www.summitdaily.com/news/local/after-2-decades-summit-county-officials-still-finalizing-early-plans-for-lake-hill-development/
Take a look at the letter I just wrote to Frisco and Summit County Officials. Let me know if you have any questions regarding deed restricted housing or any comments on this topic. I'd love to hear your side of this story!
Dear Frisco Town Council, Summit County Commissioners and Summit Housing Authority,
I am writing you today in response to the renewed interest in the Lake Hill affordable workforce housing project, and regarding the current and future structure of all deed restricted property in Summit County. My name is Tucker Zimmerman, and for the last 4+ years I have been a Realtor with Coldwell Banker Mountain Properties in Frisco. I was a resident of Frisco for my first three years in Summit County and am now a homeowner in the town of Dillon. Prior to relocating to Summit County I was a Realtor with Grand County’s most successful real estate team where I was heavily involved in the development of the Lakota Duplex neighborhood, and the evaluation of several other prospective developments. I am an alumni of the University of Colorado Boulder, with a degree in Corporate Finance and a Certificate in Real Estate.
It is exciting to hear about the possibility of such a large workforce housing development coming to fruition. With the proposed 436 units, this project has the potential to make a significant difference in our affordable housing crisis for locals. In fact, with the limited land available for development, this may be one of Summit County’s last opportunities to make a significant dent in the problem. That is why I’m writing, to express my concern with how deed restrictions have been structured in the past and to offer areas where I think they could be improved.
My underlying concern is that current deed restrictions undercut the reasons to own a home for the noble pursuit of supplying homes at an attainable price. These do not have to be independent, especially with the resources Summit County and its towns have been willing to supply. According to a 2016 Harvard Study,1 “Homeownership continues to be associated with significant gains in household wealth at the median for families of all races/ethnicities and income levels.” This gain in wealth is due to three major factors: equity building through mortgage principal reduction, equity building through value appreciation, and the long-term potential to live in a mortgage free home. Of these, deed restrictions cut out the strongest wealth builder which is gain of equity due to value appreciation. I believe as Summit County officials you should evaluate whether the goal of workforce housing is to: A) Continue your current path of supplying housing in a way that leaves owners unable to move into market rate housing, or B) Help our residents engage in and take advantage of our county's valuable real estate market. If you choose option A, the county and towns will fund countless housing projects and will eventually run out of land without ever solving the problem.
The primary problem lies with the 3% per year appreciation cap tied to most affordable housing projects. Let’s take the Peak One neighborhood as an example. The Peak One Neighborhood limits appreciation to the lesser of 3% per year or the percentage increase in AMI (Area Median Income). At the time of development, according to the Peak One Neighborhood website, mortgage interest rates were around 5%. As an example, I looked at (Address removed for owners privacy). The owner purchased this three-bedroom, two-bathroom home for $294,900 on 10/21/2011. Assuming I used the same calculation method as SCHA, today the maximum resale price (ignoring approved capital improvements and real estate commission) for this home would be $393,970. That is a total increase in value of only 33% since October of 2011, while the average Frisco three-bedroom home price has risen about 114% since just January 2013 (January 2013 is as far back as Summit Association of Realtors provides data for). Not only did this owner’s appreciation not keep up with Frisco as a whole, but in 2011 there were five market rate three-bedroom homes priced below $300,000. One of those five homes (Address removed for owners privacy) just closed on June, 9, 2021 for $710,000, a 141% gain.
Now let’s go back to that mortgage interest rate of 5% I mentioned above. Assuming the owner of (Address removed for owners privacy) borrowed 80% of the purchase price, this Frisco resident has now paid about $148,176 in mortgage payments and still owes a principal of $193,750, totaling $341,926. So if this owner sold today, they would only reap a net 17% gain or 1.7% per year which far underperforms the S&P 500. After reading this case study, ask yourself if you think the owners of (Address removed for owners privacy) can likely move out of deed restricted housing? Were the owners of (Address removed for owners privacy) well served by the the Town of Frisco, Summit Housing Authority and the developers of the Peak One neighborhood? On both counts I would respectfully argue the answer is no. Not only that, but the appreciation cap is just that “a cap” not a guarantee. My point? A homeowner in this situation can only lose.
I didn’t start this letter with the intent to sabotage deed restricted housing; I want to improve upon it and allow Summit County residents to engage in our market, so I’ll move onto my suggestions for a better system. Deed restricted housing should not be a permanent solution but should be a leg up to lift our locals into the free market. Below I’ll outline some suggestions, and I’ll use some timelines and numbers as a baseline, but it is up to you to study what the appropriate values should be to better serve our community.
Appreciation Caps: As clearly demonstrated above, we need to do away with appreciation caps. At a minimum, they need to be significantly increased. I would argue a minimum of 8% per year is necessary to give locals a chance to ever move out of deed restricted housing without a significant career change. For perspective, market rate housing in Frisco is up 14.9% from May 2020 to May 2021.
Transition to Market Housing: While it’s great to live in an area with year-round neighbors, Summit County should blend the locals' housing with the reality that we live in a second-home destination. My proposal would be that after five to ten years of ownership, a deed restricted home could be sold to a non-resident with a heavy transfer tax paid by the Buyer (~10%), or it could be sold to a qualifying resident with no transfer tax. This transfer tax would then go back into the funding pot to create new affordable projects. Perhaps a maximum number of homes per year could be transitioned into free-market homes.
Creativity: The county should look at creative variances where appropriate, and only in the case of workforce housing. Two years ago, the town approved an unwanted gas station at the corner of Highway 9 and Lusher Court, next to the Baymont Hotel. We didn’t have a need for a new fuel station or convenience store but the developer found that was the most valuable use for that parcel. In retrospect, what if the town would have allowed a height variance to match the Baymont in exchange for a developer building an affordable housing condominium project? This was a location where no view corridor would have been affected and it’s in an even better location than the proposed Lake Hill subdivision.
Funding: Summit County Government needs to create a system where affordable housing funds itself. With the scarcity of land, it’s going to be increasingly difficult to create new projects. Summit County is one of the most beautiful places in the world and we have an extremely high quality of life. Perhaps our government could look to attract new big businesses that would fund affordable housing for not only their employees but for our long term locals as well. In the past, big business has been something the county has avoided instead of embraced.
Restrictions: Currently some deed restricted properties and loan programs carry the stipulation that the owner/resident not own other real estate. While the motive is pure, it is wrong to prevent people from participating in the free market. On a personal note, I am recently engaged and we would one day like to have a family. This, naturally, would require a larger home. It would be unfortunate if my ownership of a condominium in Dillon prohibited us from becoming a part of the Lake Hill community.
While past workforce housing projects have been well intentioned, they have ultimately underperformed the county's needs and have failed the residents from a financial perspective. It’s time to take a fresh look at how these projects are structured. The Lake Hill development presents the perfect opportunity to do so. Let’s not create another housing trap for our locals. Let’s use this as an opportunity to springboard them into a better Summit County.
Resident of Dillon, Colorado
Realtor at Coldwell Banker Mountain Properties