How the domino effect plays out in the local housing market
Not everyone who’s interested in affordable housing pays close attention to the city’s tax revenues.But the city’s collects a 1 percent tax on real estate transactions that helps fund the construction, operation and maintenance of affordable housing projects run by the joint city-county housing office. So the state of the fund is one indicator of the future of employee housing.The housing office can apply the money collected through the Real Estate Transfer Tax toward both rental and for-sale projects – to buy land, to pay operating expenses and to fund capital improvements at for-rent properties, such as Marolt Ranch and Truscott. The city also used the housing RETT fund to build the for-sale units at its Burlingame Ranch project on the outskirts of town.Because the city collects the tax whenever property changes hands, the cost of real estate in the city has a direct relationship to the health of the fund. As real estate prices rise, the amount of money in the fund rises.Aspen’s real estate marketThe real estate market has seen an increase in both volume and price over the past several years, said City Finance Director Paul Menter. He credits the sales of recently developed fractional units for the increase in volume, but Aspen home prices have also increased dramatically. He estimated that the average price of a single-family home has risen from roughly $3 million to $4.5 million in the past two years alone.But those trends could be cooling, Menter said. In fact, the city is projecting that housing RETT revenues will drop for the first time in the history of the tax, which was implemented in 1990.”That RETT has basically doubled in three years,” he said. “We don’t expect it to continue at its current level over the long term.”The local real estate market tends to move in “spurts,” he said, and the most recent spurt has lasted longer than any of the previous ones.Menter said the health of the local real estate market is really a function of supply and demand. Supply is limited because Aspen is one of a small handful of truly international resort properties, he said – that and the fact that “they just aren’t making any more Western Slope dirt” means supply is limited.”We don’t play in a traditional urban real estate environment where there’s an abundant supply,” he said. And “what we’re being told by the real estate industry is that the inventory is really thinning out.”The limited supply means prices generally hold steady or rise.”That’s why you see such an incentive for owners to hold their properties until they get the price they’re asking for,” Menter said. “That’s been my observation.”Furthermore, while the national real estate market tends to reflect the state of the national economy, Menter said Aspen’s is more closely tied to the investment market, such as the Dow Jones industrial average.”Anecdotally, that tells me people who buy and sell real estate in Aspen are doing it on an investment basis,” he said.Future of the fundAs an expert in finance, not affordable housing, Menter avoided predictions about the future of the city’s affordable housing projects, but he did note some trends that would affect the housing RETT.The city has collected more than $8 million from the fund so far this year. At the current pace, Menter estimated the city will have collected at least $11 million by the end of 2006.The total amount in the fund is changing rapidly, while the city pays contractors for work at Burlingame Ranch. As lottery winners close on their new homes, the fund will be replenished.But when all three phases of Burlingame are complete, “that fund will have an extraordinary amount of money in it if RETT continues at … this forecasted level,” Menter said.He estimated the fund could be as high as $90 million, but such estimates can be misleading when it comes to evaluating the potential for housing projects. One of the reasons the housing RETT climbs is because construction and land costs rise, both of which make affordable housing projects a lot less affordable to build. “It’s going to get harder and harder to build additional housing over time,” he said.Developments like Burlingame Ranch likely will be rare, Menter said, because the city received a large swath of land it was allowed to develop, but didn’t have to buy because it was part of a pre-annexation agreement.For more information on the housing RETT fund, go to the finance department link at http://www.aspenpitkin.com.Abigail Eagye’s e-mail address is email@example.com
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