Verleger: Auction payouts for APCHA housing
Affordable housing has become a nationwide crisis. Cities across the nation are scrabbling to begin new programs or add units to house workers and families whose incomes prevent them from acquiring places to live.
The efforts are driven by humanitarian forces in some cases. However, the need to build and maintain a stable workforce near major employers is today — and has historically been — the primary impetus.
The efforts are important element in the nation’s effort to spur economic growth. But, well-intentioned efforts can have unforeseen long-term consequences. In particular, the regulations initiated at one point in time can permanently tie those who purchase or rent affordable housing units to the property. “Until death do we part” can be the consequence if inflexible rules are not adjusted for changing circumstances.
The Aspen affordable-housing market is affected by this situation, created in 1984 when Aspen and Pitkin County began the Aspen Pitkin County Housing Authority. The price owners of affordable units can receive for selling is limited to an annual increase of the consumer price index or 3%, whichever is less. I calculate that an owner who purchased in 1984 at the start of the program might be able to charge a price that is roughly 80% higher than the original price of the property.
Over the same period, the Federal Housing Finance Agency reports housing prices in Colorado have increased by around 560%. The difference between 80% and 560% means that the owner of an Aspen deed-restricted property confronts a very large financial loss if they sell unless they have a large source of outside wealth, assuming they want to continue living in a community with many of the amenities of Aspen.
Not surprisingly, it appears that the restriction on price increases seems to make many decide to remain in their homes even though they might be willing to sell after retiring. The immobility of older residents creates a need to build more affordable housing to support those working in Aspen.
The Lumberyard Project may eventually add 280 units at a cost of more than $400 million, at today’s prices, when it is completed in 2025 or 2026.
In simple terms, Aspen will pay around $1.5 million per apartment for units that will be available in two or three years. The problem is Aspen needs units today — in 2023.
It is possible that some existing units occupied by those who have retired or are approaching the retirement age might become available quickly if APCHA offered to buy out existing residents. According to the Aspen Daily News, APCHA controls 3,123 units. No doubt, some of those residing in those units would be glad to move if offered a reasonable payment that compensated for the overall rise in housing costs.
An auction is the proper way to determine if some currently residing in APCHA housing was willing to move. Aspen Times columnist Elizabeth Milias suggested that a bonus of $100,000 be offered to the first 12 individuals willing to move. The lack of any response suggests her offer is too low.
The efficient solution would be to hold a voluntary auction similar to those held by airlines for over-booked flights. Start the offer at $100,000 and keep raising it. Perhaps some will accept an offer of $1 million. APCHA should go as high as $1.5 million, given the $1.4 million cost of incremental units that will not be available for two years. Even higher amounts might be offered for some larger units.
This proposal will be criticized by many who will see it as an unjust reward for those who accepted the contractual conditions for affordable housing in Aspen. They have a point.
There are always winners and losers in the economy. Those who accepted affordable housing have lost the opportunity to capture the appreciated value of property. The losers, though, can minimize their losses by not moving. Aspen is living with their choices now. The consequences for the community are obvious.
Winston Churchill was once berated for changing his opinion. His response: “When the facts change, I change my mind. What do you do, madam?”
Churchill’s thinking should guide Aspen’s approach to its housing crisis.
Phil Verleger is an economist who lived with his wife, Margaret, in Aspen and the Roaring Fork Valley from the early ’90s until 2016, when advancing age led him to move to Denver. He is an assistant editor of The International Economy Magazine and a senior fellow at the Niskanen Center. Changing circumstances have more than once led him to change his conclusions.