Would you sell a deed restriction on your free market house?
By Mark Reaman
While Crested Butte’s affordable housing problem is not exactly like Vail’s, there could be lessons learned from some Vail initiatives. On Monday, June 17 representatives of the Crested Butte Town Council, the Gunnison Valley Rural Housing Authority and Mt. Crested Butte gathered to listen to Vail’s director of housing explain a relatively new program that basically buys deed restrictions on existing or new free market housing.
George Ruther delved into the 18-month-old Vail InDEED program that incentivizes homeowners to deed-restrict their property in exchange for cash. Vail hopes to acquire an additional 1,000 deed-restricted units by 2027. InDEED is one of the tools to accomplish that goal.
Ruther said a shift in the housing discussion took place when the mission was changed from just adding more affordable and workforce housing to “sustaining community through the creation and support of Resident Housing in Vail. It made a difference in the overall conversation. Plus everyone understands you can’t build your way out of the housing problem.”
So Ruther said officials looked for out-of-the-box solutions and Vail InDEED was one that has so far worked. He said 114 such deed restrictions have been acquired for a total of 166 bedrooms. The town purchases deed restrictions in a free market type of environment and keeps those deed restrictions simple but tight.
“Why would someone deed-restrict their house?” Ruther asked. “There are a variety of reasons. A lot of first-time homebuyers applied to the program. They can make the monthly payments perhaps but not come up with a down payment. We can act like the rich uncle and help them with that. There is a growing acceptance that to live in Vail you have to be very wealthy or live in a deed-restricted unit. Secondly, local employers are purchasing properties to house their workers and using the program to offset the cost. We have had a homeowner facing a major assessment in her condo complex use the program to come up with the cash for the assessment. Long-term investors looking for consistent cash flow through long-term rentals are applying. We don’t care who owns the property or the deed restriction. We want locals living in the units.”
To achieve that, the deed restrictions are not onerous. The property has to be a primary residence for an owner or renter and there is 100 percent annual verification. There is no price appreciation cap placed on the property. There are no income limits involved. The restrictions are attached as a covenant on the title and will survive a foreclosure.
“How do you do that?” asked GVRHA executive director Jennifer Kermode. “We can’t get our lending institutions to keep the deed restrictions in foreclosure.”
Ruther said it wasn’t easy but once he explained to the lending officers at FirstBank that the town did not have a lien on the property and the town had no interest in pursuing any cash in a foreclosure but simply wanted the deed restriction kept on the title, they agreed. He then reached out to other lending institutions and they too followed suit. “They are getting a better understanding of lending in this type of market,” he said.
According to Ruther the town purchases a deed restriction at from 15 percent to 20 percent of the free market value of a residential unit. The units are basically appraised and the owner and the town negotiate a price. “It is a real estate deal. There is a willing buyer and a willing seller. There is no formula. The price varies on a whole series of factors,” he said. “About 70 percent of the time we are able to come to terms with an applicant. The program isn’t right for everyone.”
The average cost of deed restriction purchase has been about $64,000. The program has involved everything from studio condominiums to larger, three-bedroom homes. The town has so far spent about $7.5 million on the program.
“The program was meant to be simple and the goal was to create and keep homes for local residents to live in Vail,” said Ruther. He estimates the program is about 35 percent to 40 percent new residents. “The program is meant to be forward thinking,” he said. “It may not bring in all new workers but it keeps units from going into the second homeowner pool when it goes up for sale, which happens the majority of the time.”
Crested Butte community development director Michael Yerman noted that adding more strenuous restrictions to the covenant would result in the need for a higher price.
The audience asked several questions about the program and Ruther defended the no-income-limit aspect of the program. “The average house price in Vail is now $1.6 million. But it’s not just about affordability, it’s about availability,” he said, noting that that applies to people of both high and low income. “We want people with all sorts of jobs to live in Vail.”
Local housing consultant Willa Williford said while the Vail housing situation was different from Crested Butte’s, the program provided a potential new tool. She said a similar sort of program was part of Boulder’s initiative for a while to help first-time homebuyers with down payments. She said Boulder moved away from that program to focus more on rental units. “Crested Butte has fewer condos than Vail and there are more single-family homes in a historic district so there are different challenges. It would be a big policy decision for town to use this type of program.”
“Addressing housing is an investment in the long-term sustainability of any resort community. There have to be different tools,” Ruther said. “I tell people one change the neighbors might see with this type of program is that their neighbor’s porch light might be on year-round instead of just two weeks a year.”