Avon Council considering new revenues for Community Housing
Avon Town Manager
Town of Avon
The lack of affordable housing is a crisis in Avon and Eagle County. The Avon Town Council’s top priority is to support the development of affordable workforce housing.
It is well recognized that an effective Community Housing strategy requires both the construction of new Community Housing and the acquisition of Community Housing deed restrictions on existing housing stock. Land values and construction costs have increased dramatically over the last several years which has significantly increased the cost of developing and acquiring affordable housing. Avon has adopted a 2% Short Term Rental Tax for Community Housing and now allocates 10% of the Town’s Real Estate Transfer Tax to Community Housing, which generates approximately $1.5M per year. Avon also formed a Downtown Development Authority which will dedicate 50% of its revenues to Community Housing. Even with these revenue sources, additional revenues are needed to meet Avon’s Community Housing needs.
Avon is considering a 4% Use Tax on New Construction as an additional revenue source for Community Housing. The proposed 4% Use Tax would replace the existing 4% sales tax on construction materials. Collection of a Use Tax is both more efficient and more effective. Avon estimates that the 4% Use Tax will collect 50% more revenue than the existing 4% sales tax on construction materials. Actual revenues each year depend upon the volume and valuation of new construction projects. Looking back over the last several years with the construction of large projects at Riverfront, Frontgate, Springhill Suites, and Piedmont Apartments, Avon estimates that a 4% Use Tax would have increased our annual tax revenues from new construction from $612,000 per year to an estimated $918,000 per year.
The proposed Use Tax would apply to new hotels, condominiums, apartments, commercial buildings, and other new construction, and would not apply to Community Housing projects. Avon expects numerous large construction projects over the next twenty years in the Village (at Avon), on in-fill lots in the Town Core and with redevelopment of portions of East Town Center and the Sun Road area.
Within Eagle County, the towns of Vail, Eagle, Gypsum and Minturn have already adopted a similar Use Tax. Avon does not want this Use Tax to burden small construction projects for homeowners, therefore, the proposed 4% Use Tax would include an exemption for projects that are under $50,000 in a calendar year. The Town of Vail exempts projects that are less than $10,000. The proposed Use Tax would also include an option for local builders of single-family homes and duplexes to defer the payment of the Use Tax until completion of their project. Avon currently provides comprehensive tax and fee waivers for the construction of Community Housing, which would also include a waiver of paying the 4% Use Tax if adopted by voters.
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Use Tax vs. Sales Tax Financial Considerations
Over the last five years, Avon’s sales tax on construction materials generated an average of $612,000 per year. Due to the volume of large construction projects in 2023, Avon’s sales tax on construction materials generated $921,000. See the chart comparing the sales tax collected on construction materials from the last 5 years compared to a potential Use Tax during the construction of Frontgate, One Riverfront, Springhill Suites, Maverik and McGrady Acres. The chart shows that if Avon had a Use Tax on construction materials the Town would have generated $1.4M in additional tax revenue, or a 47% increase in revenue.
Potential Avon Projects
The Avon Community Development Department is actively working to identify potential Community Housing projects, facilitate entitlement of those projects, apply for state and federal grant funding, and expand buyer assistance programs. Avon has realized great success with the ¡Mi Casa Avon! program that offers downpayment assistance up to $100,000. Avon Council recently provided direction to expand the ¡Mi Casa Avon! program to increase the amount of buyer assistance. However, the simple math is that more funding is required to support more housing programs.
The level of public subsidy that is required to offer housing at an affordable level is currently $200,000 to $250,000 per residential unit. Avon has identified several Town-owned properties for future potential Community Housing projects amounting to 15 acres and potentially more than 270 residential units. Avon is also actively seeking to partner with housing developers, including the State Land Board annexation, Hidden Valley Estates, and Traer Creek LLC at the Village (at Avon).
Avon’s Financial Commitment to Community Housing
Avon Council committed over $1.6M in 2024 for Community Housing initiatives. Due to the extreme costs of real estate and construction, significantly more funding is required to meet urgent housing needs. The Avon community has voiced its struggle and desperation with outrageous housing costs. Elected officials in Avon are well aware that free market housing is only affordable for the most affluent in our community.
Village (at Avon)
It is important to mention that the Avon Town Council entered into an extremely complex and long-term development agreement for the Village (at Avon) in 1998. This development agreement included in part a pledge of several Town of Avon taxes to support the development of public infrastructure and a commitment by the developers of the Village (at Avon) to develop affordable housing. The pledge of Town of Avon taxes included a pledge of any future Use Tax revenues. Until the Town’s tax credit obligations are satisfied in the Village (at Avon), the Use Tax revenues generated in the Village (at Avon) would go towards public infrastructure. Additional public infrastructure is required to support development of Community Housing both within the Village (at Avon) and on Town owned land adjacent to the Village (at Avon).
Survey and Ballot Proposal
Input from the Avon community is essential on this potential revenue proposal. Avon Council is actively looking at all aspects and details of a revised Use Tax ballot measure for the November 5, 2024, general election and determining if there is voter support. Magellan Strategies was hired to conduct voter polling to gauge support for a Use Tax on New Construction. Survey results will be presented to Avon Council in July. Avon Council will decide in August whether to refer a Use Tax ballot measure to the November 5, 2024 general election.
