Can’t pay us enough
Vail CO, Colorado
A photo in the Rocky Mountain News showed a Burger King sign in Rifle advertising a $300 signing bonus for new employees. That’s how tight the job market is in Garfield County.
Now here’s another picture for you. The graph (see left) clearly shows the effect of our free-market economy in comparing the rise of wages to the rise of housing. Middle-class housing attainability essentially stopped nine years ago in 1998. The National Association of Realtors shows the average selling cost of a home for April 2007 at $268,400. That’s about $1 million lower than Eagle County’s average and about what a home here cost in 1992.
Look at the slight rise in area median income. While higher than the national average, the trajectory of the trend line follows the same path as national income growth.
You may hear longtime locals say, “Those people should quit whining. I scrimped and saved to buy my house. They’ll just have to figure it out like I did.” It’s more than likely that they bought their house a few years back before the gap became too monstrous, or they rolled equity forward from a previous home, or they were able to find one of the few remaining open-market affordable home options.
What’s really alarming about the affordability gap chart is the steep climb of prices after 2002.
Another criticism you hear is that “employers need to pay more so people can afford to buy homes.” Again, statistics and economic reality cannot be easily dismissed. In 2006, the Eagle County area median income was $79,600, which is exactly $20,000 more per year than the U.S. average. So, wages ARE significantly higher in Eagle County.
The question really isn’t “should employers pay more?” but “can they?” Let’s create a two-earner household with two children. Mom makes $38,000 as a teacher and dad brings home $42,000 as store manager. Combined they make the AMI income of $80,000. Now let’s say they’d like to buy a three-bedroom duplex in the western part of the county for $475,000 and they could put $30,000 down. Income needed to qualify: $160,000. That’s double what they earn!
Realistically, there’s no private sector business that could afford to double its payroll costs, because to do so would necessitate a near equal doubling of retail costs. Free-market forces just won’t sustain it. And think of the public sector, which includes teachers, bus drivers, firefighters and maintenance engineers. Doubling their payroll would have our governments in front of the voters asking for BIG tax increases.
OK, so how about building cheaper homes? Four elements go into the cost of building a home: land cost, infrastructure, construction materials and labor.
Land cost is the No. 1 price challenge as this is the one commodity that is in limited supply in the county. And, when demand is high and supply is low, prices go up. In Eagle County’s case ” way up.
Infrastructure (roads and utilities) and construction materials have also taken big jumps that aren’t under the control of builders and developers. In the past three years asphalt is up 52 percent, iron up 47 percent, gypsum up 34 percent, concrete 33 percent, and copper 147 percent. As a comparison, in the past three years the consumer price index has had 9.3 percent cumulative growth. This commodity pressure is driven by an external world market with more emerging societies competing for natural resources.
Labor costs, in comparison, have not risen quite as dramatically because builders still have options to import a skilled workforce on a temporary basis. Good examples of this are building contractors who bring up skilled trades people from Denver and house them temporarily in hotels and condos.
Mid-priced production housing construction costs fall in the $200 per-square-foot range. That means a 1,200-square-foot home or duplex could easily cost $250,000 before taking into account the cost of land, and infrastructure ” which can easily add $100 a foot ” would bring the cost up to $350,000-plus.
Miller Ranch in Edwards is a good example of creating a great workforce housing community. The project’s high density maximizes construction efficiency. It has a good range of products, from condos to single-family homes. And it’s close to commercial services, schools and transportation. Miller Ranch is a resounding success with a waiting list of buyers. However, the county calculated that to make Miller Ranch successful it required underwriting each unit to the tune of $50,000. Based on 282 units that’s $14 million.
And how many more Miller Ranches could we use today? The experts vary on their guesses, but a consensus view would be the equivalent of seven to 10 more.
To tackle the housing problem, the Economic Council for the past several months has been providing meeting management, research and facilitation services to a working group of elected officials representing all our towns, the county (mayors, council members, and a county commissioner), and several private sector individuals representing large employers and development-related interests.
The good news here is that our government and business leaders fully recognize the gravity of the issue. A distinct change of tone in the conversation has happened as our communities and county are talking less about competition and more about collaboration. That’s an encouraging picture and you’ll be seeing and hearing a lot more about in the future.
Don Cohen is the executive director of the Economic Council of Eagle County, http://www.economiccouncil.biz. The ECEC is a joint venture partnership of the Eagle Valley Chamber of Commerce and the Vail Valley Partnership.