Housing correction at hand
One winter not so long ago, housing in Vail was so scarce and expensive that an enterprising ski bum lived in his VW bus in the Vail Parking Structure for the ski season.
Another camped in a tent in the woods outside of Vail for most of one frigid winter.
The housing issue became tough enough that it was at the heart of many a local political campaign and plenty of heated debates.
But the housing supply equation has undergone a dramatic change lately. Where scarcity and correspondingly high rental prices once ruled, a new market reality is now exerting itself.
There’s even talk of a housing glut. Rents are down and supply is up. If you’re a renter, things are good. In previous years the supply was much tighter.
“We’re running vacancies over the last two years for the first time ever,” said Rick Bolduc of Bolduc Realty Management in Avon, who manages 45 properties. “We’re telling people (with rental properties) to anticipate a 90-to 120-day vacancy period this time of year. It’s not automatic any more.”
Bart Cuomo of Vail Realty shares that experience.
“We had a three-bedroom in Sandstone that five years ago we would have seven or eight applications a week,” he said. “Last summer we had to struggle to rent it.”
Lots of reasons
The reasons for the swing of the pendulum are largely economic, but some believe they’re cultural and even strategic in nature. The recession-riven economy has caused businesses have trim their staffs.
“The market has changed. There’s not the imbalance there has been for the last 15 years,” said Jerry Flynn of Polarstar Development, which is co-developing the 248-unit Buffalo Ridge affordable housing development at the Village in Avon. “A lot of the rental market has been from the construction trades that have left.”
Builders are wary and interest rates are low, turning some renters into buyers. That will change, probably after this fall’s election, when interest rates bounce back up and the bond market goes back up.
Despite the current supply of housing, as many as 4,000 people in Eagle County will need affordable housing.
In Pitkin County it is estimated that 995 more units of affordable housing will be needed.
For Vail Resorts, the shift in the supply of housing has changed some of its development plans. One of the things the company now wants to do is to make the 300 to 400 units of housing envisioned on a parcel in West Avon from leasable units to units that can be sold. That parcel is part of a convoluted land swap still in progress.
But the shift in supply has been gradual, property managers are saying.
“It’s actually been going down a little for the last five years,” said Lisa Agett of Vail Property Sales and Management, who’s been in the business for 20 years and manages 30 properties.
She said low interest rates have had an impact.
“They have been a great catalyst allowing people to move out of the rental category and purchase property. Those interest rates may actually create a greater supply of rental properties, Agett said, because people can purchase property to generate income.
“Because interest rates are so low, things will cash flow at a lower rent than they sued to, so it still makes sense to own rental property,” she said.
Lease rates are down 10 or even 20 percent, depending on the property, she said.
The area’s growing dependence on foreign workers may have contributed too, she said.
“Our worker base has changed. We’re not getting the young kids here for the ski season. We’re getting more people from other countries who seem more comfortable with more people per bedroom, she said.
The national recession and the slowing it brought to the booming construction industry here has had a dramatic affect on the supply of housing. Building permit numbers from Eagle County seem to suggest that not only were there fewer new and large units being built, but that many of the projects requiring permits were renovations. The valuation of building permits last year was $135.6 million, 43 percent less than 2001’s $240 million.
Pass prices too
The situation is region-wide and encompasses many resort towns. Part of it is from a new strategy employed by ski resorts aimed at winning market share: discounting season ski passes.
Nowhere, perhaps, is that battle as fierce as in Summit County, where Vail Resorts and competitor Intrawest battle over the 500,000-strong Front Range skier market.
“We’ve had to decrease rental rates to get properties rented,” said Mike Garver, chief executive officer of the Managers in Summit County. “In some cases we’ve rolled back prices 10 or 15 percent.”
Garver, who has been in Summit County since 1990, said he believes the ski-pass wars have had an impact on the demand for rental property.
“With the low cost of passes, people used to move here to get a job with a season’s pass,” he said. “Now they can live on the Front Range, where it’s cheaper, and drive up to ski.”
Summit County is seeing the same dynamic. Two-bedroom units are renting for $800 to $950, while three-bedroom units are renting for $900 to $950.
New units at Buffalo Ridge in Avon are leasing for $575 a month for a studio, and $1,390 for a 1,200 square-foot three-bedroom apartment. Those rates include some of the utilities.
In Aspen and Pitkin County, where the Aspen/Pitkin /county Housing Authority has 1,000 deed-restricted units and 1,000 rental units, the demand for rental units has decreased as well. The reason is a new 100-unit project.
Aspen is notorious for its pricey real estate. The median income in the county is approximately $60,000, while a 300-to 400-square-foot condo in town can cost as much as $300,000 she said and a small, single-family dwelling can cost $1.3 million. Typically 50 to 100 people bidding on available units.
Pendulum to swing again
But some experts believe the oversupply of housing is a short-term correction to the rental market.
“The expectation is that the recreation industry will hang in there and that second-home sales will continue to be strong,” said State Demographer Jim Westkott. “That will create jobs and it will dominate property values and continue to make it difficult for workers to find housing.”
Westkott said some tentative growth projections show that, at buildout, Eagle County’s housing will consist of approximately 30 percent, or 11, 600 second homes, with 29,200 residential homes making up the balance. Summit County will have 20,800 second homes and 11,600 resident homes, for a 64-36 percent second home, residential split while Pitkin County will have 4,600 second homes and 7,300 resident homes. The Roaring Fork Valley of Garfield County will have 8,100 resident homes and 1,900 second homes, Westkott said.
But those numbers, too, are a moving target, and the actual date when buildout will be achieved also is debatable.
It won’t last
The oversupply of rental and affordable housing is not going to last, most housing experts agree.
Once the economy rebounds from its recession, building will begin anew here and will begin to drive demand for seasonal and year-round housing.
That fact was demonstrated in year-end real estate numbers. High-end properties have caused the average sales price of a home in Eagle County to soar to new heights: $643,642.
Demographer Westkott said he thinks the price will only increase with more development as property becomes scarcer, driving service workers and other workers farther and farther from resort areas.
Vail’s Rod Slifer knows about affordable housing first-hand. He encountered it when he moved here from Aspen, and he expects the cycle to continue.
“Housing was a problem here in 1962 when I had to live in a crappy trailer,” he said. “It is today and it will be 40 years from now. Harder to resolve will be the affordability.”