Housing fund’s future hard to forecast
ASPEN ” Not everyone who’s interested in affordable housing pays close attention to the city’s tax revenues.
But the city’s collects a 1 percent tax on real estate transactions that helps fund the construction, operation and maintenance of affordable housing projects run by the joint city-county housing office. So the state of the transfer-tax fund is one indicator of the future of employee housing.
The money can be used for both rental and for-sale projects ” to buy land, to pay operating expenses and to fund renovations. Because the city collects the tax whenever property changes hands, the cost of real estate in the city has a direct relationship to the health of the fund. As real estate prices rise, the amount of money in the fund rises.
The real estate market has seen an increase in both volume and price over the past several years, said City Finance Director Paul Menter.
He credits the sales of recently developed fractional units for the increase in volume, but Aspen home prices have also increased dramatically. He estimated that the average price of a single-family home has risen from roughly $3 million to $4.5 million in the past two years alone.
But those trends could be cooling, Menter said. In fact, the city is projecting that revenues will drop for the first time since the transfer tax was implemented in 1990.
“We don’t expect it to continue at its current level over the long term,” he said.
The local real estate market tends to move in “spurts,” he said, and the most recent spurt has lasted longer than any of the previous ones.
Menter said the health of the local real estate market is really a function of supply and demand. Supply is limited because Aspen is one of a small handful of truly international resort properties, and the fact that “they just aren’t making any more Western Slope dirt” means supply is limited, he said.
“We don’t play in a traditional urban real estate environment where there’s an abundant supply,” he said. And “what we’re being told by the real estate industry is that the inventory is really thinning out.”
The limited supply means prices generally hold steady or rise.
Furthermore, while the national real estate market tends to reflect the state of the national economy, Menter said Aspen’s is more closely tied to the investment market, such as the Dow Jones industrial average.
The city has collected more than $8 million from the fund so far this year. At the current pace, Menter estimated the city will have collected at least $11 million by the end of 2006.
He estimated the fund could rise as high as $90 million, but such estimates can be misleading when it comes to evaluating the potential for housing projects. One of the reasons the transfer tax climbs is because construction and land costs rise, both of which make affordable housing projects a lot less affordable to build.
“It’s going to get harder and harder to build additional housing over time,” he said.
Vail Daily, Vail, Colorado
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