ISSUE #84: ShANTy Town, Part II

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

                                 -- Ronald Reagan

This issue of The Red Ant is the continuation of "ShANTy Town," my subsidized housing expose, timed to coincide with the first Housing Summit in 5 years.  If you missed the first issue, read it HERE.

 And surprise, surprise.  What was the cover story in the Aspen Daily News the morning after "ShANTy Town" arrived in your inbox?  "Pitkin County needs more lower income housing units, study says."  Read it HERE.  Why on earth do workers who make between $34K and $56,500 need to PURCHASE housing?? You simply can't make this stuff up! 

CENTENNIAL: A CASE STUDY FOR "RENTAL-ONLY" SUBSIDIZED HOUSING

In 1984, 235 subsidized housing units (think: blue roofs) were built at the base of Smuggler Mountain. 93 were sold to qualified buyers while 142 remained in rental inventory. All were built at the same time, by the same contractor, of the same materials. Fast forward to 2012. The owned inventory is a mess. Riddled with moldy and rotten beams and two-by-fours, the homeowners association (HOA) claims faulty design and inadequate flashing at the time of construction for the damage caused by water infiltration. This damage is severe, and various estimates put the costs to fix the damage at $7000 per unit on the low end to nearly $100,000 per unit at the high end. In short, it not an easy fix for the owners of these subsidized units!

But why is the problem only with the owned units? According to Sam Brown, the developer of the entire project and owner to this day of the rental units, the rentals have had regular maintenance since the early 80s, and over $600K has been spent in the past 5 years on siding, waterproof membrane, etc. It's called on-going and preventative maintenance.

The Centennial HOA wants APCHA to use its subsidized housing funds to fix their problem, or, as they put it, "sustain the existing inventory" instead of building new units elsewhere in town. There's a bad precedent looming on the horizon if APCHA (or either local government) steps in with a simple taxpayer bail-out. To begin with, the owners own their units, having bought them at a subsidized price. Together, they are an HOA, and they own the building(s). All along, they should have been collecting dues and maintaining a capital reserves account for preventative maintenance and emergencies. But according to Brown and HOA meeting minutes, in the early 90s, the HOA was informed of preventative measures to employ against water damage, but the HOA didn't follow up. HOA dues were not increased despite knowledge of potential problems. The HOA later dissociated with Brown's management team when the team wanted to put more money into maintenance reserves than owners were willing to pay. The HOA has defended its efforts to maintain its units, but the proof is in the pudding.

In his own words, Sam Brown explains the situation perfectly in his recent letter to the editor on this issue.

Editor:

As the developer of the Centennial property and the current owner of the Centennial apartments I have not commented on the campaign being waged by homeowners for public subsidy for maintenance of the ownership units. However, the recent letter from the homeowners and the article based on it ("Homeowners at Centennial look to government for financial help," Aspen Daily News, July 31) compel me to clarify several issues.

First, the rental units do not have the problems alleged by the homeowners. City staff noted in a memo to the council and BOCC on March 31, 2011, that "The 'sister buildings' at the Centennial rental property were constructed at the same time, using the same designs and the same contractors. They have been dutifully dealing with the same problems over the years with a relentless capital improvement program and do not face the same issues as a result of their diligence at repairing and fixing their water intrusion problems."

Second, the original construction included full vertical-grain redwood siding, the most expensive and durable wood siding then available. The roofs are standing-seam metal roofs. The engineers for the project, Anderson-Hastings, were and are one of the most reputable engineering firms in the entire region and the architects were internationally-known Moise Safdie and Associates. Anyone with any knowledge of construction knows that the siding, roofing, architecture and engineering were not "value engineered" to a low standard but were of the highest quality. There is no evidence of  the "faulty construction" mentioned in the story.

Third, from walking around the ownership units it looks like many of the evident problems relate to decks subsequently built by individual homeowners with no involvement from Centennial, our architects, engineers or contractors. Conversely, on the rental units we added drip protection and additional flashing through the years as we saw ice or water problems develop in some isolated areas where there were particular melting/refreezing problems and where runoff was draining down rather than away from the buildings. To the best of my knowledge these inexpensive common sense maintenance measures were ignored by the homeowners.

Fourth, after more than 25 years without regular maintenance any homeowner should expect that problems may develop. Centennial Community Management, our management company, was replaced by the homeowner's association 17 years ago. The principle issue for the HOA board at the time was that we were proposing a larger maintenance reserve than the homeowner's wanted. The same city staff report referenced above points out that "Capital reserve recommendations have been ignored - indeed a rebate was provided to owners in one year, even though the need to save for repairs was well understood." I would point out that, if the city's estimate of $7000 per unit for deferred maintenance and repairs is right - and based on our experience that seems about right -  that would have required a maintenance reserve of only an additional $25 per unit per month since the project was built.

Finally, on the south-facing side of the buildings there is undoubtedly damage to the wood siding from sun exposure. This is particularly true if there has not been regular maintenance to stain, in some cases renail where boards have cupped, and to generally catch problems before they develop. And, in that circumstance, water intrusion is possible. But, even if there is regular maintenance, over time the replacement of wood siding may be required. That is why more than 80 percent of the south-facing side of rental units have been resided in the last five years and we anticipate completing the balance in the next two years even though we have no evident damage requiring such repairs. It has given us the chance to improve insulation, and replace wood siding with fire- and weather-resistant fiber-cement siding.

If there had been a prudently-managed HOA this would be routine, not catastrophic. We are proud that the rental units, with no public assistance and no drama, are among the finest employee units in Aspen.

Sam Brown
Centennial-Aspen II
Aspen

Clearly, if this isn't a case and point that rental units are the ONLY way to go, I don't know what is!

A FAILED EXPERIMENT

How many communities do you know of where even the lowest level service workers, often just out of college and in town for a winter or two of skiing by day and waiting tables by night, are encouraged to purchase housing, albeit below market value yet with a limited upside, in "the most expensive town in America" (WSJ 3/4/11)? These are the folks who should be footloose and fancy free, paying rent and not worrying about a thing; certainly not being goaded into a deed-restricted subsidized housing purchase because they're told that ownership of Aspen's subsidized housing is somehow a great investment and a cheap way to own a piece of the dream.

The argument is always that "pride of ownership" is really what people need. But if Centennial is a reasonable example, the unique ownership opportunity afforded by the current housing program does not appear to be sufficient to raise the level of pride of many of Aspen's working homeowners to maintain their properties. The working hypothesis appears to be, "The government subsidized me once, so they will surely subsidize me again."

Our local workforce needs housing, especially housing it can afford. Given the state of much of our housing inventory (see Centennial above), ownership IS the problem. To heck with the "pride of ownership" argument. Best I can tell, there is very little "pride" in the ownership of subsidized housing in Aspen. It is largely viewed as a right. And that's flat-out wrong!

In the end, the sales of subsidized housing to young service workers and others like them who were far better suited to simply rent did one thing and one thing only: it kept them here. Inertia. And like an epidemic, it spread. A.D.D. Ambition Deficit Disorder. In 2008, an APCHA survey determined that subsidized housing OWNERS were on average 48 years old. That makes them 52 today! RENTERS are not much different; they were 40 in 2008, 44 today. And you wondered where all the ski bums went! Nowhere. They're all still here, decades later. And the younger ones who were to have come to take their places? Some still come, but by and large, a majority goes elsewhere.

Welcome to the cul-de-sac of broken dreams. Instead of serving as a step-up to the free market, Aspen's subsidized housing program has enabled and encouraged many to stay who are now paying those last payments on their 30-year mortgages. They've been here all along, trading ambition for a certain lifestyle in "A-town" and living off the public largesse. (Think mayor Mick.) As retirement approaches, their options are severely limited. Sure, one can argue that anyone can leave at any time (assuming they can sell their unit), but where would they go? And what would they do when they got there?

HOUSING SUMMIT: SOLUTION(S)

I call the invitation-only "Housing Summit" to address many of the aforementioned issues the "Barry Crook Invitational," because the aptly-named assistant city manager and housing guru Barry Crook will lead the program.

Here are my thoughts and recommendations for "Aptly-Named" and the invited folk on several key issues:

1. Taxpayers deserve a seat at the table

2. Retirees: No one wants to boot our retirees out of their housing, but we do have a problem. A tidal wave is a comin'. Surely there are better answers than to simply continuing to build and build. Dust off the Citizen Budget Task Force recommendations and use those as a place to start.

3. Evictions/Scofflaws/Rules: Enforce the rules! Life is hard! No felons, no delinquents, no pity. There are rules for a reason. Ignoring the rules makes them meaningless. Subsidized housing is a privilege, not a right.

4. Homeless: This is not the way to address homelessness in Aspen. If the community is indeed in need of homeless housing, this is a social services issue that deserves its own mission and its own attention, and should compete for funding alongside every other general government program. Don't muddy the waters or add to the mission creep of the housing program.

And, if I had my way, I would implement two straightforward solutions, as well as a game-changing idea that would forever change our housing program:

RENTAL ONLY: BUY-BACK

To begin with, we need to stay far far away from what the bureaucrats call "free market buy-down." This is where APCHA housing funds are used to purchase free market inventory (at free market prices) to be resold at lower subsidized prices. Instead, how about "deed restricted buy-back." Use money in the housing fund not to build more housing, but to purchase "for sale" subsidized housing units and rent them out. This is the easy and best solution for the long run. With "rental only" inventory, the maintenance issues of individual homeowners associations goes away. The units are maintained by a management company and capital reserves are established through the simple payment of rent. And when rent is not paid, evictions ensue. Qualification is determined and reassessed each year when the lease is renewed. When someone moves out, the unit is restored as necessary, using funds from the previous occupant's security deposit.

Public vs private ownership of our subsidized housing inventory (read: rental-only of the individual units) would enable the community to retain ownership of and leverage these assets as appropriate to address major maintenance issues, etc. when necessary. Think "home equity loan." No more subsidizing up front only to be asked years later for a bail-out because the inmates trashed the asylum. The issue at Centennial is a vivid case and point, and believe me, there are others, many others.

RESTRUCTURE APCHA

APCHA as it currently exists needs to be completely disbanded. It served a role of sorts (deed restricted real estate sales), but neglected the most important aspects of the job: oversight, maintenance and compliance. Without these, our subsidized housing program has become a corrupt and lawless system, governed with indifference. Times have changed. No longer can we as a community simply build and sell subsidized housing and walk away. These ENORMOUS public assets (approaching hundreds of millions of dollars in value) cannot simply be turned over to residents to manage. It hasn't worked. The necessary level of care, concern and responsibility is not there. It's been proven. It's time for the "housing authority" to assert some. The housing authority MUST redefine its role and work to protect and maintain these community assets. It may seem a little "big brother-y" to some, but the status quo is not working. The whole argument that subsidized housing ownership should come with a profit mechanism is nothing short of ludicrous. Nobody should be ensured a profit! The whole focus of APCHA needs to change to one specifically on rental housing; putting an affordable roof over a worker's head. APCHA should not be in the development nor the "sales" business. It's a dangerous game where the community is at risk. (Specifically note: during each sales transaction, APCHA holds chain-of-title for that quick second between seller and new buyer. As such, with the escalating deterioration of our housing stock, this can mean just one thing: enormous public liability in the long run.)

THE GAME CHANGER: PRIVATIZE SUBSIDIZED HOUSING

One truly radical idea (and my favorite) would be privatization; a free market purist's argument for "worker housing," unfettered by any government intervention. The privatization of the current deed-restricted housing inventory would basically eliminate all of the income and qualification restrictions, and leave just three rules to be enforced by a FAR smaller APCHA staff:

• Pitkin County employment (1500 hours/year, or TBD)
• Asset limit ($900K, or TBD)
• Workers only, no retirees

So, in a sense, it is a middle ground between what we currently have and a total free market system. The new privatized program would preserve the units for workers only, and would allow for the market to determine the sale prices. These price would be based on normal market considerations: budget (based on buyer's salary), location, size, condition, and overall desirability compared to other available units. The new owners, unencumbered by deed-restrictions and without economic limit to the upside of their investments, would continually and legally improve their units. The laws of supply and demand would operate efficiently, and purchase and sale pricing would fluctuate accordingly with the market. Best of all, the housing inventory quality would actually improve, and housing residents would have the opportunity to build real equity...... Wow, the fair market at work!

(For kicks, just imagine the rush to sell if subsidized housing were suddenly privatized? And you thought west-bound rush hour was bad on Main Street on weekdays!?! The best analogy I can find is rats leaving a sinking ship!)

And imagine again if this went to a vote! Are you kidding me? A countywide ballot initiative would pass in a landslide!

IN CONCLUSION

I have three thematic concerns about subsidized housing in Aspen.

• What is the local government's role in the provision of workforce housing? To begin with, I object to this at its fundamental core. The Red Ant would seek private incentives to make "affordable" housing available to the workforce in Aspen and presumably other high-cost, highly desirable locales. The local government has proven that it should have no role whatsoever. (But this decision has been made, so it begs the next question......)
• Are there economic incentives that can improve the program? What incentives can be provided to those who have accepted the golden handcuffs to continue to be productive members of the community and improve themselves beyond the need for publicly subsidized housing? Can the program be improved incrementally? No, The Red Ant says it cannot be changed in small parts. We need to start over from the top, otherwise we are just re-arranging deck chairs on the Titanic.
• Are there social or policy changes that can be made to improve the housing program? Not likely. The subsidized housing program is the intersection of "one's home as one's castle" and the dependence of the homeowner on the government for this very basic component of the American Dream, home ownership. Housing programs like Aspen's turn this relationship between owner and home on its head. All of the incentives are reversed. It's more than economic - it's the great compromise of the Aspen Zeitgeist; a class-defining, societally-disrupting wealth transfer program. It teaches people to depend on others for the most basic of needs - a roof over one's head.   Aspen's subsidized housing community is not a community in the sense that people came together, worked hard and built it from scratch. Instead, they came here, won the housing lottery and now have to work ridiculously hard to stay in homes that will never appreciate much in value. This keeps them from investing in things that might improve their individual economic and long-term security.

The current subsidized housing program and APCHA need to be disbanded and re-started under entirely new policies. The unintended consequences have long over taken the intended benefits. Period.

Want to share your thoughts on Aspen's subsidized housing program with the bureaucrats at city hall?  They have an online survey.  HERE it is.