Sky-High Affordability Gap Strains Ski Town Economies

JANUARY 17, 2019

Mountain communities across the West huddle in Vail to discuss the challenges of high costs of living, low-paying jobs and a scarcity of places to live.

VAIL, Colo. — Everyone has a housing hardship story in a ski town: camping, living in cars, six people in a two-bedroom condo, massive rent increases. Experiences that at one time or another had them seriously questioning whether it was worth it to chase the dream of living in a place most people only aspire to vacation in.

In mountain resort communities from Tahoe to Jackson to Aspen, jobs are typically low-paying, the cost of living is sky-high, and housing is scarce and extremely expensive. And more and more people are deciding that living the dream is a financial nightmare. They’re leaving town and leaving businesses that already struggle to find enough workers season in and season out.

Developers, town and county officials, impact investors and housing experts from 26 mountain communities across the West met in Vail this week to try to solve that Rubik’s Cube of supplying enough workforce housing to keep restaurants running, schools staffed and chairlifts churning. In addition, those at the inaugural U.S. Mountain Community Summit also grappled with the parallel problem of providing enough middle- to upper-income housing for key professionals.

“Where do you get housing that accommodates somebody who can afford to spend $500,000 to $1 million? That's really the group that the housing shortage has priced out in mountain towns,” said Adam Ducker, who directs the Urban Real Estate Advisory Group at RCLCO Real Estate Advisors.

“People really can work remotely,” Ducker added. “There really is a lot of upper-income employment growth in Eagle County [Vail] and Pitkin County [Aspen] and other places like this—technical jobs, creative jobs, engineering jobs, jobs with the large employers. So there will be a lot more potential customers trying to compete in a market that's underserved.”

That was the realization APX1 founder Natalie Spencer came to when the Idaho native returned to live in Sun Valley after years of working on refugee resettlement, water policy and infrastructure issues in remote areas of Asia and Africa.

“I had moved back to Sun Valley and I was complaining [to a wealthy friend] how in the seven years that I was gone, it had turned into Jackson Hole and there was no place to live for someone making six figures and what was available was terrible,” Spencer said.

“It wasn't for a family, it wasn't for professionals, it’s kind of these dumpy ski-bum houses. And he turned around and looked at me and said, ‘You know, why don't you solve something in your own backyard?’”

That was the genesis of a six-month research project that culminated in the creation of APX1, which combines a full-service development company with an impact-investment network, and ultimately itssummit of thought leaders from around the country. The APX1 mission is to address the affordability gap for people making 50 to 300 percent AMI, or area median income.

“I found that the affordability gap in most of these resort towns was much greater than the majority of the U.S.,” Spencer said. “People aren't used to talking about workforce housing for people making 300 percent AMI. That seems absurd, right? This is very much addressing the missing middle, if you will.”

In places where median family income may only be $70,000 a year but median single-family home values are 10 times that amount, Spencer says the problem cannot be solved without committed impact investors, which she identifies as someone willing to agree to a 10 percent internal rate of return over 30 years versus a typical 30 percent return on investment in three years.

“These are philanthropic dollars that instead of receiving no return receive a very secure, long-term, lower-yield return, which is what impact investment’s all about,” Spencer said. “I raised all of the capital for my last company, a couple of million dollars, on the chairlift. It's an incredible format. Everyone talks about the elevator pitch. There's nothing sexy about an elevator.”

Hence the location of the first summit, where attendees broke up into groups after morning panel discussions and headed out onto the slopes to talk public-private partnerships, innovative funding mechanisms and best practices for solving a seemingly intractable problem.

“Workforce housing is consistently listed as the top pain point for local businesses with regards to business growth and employee retention,” said Chris Romer, president and CEO of the Vail Valley Partnership chamber of commerce. “We’re not unique. Mountain resort communities across the country are faced with similar challenges.”

Vail has developed both workforce housing and some new affordable townhomes aimed at that “missing middle,” and now the town is working with the ski company, Vail Resorts, on even more employee units. But perhaps its most ambitious effort is its relatively recent Vail InDEED program aimed at deed-restricting 1,000 more housing units by 2027, for a total of 1,700.

In exchange for a negotiated fee, the property must then be occupied by someone working at least 30 hours a week in Eagle County—whether it’s the owner or a renter— and there’s no appreciation cap placed on the unit when it sells, although the deed restriction transfers to the new buyer.

Vail Housing Director George Ruther says partnerships with private-sector developers and local businesses like Vail Resorts are absolutely vital because there’s a great deal of taxpayer risk associated with public development. That’s one of the reasons he’s so high on the Vail InDEED program, which simply preserves existing homes for local workers with minimal impacts.

“Every one of those dwelling units that we acquire comes with no development risk,” Ruther said. “We're not out speculating, it's existing land that's already there, it's an existing home in an existing neighborhood, so there’s no increase in density or impacts from construction or traffic. It kind of takes that NIMBY [not in my backyard] argument completely off the table.”

And in a narrow eight-mile-long town at the bottom of a steep mountain valley surrounded by the U.S. Forest Service, land to build on is becoming more and more scarce, pushing development 30, 40, even 50 miles to the west. What little private land there is usually comes with a big price tag and major hurdles for the few developers willing to do business in the workforce market.

“The biggest obstacle that we see to delivering workforce housing is constantly about the math problem,” said Kimball Crangle of Wisconsin-based Gorman development company. “We don’t get lumber for a discounted rate because we’re delivering workforce housing. Concrete isn’t cheaper because we’re delivering workforce housing. The entitlement process, sadly, in the communities that we work in is often not expedited because we’re delivering workforce housing.

“But subsidy is required. We are deliberately limiting our net operating income and the debt we can carry on the property to make sure the people we are housing can afford to live there.”

One solution to cost issues, perennial labor shortages and dicey construction weather in mountain communities can be modular construction—or building the majority of a housing unit offsite and trucking it to its permanent location. The last couple of Vail projects have been modular.

Brian Abramson, co-founder and director of business operations for Seattle-based Method Homes—a sustainable prefab company—says modular construction could help better address the acute housing crunch both in mountain communities and urban areas.

“The same problems that are happening in mountain towns are amplified in our market because of dramatic cost of living increases, real estate increases, so, especially in the affordable housing space, there’s a lot of skepticism [of modular in Seattle], more so than I heard here, which is actually really validating to hear how much it’s been embraced in the mountain communities,” Abramson said.

Microsoft recently announced it’s spending $500 million to address the affordable housing crisis in the Seattle metro area where the company is based.

Steve Glenn, founder of Rialto, Calif.-based Plant Prefab—the first sustainable prefabricated home factory in the nation—said another Seattle tech company, Amazon, recently invested in his company. From both a lower cost and environmental standpoint, Glenn thinks his homes can help solve the affordable housing problem both in mountain communities and in urban settings.

“Minneapolis just got rid of all single-family zoning. If you have a home in a single-family home zone area, you can now do multi-family anywhere in Minneapolis,” Glenn said. “Obviously, the number of units are limited by the size of your lot, but that’s spectacular. That’s going to have a dramatic effect on creating more housing more efficiently. I hope more cities do this.”