By Deborah Goonan, Independent American Communities
In Devner, there’s a huge disconnect between cost of housing and wages. So the City decided to make housing Permanently Affordable for people in low to middle-income brackets.
Denver, Colorado is one of the most expensive housing markets in the U.S., with a median home price of $421,900, as of July 2018. Compare that to a nationwide median price of $216,200.
In stark contrast, Denver wages are not increasing as quickly as the cost of housing. Census data show that the median household income for a Denver resident is $51,800 a year, compared to the US annual median of $53,482 a year.
Permanently Affordable housing in Denver
Several years ago, Denver created its Permanently Affordable (PA) Housing program. And in 2017, the City appointed its first 23-member Housing Advisory Committee, including several appointed and ex-officio (non-voting) members, to oversee spending of revenue of its first Dedicated-Housing Fund.
Sounds good so far. But, as usual, the devil is in the details.
The PA program has some interesting and unique features. According to information posted on the City of Denver website, Permanently Affordable “[h]omes are sold at below market-rate prices to income eligible buyers who intend to owner occupy the home. Homes are permanently affordable and governed by an Affordability Covenant that limits the resale price and places other restrictions on the home.”
Put another way, in exchange for the opportunity to purchase a home with an artificially low price, the home buyer agrees to live in the property full-time, and to accept a lower than average price for the home at the time of resale.
To qualify, the individual or household must not exceed income and asset thresholds set by the City. Some buyers may also qualify for down payment assistance from the City.
One other way that the City keeps sale prices low is to limit the real estate sales commissions to 2.5%, rather than the customary 6%. If the listing and sales agents split the commission, each receives 1.25% of the reduced sale price of a Permanently Affordable home.
Denver’s Dedicated-Housing fund is intended to cover the cost of direct assistance to home buyers. The fund gets its revenue from two sources — a small annual assessment on property taxes and one-time impact fees on new construction.
HOA assessments not part of Denver’s price control for PA homes
The problem with many affordable housing programs is that they generally have a fatal flaw. And the Permanently Affordable home program is no exception.
According to a report in the Boulder Weekly, homeowners of several PA homes are now paying HOA and condo assessments that are higher than their mortgage payments.
Of course, when homeowners purchased their PA homes several years ago, assessments were much lower — by hundreds of dollars per month.
One example cited by the Boulder Weekly, Iris Hollow, has demanded two huge assessment increases since 2014. One homeowner says that while his mortgage payment is only $820 per month, his HOA fees will increase to $1,200 per month in March 2019.
And, not surprisingly, some owners cannot afford the hefty fee hikes. So the HOA reportedly placed a lien on at least one PA home, threatening imminent foreclosure.
Read the details here:
With HOA costs surpassing their mortgage payments, owners of affordable housing appeal to City of Boulder
By Angela K. Evans – November 21, 2018
When Adam Perry got home one afternoon in August, he had a notice on the door from his homeowners’ association (HOA) announcing the roofs around the Iris Hollow condominium complex were in dire need of repair. The notice said, “there’s a special assessment coming and it’s going to substantially increase your dues,” Perry recalls. “I completely freaked out.” He bought the place in 2014 through the City of Boulder’s Permanently Affordable (PA) Home Program, and this was the second time he was being hit with a special assessment. The first was in 2017, for the outdoor, uncovered stairs; now the roof. Next, he’d heard, the stucco, and then repaving the parking lot.
“The people who own condos at Iris Hollow who bought in through this program are suffering right now,” Perry says. “It’s not called the permanently affordable mortgage program, it’s called the permanently affordable home ownership program.”
One of his neighbors, he says, is simply unable to pay the HOA fees and there is a lien on their home. Another one is trying to sell and get out of the program but is worried they won’t be able to with both the current and upcoming assessments.
“I thought this would be the next best thing, but it’s a black hole,” PA owner Amy Gahran says. Her current HOA payments almost equal her monthly mortgage. For Perry, it’s more than his mortgage. When he bought the home, he thought he was committing his family (including daughter Sidney, now in the third grade) to an $820 monthly mortgage payment, and monthly HOA fees of $350. Over the years, the fee increased to $420. Then came the assessments.
“My monthly HOA right now is $844, and starting in March, it’s going to be just under $1,200. That’s insane,” Perry says. “I don’t think any reasonable person would call that affordable.”
About Iris Hollow
Developed by Coburn Partners, Iris Hollow is an 81-home infill common interest community build in the “new urbanist” tradition.
As reported in the Denver Weekly:
According to the City, the lion’s share of units in the PA ownership program are condominiums, with associated HOA fees. Iris Hollow has a total of 81 housing units, 50 of which are in the middle- and low-income PA program which are represented by several HOAs. There are 28 units in Perry and [Amy] Gahran’s HOA, about 30 percent of which are in the PA program, according to Gahran who was on the HOA board until May.
Notice that a supermajority of owners in the 28-unit HOA (probably a condo association) are not in the PA home program.
Since market-rate homeowners have more voting power in the HOA, they are more willing and able to approve costly capital improvement projects. PA homeowners are outvoted on these issues.
The crazy thing is, Iris Hollow’s oldest condos are 20 years old.
But, beginning in 2017, Perry’s condo HOA imposed special assessments for improvements to uncovered stairs and the roof. He says the association soon plans to repair the stucco, and repave the parking lot.
Why so many major improvement projects for a 20-year-old community?
My hunch: Either the original building materials and construction standards were low, or the non-PA homeowners simply want higher-quality finishes. Perhaps it’s a little of both.
More importantly, why didn’t the association set aside enough money in its reserve fund for the past two decades? If they had planned carefully, the association could have avoided large special assessments.
After all, one of the most important factors of keeping housing affordable is to save gradually for big-ticket projects in the future.
But, clearly, the City of Denver didn’t think about the inevitable rise in HOA fees, let alone special assessments. And the City has no control over budgets set by HOA boards.
Foreclosure voids the PA covenants
Another important fact that’s not prominently disclosed to home buyers: according to a lending agreement written by the City, if a home is sold in foreclosure by a lender or HOA, the Affordability Covenants expire.
In other words, once a home or condo is foreclosed, its resale price does not have to be limited by the City’s Permanently Affordable thresholds.
Here it is, in writing, in the Lender Guide:
The resale following a foreclosure can result in a tidy profit for the lender. Or a buyer can snatch up the home at foreclosure sale for a low price, then turn around and resell the home at current market rates. No price restrictions!
And, as for the City’s intervention in HOA foreclosures, it’s non-existent.
So, there’s even more perverse incentive for the HOA to foreclose on PA homes, in order to convert them to market rate homes with more affluent homeowners.
In a few years, if the HOA assessment gouging trend continues, Iris Hollow and other condo neighborhoods could eliminate Permanently Affordable homes one by one. Low and middle-income buyers will be forced out, one way or another.
That is, unless someone in the City of Denver wakes up and takes care of the fatal flaws in its Permanently Affordable housing program.
Link for Boulder’s Homeownership Programs
Lender guidelines note that price control covenants are no longer valid if the home is foreclosed.
Realtor commissions are limited to 2.5% (split in half 1.25%)