Thread by @shayshinecastle

OK, glad I got here early: Council has wrapped its 5G discussion and is moving to the down payment assistance pilot program for the middle-class.

We last visited this in February. Here's a recap from that: boulderbeat.news/2019/02/23/in-…

What's changed since then is that Boulder found out it can't guarantee loans. That's banned by the Colorado Constitution.

Here's the staff powerpoint on this: www-static.bouldercolorado.gov/docs/Downpayme…

"It's more expensive to create middle-income housing than low-income housing," Kurt Firnhaber says. And there's less for-sale housing being built in our community, which is really the "focus" of the middle class.

There are 69 middle-income housing units in the city's pipeline, Firnhaber says. But we've got a long way to go to get to the goal of 1,000.

Three questions for council tonight:
1. Which option does council prefer for an
appreciation cap: cost of borrowing (4%), AMI
increase (2.1%) or a different fixed rate?

2. Based on the appreciation cap, should the AMI
and income limits be raised or eliminated for
future buyers of the deed restricted home?

3. Does council have any concerns with the draft
ballot measure language? (Boulder has to get voter OK for funding this)

"It's really middle-income households who are getting priced out of home ownership in Boulder," Planner Jay Sugnet says. The city is doing well in providing housing for low- and moderate-income groups.

Dang, this new Twitter layout is messing my thread all up. Apologies.

This is the example that will be used throughout the discussion: • $600,000 purchase price
• Homebuyers can only qualify for a bank loan for 72%
($432,000)
• Down payment of 5% ($30,000)
• Gap of 23% of the home value ($138,000)

The city would fund that gap. They're looking at bonds or a line of credit to get the $$. Pros and cons for each.

A line of credit is cheaper, bc you just borrow what you need and the city pays back just the interest annually. With a bond, the principal has to be paid down each year, too, costing the city more.

But a line of credit would result in a large balloon payment being due by the homeowner after a certain number of years. If they weren't selling the home, they would have to refinance or come up with the money some other way.

Staff is recommending going with the line of credit for the pilot program.

There are tradeoffs with how much the home can appreciate, too. More appreciation is good for the first buyer and saves the city $$, bc they don't need to subsidize multiple sales.

But the home will become less affordable over time.

For instance, if the appreciation is tied to Area Median Income increases, its value will grow only a little bit. AMI has increased 2.1% annually, on average, over the past 10 years.

Under that scenario, a $600,000 home today would be worth $758,000 after 10 years and $955,243 for 20-30 years down the road. (Homeowners in the affordable housing program sell, on avg, every 7-10 yrs)

If appreciation is tied to the cost of lending (city is estimating 4% annually) that same $600,00 home will be worth $910,350 in 10 yrs and $1.3M in 20.

That's the crux, Yates says, is that income is growing more slowly than housing prices.
Isn't AMI partially a result of who can afford to live here, rather than wage growth? Brockett asks
Silence for a few min, then Firnhaber says that's partially true.

Back to the examples shared above. If council wants to keep the homes affordable to those making 120% of AMI or less (that's the definition of middle-class), the city subsidy will increase from $138,000 today to $228,227 in 20 yrs. Per home.

From the memo: “The affordability gap for the first homeowner remains for the second owner in both scenarios and as a result, the city will not receive a return on the investment to repay the bond or line of credit within the 10-year time period.”

So the other option is to lift restrictions on who can buy it after the first sale. Under the high appreciation scenario, the home will be too expensive for the 120% AMI group. The city could then lift the limit to 160% AMI (Year 10) and 194% AMI (Year 20).

I'm sorry if you're confused. This boils down to: Does the city keep the AMI limits and do greater subsidies with subsequent buyers to keep the homes affordable? It will lose money, in that case.

Or does it save $$ but the homes get more expensive over time.

I have to say, it was eye-opening in a way that it shouldn't have been to see the appreciation of homes over 20-30 years. And this is at lower levels than they are *actually* appreciating: 7% a year, on average, in the past decade.

Like, in two decades, what are now "affordable" middle-class homes today will be $1.3M if things continue in the same pattern. (Unlikely, since we're in a really long economic expansion, but Boulder saw only modest losses in home value during the Great Recession.)

SF and L.A. both have middle-income housing programs, Sugnet says. But they just offer a one-time grant; no deed restrictions on the homes to keep them affordable.

Yates: "The nice thing about a loan program is the only true cost to the city is the interest to the interest. We're advancing interest for a period of time, but we get it back. We could do a lot more houses."

Yates: We may or may not subsidize subsequent buyers. I don't think we're committing to that. We're just restricting the price.
Brockett: I agree, but if they don't have other assets, they won't be able to afford it.

Yates: Yes, but it will be attractive bc it will be cheaper than other houses. That's what we're trying to achieve here: To keep prices low.

Suggests tying appreciation to AMI growth at first, and if no one takes advantage of the program bc it's too little appreciation, then the council can change it.

I *think* Bob Eichem, the city's chief financial advisor, is agreeing with that.

Forgot to say that the city is going to use $820,000 in existing funds as seed money for this.

Assuming Boulder makes 10 loans of $150,000 each year, that money will last 5-7 years. (per the memo)

Yates asks (really, states) that if council has to readjust the program to raise the amount of appreciation homes can have, the ppl who bought in the first round (with appreciation tied to AMI) won't get the better deal. You get what you get, kind of thing.

Sorry I'm kinda all over the place, but I wanted to mention that, under the city's scenarios, when it comes time for the homeowner to pay back the principal in 7-10 years, if they do a refinance, their monthly payments will go up by 20%, staff estimates.

We're talking about that now. Morzel and Young are quite concerned about how that might impact homeowners.

"How is that not what happened in 2008?" Young says.

Weaver countering on refinancing. "What we've given them is a time-out," so they didn't have to pay the full cost for 7 years. "A lot of things can change," in that time.

Brockett: To (Young's) point, there were similar assumptions in 2008, but then home values went down. So refinancing wouldn't really be an option; they'd be underwater.

Young: Or interest rates can go up. Why would you refinance at a higher rate?

Using the example of the $600,000 house, your monthly payments would go up $400/mo after a refinance, assuming the same interest rate, Firnhaber says.

I can't decide if this program is really brilliant or completely stupid. Luckily, I don't have to make that call. I'll just tell you what happens.

Yates: "Presumption is that values in Boulder only go up. But values also go down, you're absolutely right" he says to Young.

"There certainly is risk. That's true of all home ownership," Yates says.

The city will require a 5% down payment for participation in this program.

On a $600,000 house, that would be $30,000.

Weaver reminding council that the avg. tenure in an affordable home is 7 yrs, so some ppl will need to refinance, but plenty of others will sell after 4-5 yrs.

Jones: I would go with this (typing appreciation to AMI increases) "We need to sell it to the buyers; we also need to sell it to the folks who vote for it. What we're figuring out is how to get a permanently affordable product for middle-income buyers."

Tying home appreciation to AMI growth, "costs the city more," but "it guarantees affordability longer."

Weaver: I think we need to be more flexible. If we don't help anybody, what's the point? (That's a paraphrase, hence no " ")

Carlisle: It's a pilot.

Jones: "The whole reason we're where we are is they expect to make a killing when they sell their house, but they want it to be affordable to their kids. Those things are at odds."

Brockett suggesting the city pick a rate rather than measuring AMI growth each year. (Reminder: AMI went up 10.8% this year in Boulder)

Yates agreeing with that. "We're already asking ppl to take lower appreciation than (their neighbors). Now we're not going to tell them how much it is. We've had 0% AMI increases before. We have long historical averages; this a long-term program." Suggests 2% or 2.5%

Council (mostly) in agreement on 2.5% for an appreciation cap.

Firnhaber: If you want to keep serving the same income demographics, you don't want appreciation higher than AMI. 2.5% is historically higher; he would go with 2%.

Jones: Let's go with 2 then.

Council also wants to keep serving the same income groups over time (up to 120% AMI).

(That was question 2)

Brockett: I'm concerned about potential impacts to ppl in the program. "I think we could potentially force ppl into foreclosure. We need to have a safety valve."

As a city, staff is recommending Boulder set aside $1.2M for losses due to foreclosure. No recommendations on protections for homeowners in the case of foreclosure. Rate is extremely low: less than 1% in the affordable home ownership program, if I remember correctly.

Firnhaber says that, in the past, when someone was facing foreclosure, the city just waived the deed restriction to allow the homeowner to refinance and capture that value.

Brockett: We don't want to lose the affordability of the home.

Yates: One solution to that is the city simply purchases the house. They get to 10 yrs, they can't refinance, they can't sell. You could call it foreclosure, but we would buy the house at an amount equal to the appreciation cap. They would get their equity; we'd have a house.

Firnhaber: If they can't sell it, we probably can't sell it either.
Yates: But we could be a long-term holder where maybe they can't.

Brockett: "My point is to think about it in the next year or two, rather than waiting 10 yrs down the road" and having to figure it out when ppl are in crisis.

Council now discussing the language of the ballot measure.

City is likely going to ask voters if they can borrow $10M for this program. Now debating whether 7 or 10 years is the time for repayment.

Yates is for 10. 7 is "skinny," he says. 10 years gives us a little bit more room.

Carr jumps in to say that, via TABOR, the amount time is a maximum. Even if the city *says* 10, they can do 7 if they want. They just can't go over 10 years.

Weaver: Do we want to give ppl incentives to improve the homes, by giving them higher appreciation for any big changes they make?
Firnhaber: We have a process already. We'd probably want to stick to that. It allows ppl to make upgrades.

Council in agreement on that.

Council also agrees that the words "deed-restricted, permanently affordable" need to be in the ballot measure.

Homes will keep restrictions over time, though who is allowed to buy them may change.

Also forgot to mention this, but Weaver just brought it up. One of the risks to the city (and homeowner) is that interest rates could go up. If that happens, it will have to issue fewer loans (i.e. help fewer ppl) in order to afford the interest payments on $ it borrows.

OK, that's all for this one. Budget/taxes next! Yay!

@threadreaderapp please unroll. Thank you.