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 2005 Affordable Housing Survey Report    
CITY OF OURAY, COLORADO

Affordable Housing Task Force

Needs and Availability Review
April, 2005

FINAL REPORT
Prepared by: S. Boles
K. Meinert



I. INTRODUCTION

In the same year that America declared its independence from the economic and social tyranny of the British, the Scottish founder of modern economics, Adam Smith, observed that in a free market the supply and demand for goods and services would balance themselves “as if by an invisible hand.” He argued that the government should stay out of business and that the market place will regulate itself. These ideas formed the basis of economic liberalism which underpins our capitalistic economy and free market system.

Within the global economy, however, supply and demand may become unbalanced in a localized market due to external factors (externalities) such as resource constraints, governmental meddling or social movement. This may cause market failure in which prices no longer seem to affect the supply and demand balance (called by economists as price inelasticity) and can result in supply shortages and escalating prices.

II. PURPOSE

The City Council of Ouray commissioned this Task Force to survey the needs and availability of affordable housing in and around the City. This short, 2-month study boils down to an assessment of the effective operation of Adam Smith’s “invisible hand” in the local housing market. Has the market failed, at least from a local perspective, or might it fail in the future? Will market failure lead to unaffordable housing and displacement of local residents? How severely does unaffordable housing affect the community – is there a current crisis or should we anticipate one in the future? Is community action needed to intervene in the market to correct or prevent adverse affects on the community?

The findings of this Task Force are being turned over to the City agencies who will consider the appropriate methods of intervention and their implementation.


III. SUMMARY

The conclusions of the Task Force embodied in this report are a result of interviews with local people affected by housing issues, consideration of published demographic data and a quick review of pertinent literature. Readers who have been expecting to find a “silver bullet” to solve Ouray’s housing needs will be disappointed. Likewise, readers will find no specific proposal on the number or cost of housing units required. Instead, our conclusions and recommendations concern the process of addressing affordable housing issues and are submitted to assist the City Council in deciding how to proceed.

III.A. Conclusions:

The City of Ouray is indeed experiencing a failure of its housing market which is causing housing and rental costs to be unaffordable to a broad cross section of its residents – from low wage seasonal workers to middle income managers. The lack of affordable housing has been increasing and will continue to get worse without effective intervention.

Unaffordable housing is not yet a crisis in Ouray and has not yet severely impacted the Community, businesses or the City economy. However, without effective and timely intervention unaffordable housing will eventually prevent new, replacement and seasonal workers and even business owners from living in the City, thereby depriving the community of its rich social fabric and impairing the economic viability of the City.

Housing in Ridgway and the county does provide some relief for the City’s affordable housing needs, but the market in these areas is also poised to fail without intervention.

III.B. Recommendations:

The Task Force has concluded that affordable housing is a growing problem but not yet a crisis in Ouray. Therefore, our recommendations are for further study and monitoring and not to urge the City to do something precipitous, like immediately engaging in building a housing project. It is premature to suggest how many units are needed at what price.

We have seen previous studies and individual efforts fall by the wayside for lack of a sense of urgency. Although this is not yet a crisis, we wish to emphasize that this should be a serious concern of the Council and should continue to receive the attention it deserves. Therefore, we recommend that the Council formally charge the city administration with the responsibility to address affordable housing through the Community Development Coordinator, the Planning Commission and the Economic Development Committee. (Note that this is meant as no criticism of the Community Development Coordinator who has been performing this task on an ad hoc basis for a number of years.) The administration should report to the Council regularly, at least annually, on the status of housing issues. The City’s concern about affordable housing should be expressed in its long range vision in its Master Plan.

The City should establish formal coordination links with Ridgway and the County on addressing affordable housing. The success of the Bearcreek and Ridgway Development offerings should be monitored for efficacy. In conjunction with Ridgway and the County the City should review and consider the various intervention measures and funding mechanisms used by other communities and develop an action plan for implementation as necessary in the future.













IV. METHODOLOGY

For this brief two month long study the Task Force has departed from the usual written survey of needs to generate statistical information. Such surveys are somewhat suspect since their low response rate of less than 20% may not yield representative data. We relied on published demographic data outlined in the Resources section at the end of this report along with the previous studies for Ouray and San Miguel Counties in year 2000 for any statistical information. Demographic and survey data, even if representative, merely provide a snapshot of the current situation. To predict the future needs, particularly to cater for new immigrants to the community who are not here to participate in a survey, we need to identify key trends and developments affecting the market and monitor them over time.

To identify these key trends and better understand the housing market dynamics we conducted a number of semi-structured personal interviews with a cross section of the community. The interview outlines are attached at Exhibit A and a list of interviews is shown in the Resources section. These interviews covered many of the largest employers, realtors and developers along with a number of individuals who are currently seeking accommodation. Anecdotal information from the interviews was fashioned into a (hopefully) representative model of Ouray’s housing market with the help of Hettinger’s excellent book “Living and Working in Paradise – Why Housing is Too Expensive and What Communities Can Do About It.” Please pardon our pontificating about market, housing and development philosophies in this report, but that is really what the study of affordable housing is all about. Healthy debate about housing interventions must start with a consideration of philosophical objectives for the community.

Finally, this study addressed the housing market only in the City of Ouray, not the entire county. In one sense this was helpful in focusing the attention on the effects of housing on the health of our community and its businesses. However, Ouray does not exist in a vacuum and Ridgway and the County housing issues will definitely affect Ouray. We did not specifically attempt to review the housing market outside the City, but we tried to point out the linkages with the “down valley” communities.












V. DISCUSSION

V.A. Market Failure Analysis:

V.A.1 The Theory:
In Adam Smith’s perfect world a free flow of goods, services and capital in the economy will allow a free market to function properly “as if by an invisible hand.” This efficiently functioning free market can occur only where there are no constraints to the free flow of goods, services or capital. Any external constraints, called “externalities” by economists, which disturb this free flow can disrupt the efficient functioning of the market and cause supply shortages, unsatisfied demand and escalating prices (or conversely excess supply, low demand and depressed prices). When these externalities are chronic rather than temporary and the supply and demand cannot achieve a balance by Adam Smith’s invisible hand the market is said to have failed. Although the market may appear to be functioning in the global economy it can still be failing in a localized market like Ouray.

To determine whether Ouray’s housing market is failing one must evaluate whether externalities exist and how they are affecting the market. Researchers have identified many externalities which are unique to the housing market. Hettinger has studied housing specifically in tourism markets and identified three primary types of externalities to consider: (1) topographical constraints; (2) land use and zoning regulations; and, (3) second home demand. We evaluated the severity of each of these factors in Ouray’s market:
1. Topography – Topographical constraints limit the supply of housing in a market by the limited amount of land which can be developed. Ouray’s location in a box canyon is the classic constrained mountain resort community, similar to that of Aspen. The severity of its topographical constraint is exceeded only by island communities like Martha’s Vineyard. (Hettinger studied Aspen, Martha’s Vineyard, Whistler, and Provincetown and many parallels can be drawn with Ouray). Of course, it is these same topographical features which create the beauty and grandeur of Ouray to attract the tourists and residents who wish to live and work in paradise. Besides the obvious impact that limited supply has on land prices, the difficult topography increases construction costs for foundations, roads and city services.

Some relief from the topographical constraints may be obtained on land “down valley” in Ouray County and Ridgway. To the extent that the housing market is functioning effectively in these areas, they provide some elasticity of demand by providing buyers a choice. This has clearly been the case in the past and continues with recently proposed developments in Ridgway. However, other externalities are found to exist in these “down valley” markets and they are poised to fail at some later date, eliminating the elasticity of demand for Ouray’s market.
2. Land use and zoning regulations – Governmental interference in the housing market is perhaps greatest in terms of land use and zoning regulations. These regulatory constraints limit the land available for development, the types of structures which may be built, the housing densities, and they increase building costs. Regulations include lot size, height, setback and square footage restrictions, use and occupancy limitations, historic preservation requirements, etc. Outside the City limits, the Ouray County land use code is even more restrictive with its 7- or 35-acre parcel requirement removing much of the developable land from the market, particularly for high density residential use.

Most would agree that these regulations are beneficial. They preserve the character of the community, protect the beauty and environmental health of the area and encourage agriculture and open space. Few would advocate the wholesale elimination of all land use and zoning regulations, but their impact on the housing market should be understood. A comprehensive review of all such regulations should be made to determine any which may be excessive or have a severe impact on housing availability and cost. These may then be selectively relaxed to provide incentives for affordable housing interventions, such as allowing deed-restricted developments. Our interviews with local builders and developers revealed that relaxation of these regulations may have the greatest impact on availability of affordable housing of any action that the City or County can take.
3. Second home demand – Of all externalities affecting the Ouray housing market, the purchase of second homes by people outside the community is probably the most visible and blamed as the cause of Ouray’s escalating housing costs. This factor is unique to tourism communities and is a significant contributor to housing market failure. Not only does it inflate the demand for limited property, but most of the purchasers are able to out-bid local residents using funds accumulated from outside the local economy. This has been affectionately called the “Californication” of the housing market. While California is perhaps unfairly blamed, this does aptly illustrate the uncoupling of the local housing market from the local economy, posing the greatest problem for local workers.

Besides Ouray’s desirable location, the demand for second homes is recently being driven by several factors which may only increase:
i) baby boomers with disposable accumulated wealth are nearing retirement;
ii) a soft stock market for the last 5 years has made real estate a more attractive investment; and,
iii) low interest loans have heated up the real estate market.
Unfortunately, there is little that local government can do about the second home phenomenon short of Draconian measures. A local resident did suggest that Ouray’s housing needs could easily be satisfied by requiring that all unoccupied property be rented at affordable prices – a form of confiscation which most would find to be more extreme than the problem.

V.A.2. The Evidence:
Considering these externalities, we believe it is clear that Ouray’s housing market is experiencing market failure. This is probably not a surprising conclusion to anyone who has taken a cursory look at the local real estate brochures. This market failure would be expected to be fairly dramatically reflected in the escalation of housing costs exceeding the increase in local income. The following two charts were constructed to evaluate this:

This first chart shows the increase in single family detached house sale prices over the last 10 years based on data which was supplied by the County Tax Assessor to Region 10. A spreadsheet with this data is attached at Exhibit B. The numbers bounce around considerably because of the small number of sales each year (around two dozen for Ouray City) and the large differences between high and low sales prices. They do show an upward trend, however, which in the case of the County Overall is an average escalation of around 6 ½% per year through 2002. This is much more modest than was expected. The data surprisingly indicates that the prices in Ridgway have actually decreased for the last three years. This data is further analyzed and discussed in Section V.C.2. Prices.



The next chart of historical wages was based on data from the Colorado Department of Labor and Employment and is compiled only on a county-wide basis. Wages show a very regular increase over the last 10 years, although there is some question about the reliability of the large increase in 2003. The average wage increase is about 5 ½% per year.

This evidence does not support our contention that the housing market in Ouray is failing. We do not see enough disparity between the escalation in housing costs of 6 ½% per annum and increase in wages of 5 ½% per annum; however, this does not necessarily mean that there is no affordable housing problem in the City of Ouray. A few explanations could be that:
• the sales data is not representative of the housing market,
• Ridgway housing is providing relief for the City of Ouray,
• using averages is disguising the affect of the market on low income residents, or
• we have actually had an affordable housing problem in the county for the last 10 years and it is only getting worse.

These possibilities are explored in the next sections on housing needs and availability based largely on input from our interviews with local residents, employers, realtors and developers.



V.B. Needs Input:

This section will address the ability of workers in the local Ouray economy to afford housing and the business needs to retain those workers.

V.B.1 Wages:
Tourist economies are typically characterized by low wages and Ouray is no exception, as the following chart of wage categories illustrates. This chart was constructed using information from Region 10 which is attached as Exhibit C. Note that only the major employment categories are labeled.

Out of a total of 1,393 jobs in Ouray County, 393 or 28% are in the Accommodation and Food Services category. This is the lowest paid job category by far, averaging just above minimum wage at $6.70/hr. The proportion of these low wage tourist related jobs in Ouray is nearly three times as high as Colorado overall, which partially explains why Ouray County’s average wages were only 76% of the statewide average. Note that this is partially balanced by the number of high paying construction jobs which is double the statewide average.

V.B.2 Definition of Affordability:
Affordable to Whom? – The Department of Housing and Urban Development (HUD) has criteria for qualifying for subsidized housing which has been adopted by most housing authorities. The usual guideline is that a family making less than 80% of the area median household income (ami) should pay no more than 30% of its income on housing costs. The 2004 ami for Ouray County was $58,200 and 80% of this is $46,560. As the wage distribution chart above indicates, most single income and even two income families would easily qualify. The area median income obviously is not a good representative indicator of what wages are being paid in the local economy.

The 80% of ami figure is used by HUD not only to determine where housing intervention is needed, but also as a bright line test of what families qualify for housing assistance. This may work in inner city areas where HUD operates, but in high cost tourism cities it ignores a very important sector of the community – the middle income people who cannot afford to live there. These are the small business owners, city managers, school administration, and many self-employed people. One specific example is the Parks and Rec. Director who earns slightly more than 80% of the ami but lives in Montose because she cannot find affordable housing in Ouray. In Section V.D. Community Impact we discuss the importance of retaining these people in the community. This is such an important issue that other high cost communities with active housing intervention make affordable housing available to upper-middle income people – Martha’s Vineyard provides for people earning up to 140% of its ami and Aspen up to 190% of its ami. In Aspen 63.5% of its resident population live in affordable housing units. The definition of “affordability” must be considered across the broad spectrum of residents trying to live off the local economy.

What is Affordable? – The following two charts will illustrate what might be considered affordable housing for various income levels based on spending a maximum of 30% of gross income per month on housing. The first chart might illustrate rental costs. A family earning 80% of the ami should be able to pay as much as $1,164/month for housing.

This second chart provides a rough indication of what price of house would be affordable for purchase at various income levels. This is based on the monthly house payment (principal, interest at 6% p.a., taxes and insurance) equaling 30% of gross income. It does not address loan qualification issues and assumes no down payment. This shows that a family earning 80% of the ami could afford to buy a house costing no more than $172,000.


V.B.3 Renters:
Only about 25% of households in Ouray county live in rented accommodation (408 out of 1612 households in 2004.) Renters are typically the most burdened by high housing costs and often pay more than the accepted 30% of their income for accommodation. The following chart shows the proportion of income paid in rent by households of various income levels. It is based on data from the Colorado Department of Labor, attached at Exhibit D.

This chart strikingly shows a number of issues with renters:
• Renters tend to be lower income with 64% of renters having a household income below 80% of the 2003 area median income (ami) of $53,700.
• Renters tend to pay a higher proportion of their income for their accommodation with nearly half of all renters paying over the accepted 30%.
• Lower income renters pay a higher proportion of their income for accommodation. Nearly 75% of renters earning less than 80% of ami pay more than 30% of their income for rent.
• Higher income renters pay a much smaller proportion of their income for rent. Only about 1% of renters earning more than the ami pay over 30% of their income for rent. No renters making more than $75,000 (140% of ami) pay more than 20% of their income for rent.

V.B.4. Business Needs:
The comments from business owners and other employers expressed the most concern about affordable housing. Their concerns can be broken down into three areas of need:
• Seasonal Employment – Businesses in a tourism community make most of their income during the short tourist season and must staff up to meet the increased demands. Many of the shops, restaurants and hotels in Ouray that cater solely to tourists are only open during the 5-6 summer months. Hotels and restaurants report that their staff needs more than double in the summer. Even the pool adds some 20 summer staff to the 20 year-round positions in the Parks Department.

Almost all of the employers reported that they rely heavily on local high school and college kids to fill their summer staffing. One downside to student employment is that they return to school a month before the end of the busy tourism season. Early retirees and school teachers also help fill seasonal positions.
• Replacement or New Hires – Fortunately for Ouray, most employers manage to maintain a stable, dedicated staff for their full time positions. No one wants to leave paradise after they have lived here – provided that they are already invested in the housing market. For new and replacement staff, however, all employers reported that housing presents a problem in hiring and retaining qualified people. This challenge persists across the broad spectrum of salaries. A restaurant reported that it lost two good employees (servers relying on tips) this winter because there was no housing they could afford. The city told of a couple who lived in a camper for 9 months but left because they couldn’t find housing, even with two wage earners working for the city and the school. The school mentioned that one teacher lived in his car for the summer of his first year.
• Need for Local Employees – All employers expressed a preference for their employees to live locally, and many wanted them to live in or near the City. The pool, parks and public works need to call out employees for emergencies on short notice – within 30 minutes. Even restaurants and hotels say they need to make last minute staffing adjustments which can’t be done with remote employees. Others just find the local employees more reliable. One memorable quote was: “Employees in Montrose can find 35 excuses not to make the drive to Ouray each morning.”

V.C. Availability Input:

In this section we will look at what accommodation is available in and around Ouray and at what prices. We will consider what limitations there are to the availability of affordable housing and what developments are currently underway which may affect this availability.


V.C.1. Availability:

Housing Units – The Ouray City Building Inspector has just completed a detailed survey of housing units in the City. The full results are attached as Exhibit E and summarized below:

Type of Dwelling Living Units
Single Family Homes 387
Town Homes 47
Condominiums 43
Apartments 119
Mobile Homes 52
Total Living Units 648

Additionally, the Building Inspector expects 30-40 new units to be completed in 2005.

For a city of 830 people this should provide adequate housing for all residents. Only 330 housing units should be required if there is an average of 2.5 people per household. This leaves around 320 existing units unoccupied, or almost half of the current supply of housing. Although no data was found to quantify second home or absentee ownership it is not surprising when one walks around town in the winter that this proportion of housing in Ouray is owned by seasonal residents, kept for seasonal rentals, or held as investment property. It would be instructive to develop trends in second home ownership, possibly by considering the proportion of property tax bills sent to out of town addresses or by comparing the voting registration with the tax rolls. As observed in the market analysis section above, it is this second home ownership which is believed to have the greatest impact on housing prices.

Seasonal Accommodation – The Needs Input Section discussed the potential requirement for accommodation for seasonal workers in our tourism based economy. This is a particularly difficult sector to cater for since they are here for less than half of the year and tend to be the lowest income workers. Ownership of affordable housing of any type is out of the question and affordable apartments are even problematic since rent is not collected year round. These workers have found housing in a number of ways which should be considered for housing intervention if necessary in the future:
• Bedrooms for Rent – Part year rentals in area private homes can provide some limited level of seasonal housing, but this seems to be getting less popular. In reviewing recent classified housing ads (see Section V.C.2 Prices) only two offers were found for bedrooms for rent.
• Extended Stay Hotels – The only local hotel which catered to extended stay seasonal workers was recently shut down. This facility served an important need for the community but it is unlikely that another hotel will fill that role. Note that the period of need for seasonal housing is also the time of highest hotel occupancy.
• Camping – Ouray tends to attract young, rugged, outdoor types who take seasonal employment to afford to live near their recreation. Ouray business owners report numerous summer workers camp in the area in RVs, trailers, vans or even tents and use the facilities at the Hot Springs Pool. Dennis Moyer’s Housing Survey lists 100 camp sites in the city at 4J and Timber Ridge, but these have little appeal for long term stays due to cost and congestion. Many campers have illegally stayed in unauthorized sites or camped longer than the 14-day maximum imposed by the Forest Service. There may be scope for increasing access and facilities for long term camping but this would likely involve Forest Service land.
• Dormitories – Short term, temporary accommodation is often furnished for migratory or seasonal workers in dormitory, hostel, barracks, or bunk house style facilities. Although not desirable for long term, dormitories may fill a need and should beat camping for amenities. If the business community fears a crisis coming in availability of seasonal workers, dormitory developments should be considered.
• Employer Assistance – Employers can and are assisting their seasonal workers in finding housing and this should be encouraged:
o At least two former restaurants in town maintained basement dorms or rooms for employees.
o One restaurant houses its international exchange employees in former motel rooms.
o One hotel/restaurant has leased accommodations for its student interns.
o Most restaurants facilitate employee camping by providing shift meals and at least one provides shower facilities.
o Most Main Street businesses have or can build second floor apartments which could be used for employee housing.

Land – Although the City is topographically constrained and appears to be almost completely built out there is nearly 66 acres of vacant C-2 property within the City limits north of town, approximately 33 acres of which is considered developable. The city planner conducted a build out analysis on this property, which is attached as Exhibit F. He determined that between 400-600 housing units could be built at R-1 or R-2 density (although there are no density limits in the C-2 Commercial Industrial Zone.) Also, the City owns nearly 1.5 acres of prime residential land west of Second Street (see map, Exhibit G). This could accommodate as many as 41 housing units where located or if exchanged in value for C-2 land could house a higher density development.

While this vacant land in the north part of the City has the capacity for mitigating Ouray’s housing needs there is considerable controversy about allowing it to be used as such. Its C-2 zoning is thought by some to hold the future economic potential for Ouray through development of light industrial, manufacturing, and commercial enterprises. They decry the loss of this land to residential development. Others see this north corridor as Ouray’s front door and fear the visual impact of wall-to-wall townhomes and the loss of some of the finest spruce trees in town. The City Council’s recent consideration of a moratorium on new building permits in this area illustrates the dilemma. While we hesitate to add another consideration to their already daunting land use deliberations, the city needs to recognize that this land holds the most promise for any affordable housing intervention that may be needed in the future. This is probably the only appropriate location within the City for a subsidized low cost apartment or dormitory development if such is ever deemed necessary.

In Section V.A. Market Failure Analysis we discussed that zoning and land use regulations are perhaps the greatest impediment to an efficiently functioning market. Regulations, however, are merely the governmental instruments to achieve the desires of most of the public. They implement the public’s legitimate NIMBY fears (Not In My Back Yard). Provided they are promulgated with a light hand they are seen by most residents as necessary and beneficial. They become overbearing when driven by the BANANA bunch (Build Absolutely Nothing Anywhere Near Anyone) or the CAVE people (Citizens Against Virtually Everything). The debate on the proper balance between land use objectives, economic health of our communities, and affordable housing needs will eventually play out on a County level. No one wants to see Montrose’s Townsend Avenue extended between Ridgway and Ouray, but it must be recognized that this narrow strip of scenic pastoral land is the most accessible to both communities. Consideration has even been given to locating a combined High School here, so specific zoning changes to permit an affordable housing development should not be out of the question. Cooperative dialogue has already been established between the cities and the county on many planning issues. Affordable housing must be thrown into the mix.

V.C.2. Prices:
Statistics – The historical house sale prices charted in Section V.A. are inconclusive at best and misleading at worst. Although statistical information can be helpful for analysis this chart demonstrates that unquestioning reliance on statistics is fraught with problems. It has been said (probably about politicians) that “figures don’t lie, but liars figure,” or at least can use those figures to support almost any point of view. A few additional observations about pitfalls in the housing price statistics are:
• The data reported by Region 10 is only for sales of single family detached homes. This presumably does not include sales of condominiums, townhomes, duplexes, mobile homes or manufactured houses – all categories of increasing importance to the availability of affordable housing.
• Although Region 10 average sale prices show Ridgway housing costs decreasing from 2000 to 2003, their reported median prices show a huge 63% increase from 2002 to 2003. The 2003 average sale price was $169,295 while the median price was $285,780. When the average is so far below the median it often means that most of the higher data points are clustered near the median with many low data points dragging down the average. This could indicate that more affordably priced units were sold that year.
• Other data prepared by Lynn Vogel of Comparable Sales Research was reviewed in the hope that it would provide a more representative breakdown. This data for 3rd Qtr. 2004 astonishingly showed that the average single family home sale price in unincorporated Ouray County was over $1million (sounds like Telluride). The median, however, for 18 sales was $368,500 – still high but considerably lower than the average. This obviously reflects another uneven distribution with one or several multi-million dollar sales pulling up the average. This could disguise a number of lower priced, more affordable sales during the period.
• Lynn Vogel’s data for the City of Ouray during this same period showed the average and median prices for 7 sales of single family residences were almost identical at around $299,000. This probably indicates a more normal bell-shaped curve distribution which would be a more reliable and representative indicator of the market even though a few high and low priced sales may still have occurred.

This long dissertation on data analysis is meant primarily to caution against over-reliance on statistical information. How, then, can we obtain reliable information which represents the affordable housing situation? We reviewed real estate ads, advice from realtors and comments from people currently looking for housing.

Rentals – The first place people start looking for housing is in the Real Estate and For Rent sections of Classified Advertising in the local newspapers. This has the advantage of including for sale or rent by owners which are missing from Realtor listings. A snapshot view of the market is shown in one edition of the Plaindealer for April 8-14, 2005, attached as Exhibit H. This ad would indicate a healthy availability of housing in the area, both for sale and for rent. The rental offerings cover a good cross section of locations, types and sizes of accommodation:

Numbers of Rental Offerings by:
Location Types Sizes
6 – Ouray City Area 4 – Apartment 5 – One Bedroom
9 – Ridgway Area 7 – Detached House 6 – Two Bedroom
4 – Remote from Cities 5 – Townhouse/Condo 6 – Three Bedroom
1 – Mobile Home 2 – Four Bedroom
2 – Bedroom for rent

The price distribution of the 14 priced offerings is shown in the following scatter chart:

Although there is a broad price range of rented properties, from $415/mo. for a 1-bed apartment to $1,400/mo for a 4-bed house, the price per bedroom varies only from $275 in a mobile home to $450/month in a 1-bed apartment. Half of the per-bedroom prices are under $400/mo. The calculated per-bedroom prices do not consider any limitations the landlords may place on occupancy or relationships of the tenants.

Of course the advertised listings provide little indication of the quality, condition or desirability of the properties. Several interviewees complained that any decent rentals at affordable prices are snapped up before the classified ads hit the streets. That would indicate that demand exceeds supply for desirable rentals and will drive prices higher.

Interviews with Realtors tend to confirm this pricing of rental units. One factor affecting the availability of rental units is the strong short-term (weekly) rental market in the summer (note that R-1 zoning requires at least monthly rentals). Rental prices for 2-bedroom units in the summer are as high as $1,200 – 1,400/week, which is a strong incentive not to offer long term rents. Of the 43 rental units managed by one local realtor, only 10 or around 25% are available for long term rent.

Sales – Realtors report that sale prices in the City of Ouray are escalating rapidly with new townhomes seeming to drive the market. The low end of the market is now around $285,000 for a new 3-bed townhome on the north end of town. Realtors report that these units were originally offered for $175,000 when construction began around 2 years ago but have continued to climb with high demand.

Price inflation for new housing begins with high land costs, especially in the R-1 residential zone. Building sites (2 city lots) for new homes are now going for over $200,000. For most Ouray residents this would not provide affordable housing even in a tent. High land costs is one of the factors driving the recent rash of townhome development, where more units can be built on the same amount of land.

V.C.3. Current Developments:
Two recent developments, primarily in Ridgway, may affect the availability and prices of affordable housing: the Bearcreek Development and the Ridgway Village Development. These projects should be monitored for their success in selling affordable units, their effect on the local housing market, and their efficacy in addressing affordable housing issues.
Bearcreek – Ridgway and Ouray have extracted concessions from Bearcreek in consideration for granting PUD approval for several residential developments. Bearcreek has agreed to make the following affordable housing units available:
River Park Development Phase I – 5 affordable units out of 50 to be developed
“ Phase II—5 “ 31 “
Ouray Development 2 “ 9 “
These “affordable” units will be priced at the developer’s cost plus 15% and the cities will waive certain fees to further lower the cost. The developments are planned to be high end townhomes selling for $280,000 - 400,000 each. The affordable units are expected to be priced at $180,000 – 200,000, making them affordable only to households earning near the Ouray County area median income of $58,200. There are no income qualifiers for purchase of the affordable units but deed restrictions will impose residency and employment requirements and resale price caps for a period of 10 years. A copy of these restrictions is attached as Exhibit I.
It will be interesting to monitor the success of selling these affordable units. Deed restrictions tend to reduce the investment value of real property and therefore may not be readily accepted by the higher income households to which these units are targeted. Success in their sale will confirm that there is a definite need for affordable housing intervention in Ouray for our middle income residents. Of course, this will do nothing to address the needs of lower income workers.

Ridgway Village – This is a free market condominium development at affordable prices rather than a governmentally imposed affordable housing project. As such, there are no deed restrictions or other qualifications. There is a loan underwriting requirement that no more than 30% of the units can be investor owned or non-owner occupied (rented.) This still allows second home owners to compete for the other 70% of the units. A total of 63 units are planned in three phases over two years with 24 units now being offered in Phase I. Prices for Phase I will be:
$115,000 1 bedroom 700 sq. ft.
$149-156,000 2 bedroom 900 sq. ft.
$170,000’s 3 bedroom 1,100 sq. ft.

The success of this development should be closely monitored in several ways to determine its effect on affordable housing:
• How many of the units are bought by full time residents and workers in the local economy rather than second home owners? If there is high demand for these units then community intervention may be necessary for affordable housing in this price range.
• How quickly are the units resold to outside investors or second home owners and how do prices escalate? This may indicate that the free market is not working and some form of deed restrictions is necessary to keep further units affordable.
• How long do units or resales stay on the market? If unsold units languish on the market it may indicate that the free market is actually working, that these extra units are having a dampening effect on housing prices, and that no further affordable housing intervention is necessary for this price range.

V.D. Community Impact

Despite its transient, tourism based economy Ouray retains the charm and character of a typical small town community with the following characteristics:
• It is largely self-sufficient economically with stores catering to most needs. It has grocery, variety, pharmacy, liquor, clothing, florist and book stores. It has a full-service filling station (not just a gasoline peddler), a theater and its own newspaper in addition to the usual restaurants, hotels and gift stores customary to a tourist town. The only major business missing is a lumber yard/hardware store which closed about three years ago.
• It contains a full range of community and social services including city services, utilities, law enforcement, parks, PreK-12 school, public library, regional medical services, and churches. Enrollment in the school is increasing, indicating that families are still moving into the community. It houses the County Seat and Sheriff’s Department.
• Essential emergency services, including EMS, fire, and search and rescue, are manned by dedicated, highly trained, competent volunteers.
• Numerous civic and volunteer organizations enhance the quality of life and sense of community spirit and participation.

Surprisingly this community character has been preserved in a very seasonal tourist community which has only 830 year round residents but burgeons to over 2,000 for 4 months in the summer. Around one half of the residences are second homes, occupied only in the summer. Over a third of the jobs directly cater to tourists and many of the restaurants, hotels and gift shops shut down after the tourist season.

How is the sense of community preserved in this transient economy?
• Almost all business owners live in Ouray.
• Most employees live in Ouray.
• 80% of the school’s 48 teachers and staff live in Ouray.
• 90% of the City staff live in Ouray.
• Almost all of these people live here by choice.
• Most of these people are very active in the community and its various volunteer organizations.

Lack of affordable housing does not seem to have affected the community yet. If it does become a community crisis what might be some of the signs and how could it alter the character of Ouray?
• The school and City will find it increasingly difficult to hire replacement staff for even their higher income jobs. Those they do find will not be able to afford to live in the City.
• Businesses will find it increasingly difficult to find workers, especially seasonal, and may need to begin bussing workers in from afar, as Telluride does.
• Civic and volunteer organizations will find fewer people willing to dedicate the time and effort to participate in community activities.
• Emergency services will find it more difficult to find local volunteers and emergency responsiveness may decline as more of its members live away from town. Consider how long it took Kinder Morgan to respond to the recent gas line rupture.
• Emergency City services, such as water line repairs and snow removal, will be delayed as more City public works employees live remotely.
• Part time residents typically demand more services from the community and contribute less. This increases the costs to the City which will result in tax increases.
• Increased costs to businesses from escalating property values, taxes and labor will make them less competitive with the big box stores 35 miles away (or possibly nearer as Ridgway expands) resulting in business failures. At particular competitive risk are the variety, grocery, and pharmacy stores among others. This could undermine the economic base of Ouray and end its self-sufficiency, leaving only stores for the tourists.
• Non tourism businesses, such as construction, engineering, accounting and law firms will be less inclined to locate in Ouray. The City lost San Miguel Power to Ridgway a few years ago. Commercial/Industrial land will no longer be available as it becomes taken over by residential developments.
• Loss of the economic base and jobs reduces the number of full time residents, escalating the slide toward seasonal residences with more townhomes.
• Unaffordable housing and loss of an economic base could reduce the number of young families in the community. This could decrease school enrollment and jeopardize teachers’ jobs (think Silverton.) There will be more economic pressure to shut down Ouray’s high school and consolidate it with Ridgway. The community would lose a primary social and cultural outlet with the loss of its school.
• More county administration will move to Ridgway. Could the County Seat and courthouse be relocated?
• Finally, Ouray could become the trendy suburb of Ridgway .

So, if the market is failing and housing is not affordable in the local economy, why hasn’t Ouray experienced a crisis which has some of the above effects on the community?
• Seasonal employment needs are largely filled by students, both high school and returning college. Seasonal housing is provided by these young workers’ families. This can be expected to continue as long as Ouray High School enrollment remains healthy.
• Many early retirees are filling low wage jobs just to stay active. Their housing needs are already met.
• Mom-and-Pop businesses are increasingly relying on mom and pop with fewer available workers.
• Turn-over has been low among school teachers. The one or two replacement teachers which must be hired each year are having difficulty finding local housing. This will increase as the staff ages.
• There has been low turn-over in full time City workers, except in management positions. Housing has been a factor in obtaining replacement managers, with one department head living in Montrose. Most public works employees live locally and are available for emergency call-outs.
• Unlike many (retirement) communities Ouray’s retirees are very active and participate in the community and voluntary services.
• Unlike typical tourism communities, Ouray’s second home owners are regular seasonal residents and participate actively in the community. This may not continue as more flexible second townhome owners stay sporadically for short periods.
• A spirit of volunteerism and community participation abounds in Ouray. Multi-generational families are especially dedicated to the community and support its civic organizations and emergency services.
• Ridgway has provided a convenient and nearby alternative for affordable housing, but this may be changing. As observed above, it may not be in Ouray’s best interests to rely too much on Ridgway for its housing.

The message to the community is that failure to address affordable housing needs could have dire consequences. We must be diligent to monitor and recognize housing market conditions and be proactive in intervening before a community crisis occurs.


V.E. Intervention and Funding Mechanisms:

It is not the purpose of this Task Force to recommend solutions; however the following comments on housing intervention, based primarily on Hettinger’s book, are offered as a model if the City decides that intervention is necessary.

Intervention – Historically speaking, housing intervention is not a new concept. As early as the mid-nineteenth century business was attempting to create and house a work force that would meet its production needs in the United States. Company towns formed; from mill workers in the northeast United States, to coal miners in Appalachia and hard rock miners in the Rockies in the later part of the nineteenth century. Employee housing was supplied in return for a guaranteed work force and worker loyalty.

In the mid-twentieth century the United States and Western Europe began moving away from business owned housing to community and community groups supplying housing.

Today, in Ouray, our research indicates that our housing market is experiencing failure. When housing prices increase until workers in the local economy can no longer afford them, (housing crisis), the employers complain to their local government and community leaders. At this point, an intervention is necessary to provide the housing that the market does not. Local government has a choice to intervene or not. If it doesn’t, the housing market failure will continue. It will not self-correct.

Fortunately the research available on tourism communities with a history of affordable housing problems can provide us with a lot of organizational information; a roadmap of the successes and failures. Would it surprise you to know that during the 1970’s inception of Aspen’s housing program such eccentric community leaders as the late Hunter Thompson were instrumental in preserving what they found to be Aspen’s uniqueness? Today Aspen cites two key benefits from the existence of its housing programs: the continued existence of community, with higher density in neighborhoods, the presence of children, economic vitality and volunteers for community events; and continued community character. Is there much else to be desired by a community?

Positive proven motivating factors for intervention proven are: when the community identifies and reacts to the housing crisis; and when the community chooses to do proactive planning to maintain and support the community and provide a supply of tourism workers. The least effective reaction is when a community ignores the opportunity for intervention and simply waits for a higher level government mandate.

The intervention programs that have been successful in tourism communities have included two main components: the direct public provision of affordable housing units and the public enablement of affordable housing development, in which private entities react to public incentives and privately create affordable housing. The most common form of housing intervention has been the provision of housing units; however, recently there is a shift to more emphasis on public entities assuming the responsibility of enabling affordable housing to be built rather than assuming the responsibility of directly building it.

Intervention is not a one time action, housing is not static, and the market is not static. Exhibit J is a timely and interesting article from the Denver Post about the abuse in low income housing programs. The abuse is considered not at a critical level yet, but the article does illustrate some of the creativity of the residents. Scams ranging from an owner who is not living or working in Aspen, to owners who illicitly lease their residence for a substantial profit, to a new form of resort-town squatter; residents whose incomes are too high to qualify for affordable housing designated for low income workers. To qualify in Aspen the income range is $26,400 for a single person to $192,000 for a family of three adults; it is all relative isn’t it? If our goal is to retain a sense of community with individuals and families able to continue to live here, we will need to continue to be proactive in our intervention.

Creating, implementing and monitoring housing intervention; where do we as a community start? We would begin with recognizing two amazing gifts that Ouray has been given: a community whose leaders are interested in maintaining a quality of life for all residents and the incredible timing of Hettinger’s publication Living and Working in Paradise. We have an opportunity that is exceptional, to direct the course of our community’s future in a healthy way. Our job is to define where we are and define where we want to go. The road map is already available to guide us; not define us or change us but to help us get there. The roadmap was created from the experiences given to us by William Hettinger and his research with the other tourism communities of Aspen, Martha’s Vineyard, Whistler, and Provincetown, and is immeasurably beneficial.

Here is just a taste of the organization in place for us to fit our uniqueness into as we define it. When you read the chapters that give definition to these steps you will see that a lot of our information and actions are already in place. The steps are merely guidelines for helping us not to waste those valuable resources (time, people and money) on ‘reinventing the wheel.’ It is a risk not explaining the points listed below, but Hettinger’s book is so well written and really engrossing to read. After all it’s about us, the little town in paradise that could, and who doesn’t want to read about themselves…it’s fascinating. A self-help book, WOW!


First step: Community Evaluation and Intervention Process

A. Community Evaluation
Indicator Evaluation
Qualitative Evaluation
Housing Market Evaluation
B. Community Intervention
Community Monitoring



Second step: Community Intervention

A. Create a housing vision
B. Define housing goals
C. Analyze existing resources and resource gaps
D. Identify necessary actions
E. Pinpoint critical success factors
F. Develop housing intervention plan
G. Implement housing interventions

In summary, the key elements of a housing intervention plan:
A. Housing vision
B. Housing goals
C. Interventions to be implemented
D. Time frame
E. Measure of effectiveness or success
F. Sources of funds
G. Key personnel and organizations
H. Specified organizational responsibilities
I. Actions needed
J. Critical success factors
K. Plan for implementation
L. Plan for ongoing monitoring

We can do this, we have the opportunity and the tools for directing the course of this community, and the choice is ours.

Programs – In Hettinger’s study direct public development would include publicly owned or developed housing and/or the purchase and public ownership of housing units. Public enablement took the form of:
• incentives for developers to provide affordable housing by allowing greater density through relaxing zoning regulations,
• expediting approvals for affordable housing developments,
• conversion of existing units to affordable housing ,
• zoning changes that would allow affordable housing to be built on undersize lots,
• legalizing existing non-conforming structures,
• rental subsidy.
Funding – Critical to funding is a design that places the burden of cost for affordable housing on the tourist and second home owner and not the local residents. In Hettinger’s study Aspen, Whistler and Martha’s Vineyard used a combination of impact fees, real estate transfer tax, sales tax and private donations as funding sources. Since each community has a unique housing issue, the flexibility of using internally created funds rather than state or federal is preferable.

How do we measure our success? Hettinger provides eight critical success factors for housing intervention. They are:

1. Political will
2. Community will
3. Housing vision
4. Housing plan
5. Political and community buy-in
6. Funding
7. Land
8. Organizational capacity

He devotes an entire chapter to the explanation of these eight factors; we encourage you to read it.

VI. CONCLUSIONS


• The City of Ouray is experiencing failure of its housing market due to the existence of all three externalities – topographic constraints and land use regulations limiting supply, zoning and building codes increasing cost, and second home purchasers and investors increasing demand.
• Housing prices and rental costs in Ouray are unaffordable to a broad cross section of its desired residents – from low wage seasonal workers to middle income managers, business owners and self-employed people (other than those already invested in the market.)
• Unaffordability of housing has been increasing and will continue to get worse without effective intervention.
• Housing in Ridgway and further ‘down valley’ does provide some relief to Ouray (due to elasticity of demand), but this housing market is also poised to fail unless effective intervention is applied. Ouray’s sense of community could suffer if too much reliance is placed on Ridgway solving our affordable housing problems.
• The City of Ouray has not yet experienced a community crisis due to unaffordable housing – businesses manage to find the workers necessary to thrive, City services and emergency services are efficient, community organizations continue to support the fabric of the community with a spirit of participation and volunteerism, and people are not living on the street (even though some do camp by choice.)
• Without effective intervention, unaffordable housing will eventually prevent new, replacement and seasonal workers and business owners from living in the City. This will deprive the community of its rich social fabric and impair the economic health of the City.
• Due to topographic limitations, the City will find it difficult to solve its housing problems within its own boundaries. Permanent solutions must be coordinated with Ridgway and the county.




VII. RECOMMENDATIONS

• Formally charge the city administration with the responsibility for monitoring affordable housing issues for the City and recommending and implementing any interventions. (Note that the Community Development Coordinator has been doing this on an ad hoc basis for years.) Require that the administration report regularly, at least annually, to the Council on the status and recommendations.
• Require that the Planning Commission and Community Development Committee consider the impact of all of their recommendations and decisions on the availability of affordable housing. Urge all members of both groups to stay abreast of affordable housing issues and at a minimum read this report and the book “Living and Working in Paradise – Why Housing is Too Expensive and What Communities Can Co About It” by William S. Hettinger. Suggest that one person on the Planning Commission be charged with the responsibility of following affordable housing issues.
• Require that the Planning Commission address affordable housing in the City’s long range vision expressed in its Master Plan.
• Establish formal coordination links between the Cities of Ouray and Ridgway and the County of Ouray to jointly and cooperatively address affordable housing interventions. Involve their respective Planning Commissions to jointly address any regulatory changes.
• Review, through the Planning Commission, all city and county zoning, land use, growth management and local building code regulations to identify impediments against the construction of affordable housing – particularly multi-family, modular and mobile home accommodations.
• Engage the business community through OCRA to poll its members on seasonal and low cost housing needs and consider recommendations to build apartments or dormitory style accommodation.
• Review the Ridgway deed restrictions and price cap mechanisms used in the Bearcreek developments for efficacy, especially considering the short 10-year term. Compare these with deed restrictions used by Aspen and other communities to adopt a model for future use.
• Review and consider the various intervention schemes and funding mechanisms discussed in the Hettinger book and pre-screen them for future application in the Cities or the County.
• Monitor the success of the Ridgway Development offering which has no deed restrictions. The proportion of the units taken by local residents rather than investors or second home purchasers may provide an indication of how well the free market is operating in this area.
• Any City owned property should be retained and earmarked for future affordable housing development sites, or traded for land which is more appropriate for high density accommodation.



VIII. RESOURCES

• Demographic Data from:
o Region 10 Review – an annual publication from Region 10 League for Economic Assistance and Planning, Inc.
o State of Colorado, Department of Labor & Employment – www.coworkforce.com/lmi/es202/index.asp
o State of Colorado, Department of Local Affairs, Division of Housing – www.dola.state.co.us/doh/Publications.htm
• Previous affordable housing studies:
o Ouray County Housing Needs Assessment September,2000 – West Central Housing Development Organization
o San Miguel County Housing Needs Assessment 2000—Rees Consulting
• Hettinger, William S., “Living and Working in Paradise – Why Housing Is Too Expensive and What Communities Can Do About It”, March 2005.
• Personal Interviews:
o Patrick Rondinelli, David Vince, Dennis Moyer – City of Ouray
o Gary Brandon – Beaumont Hotel, Tundra, Bulows, Gold Belt, Bakery
o Deann Nathe -- St. Elmo Hotel, Bon Ton, Buen Tiempo
o Alice Leeper, Heidi Kremeier – Ouray Realty
o John Lesnefsky, Gary Dunn – Lesnefsky Realty
o Heidi McDuffie, Dee James – Ouray School
o Theresa Brandon, Jessica Voivedich, Mike Baker – First National Bank
o Liz Gracesun – City of Ouray, Parks Department
o John Jennings – Bear Creek Management and Construction
o Joe Nelson – Ridgway Development
o Craig Hinkson –Hinkson Development


IX. LIST OF EXHIBITS

A. Interview Outlines
B. Spreadsheet Region 10 Historical House Sale Prices
C. Region 10 Demographic Data
D. Renter Data from Colorado Department of Labor
E. Dennis Moyer residential unit survey
F. Build Out Analysis of Vacant C-2 Property
G. Map of City-owned Property
H. Plaindealer Real Estate & Rental Ads
I. Bearcreek Deed Restrictions
J. Denver Post article on resort housing ills